Who is profiting from the high prices?

During times of boom, customers buy in bulk. During hard times, however, people are bombarded with all the negative information about how poorly the economy is performing and they get into ‘prevention mode’.

Here, they focus on protection, loss aversion and risk management. They save money and only buy those things that are a necessity, not those which may be nice to have; business author Greg Fisher explains.

During these shifts, it is not just the customers who change patterns; even businesses go through a change experience because of customer habits.

The general perception is that when prices rise everyone suffers. There are low sales at tills, people buy less because of the reduced basket value (they can now only get less out of the same amount of money than before), but is this so?
Dr Frank Muhumuza, an advisor in the ministry of Finance shares the same view.

“Businesses which are dealing in scarce commodities are definitely cashing in. In fact, it would be wise for established businesses to focus their attention on areas with inelastic demand, following consumer trends,” he says.

When prices rise, who gains?
The central bank governor, Mr Emmanuel Tumusiime Mutebile, has constantly been quoted saying Uganda’s dollar woes are brought about by speculators, and he has promised to deal with them. This seems to imply that there are people who foretell how the market will swing and they make decisions which are likely to make them a lot of money, but they also affect the rest of the market adversely.

This may imply that speculative businessmen cash in when the market swings, whichever way it does. This argument could be carried forward that individuals, businesses and banks that may have purchased foreign currency at a lower rate actually do make money when the rate rises. That is just how the foreign exchange market works.

Similarly, the recent escalation in sugar prices has been blamed on speculative middle man according to Mr Jim Kabeho, the chairman of the Uganda Sugarcane Technologists Association.

“Some traders are hoarding sugar to create an artificial scarcity from which they can make more money. They stock and hold and make a kill. The worst problem is speculators,” he said recently.

In the long run, consumers are going to make decisions that will ultimately favour some businesses instead of others. How? When the cost of living increases, people start looking for bargains and cheaper alternatives.

Mr Moses Kasule, a fresh vegetable seller at Nakasero Market agrees that despite the fact that they don’t determine the price of produces, they have lost customers to roadside kiosks especially near homes as well roadside vendors who sell food items and groceries in Kampala City in the evenings when people are headed home after work.

“They don’t have overheads, and they are so many at the same place therefore they must sell at a good price. More so, they have no storage facilities, so they sell to finish stock every evening,” he says.

This could be perceived as an advantage of smarter entrepreneurs cashing in during tough times and creating solutions for consumers.

Besides, with these roadside vendors and small shops there is no limitation to minimum quantity to be bought.

You can purchase a single tomato at Shs200 compared to a measure of kilogrammes in established supermarkets. This makes them more appealing to customers who are bent on cutting spending and finding the cheaper alternative.

When food prices increase, the thought is that it’s farmers’ time to reap big. But is that so? According to Mr Kasule, farmers don’t determine their own prices. The laws of demand and supply still apply during tough times.

Since the recent drought, most middle men (and women too) majorly working in urban markets have been tapping all the gains from increased prices. But not everyone still.

It is only the fairly capitalised business people or the most innovative who can source items from the farmers themselves, transport them to urban centres and then make a killing.

Now that new harvests have come, there is evidence of a slight reduction in food prices, and still not many farmers have noticed a difference in their fortunes except for the more established ones who have direct access to markets and can therefore sell directly to consumers or retailers.