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Food for Thought

Lecture #7
Joe Lau

Food, fair trade & globalization


Social and global perspectives about food. How food relates to power and economics.
Fair trade = free trade? How fair is food trading locally and internationally.

Free market
All economic decisions and actions regarding transfer of money, goods, and services are voluntary. Is a free market desirable?
Unrestricted freedom not desirable
Physical harm Price fixing

The extent of regulations


Business incentives Interests of consumers

How free is Hong Kong?

2005 Index of Economic Freedom


http://www.heritage.org/research/features/index/country.cfm?id=HongKong

Hong Kong (1st) Singapore (2nd) Luxembourg (3rd) Estonia (4th) Ireland (5th) New Zealand (5th) United Kingdom (7th) Denmark (8th) Iceland (8th) Australia (10th)

World Economic Forum Global Competitiveness Report 2004-2005

World Economic Forum Business Competitiveness Report 2004-2005

Supermarket duopoly

Market dominance
http://cbdd.wsu.edu/kewlcontent/cdoutput/TR503/page47.htm

Market power
The ability of a firm to independently raise prices above market levels for a non-transitory period without losing sales to such a degree as to make this behavior unprofitable.

Relevant factors
Market Share Barriers to Market Entry Vertical Integration, etc.

Market dominance
An extreme form of market power Unequal bargaining power

Potential problems with dominance


Consumers
Lack of choices Higher prices
(July 2001) Lifting of interest rate ceiling on savings accounts deposits.

Economy
Lack of innovation

Entry into the market


adMart closed shop in Dec 2003.
Online store, bulk purchase; Led to price war. Property ads pulled out for 3 months. Difficulties in sourcing products (but not for stationary / mobiles phones).

Carrefour pulled out in August 2000.


Difficulties finding good location. Pressured by 22 suppliers not to cut prices.

TELECOMMUNICATIONS ORDINANCE Ch106, Section 7K


(1) A licensee shall not engage in conduct which, in the opinion of the Authority, has the purpose or effect of preventing or substantially restricting competition in a telecommunications market. (2) The Authority in considering whether conduct has the purpose or effect prescribed under subsection (1) is to have regard to relevant matters including, but not limited to(a) agreements to fix the price in a telecommunications market; (b) an action preventing or restricting the supply of goods or services to competitors; (c) agreements between licensees to share any telecommunications market between them on agreed geographic or customer lines; (d) the conditions of relevant licences.
(3) Without limiting the general nature of subsection (1), a licensee engages in conduct prescribed under that subsection if he(a) enters into an agreement, arrangement or understanding that has the purpose or effect prescribed by that subsection; (b) without the prior written authorization of the Authority, makes the provision of or connection to a telecommunications network, system, installation, customer equipment or service conditional upon the person acquiring it also acquiring or not acquiring a specified telecommunications network, system, installation, customer equipment or service, either from the licensee or from another person; (c) gives an undue preference to, or receives an unfair advantage from, an associated person if, in the opinion of the Authority, a competitor could be placed at a significant disadvantage, or competition would be prevented or substantially restricted.

Anti-competition in Hong Kong


Situation
No general legislation on anti-competition. No specific laws on anti-competition outside of telecommunications.

Consumer Council 2003 report


As a long term solution, the Council is in favour of introducing a competition law framework in Hong Kong; similar to that which exists in other comparable advanced economies.
http://www.consumer.org.hk/website/ws_en/competition_issues/competition_studies/20030811supermkt.html

The Governments response


The Government does not see the need for intervention or a competition law for this sector.
http://www.compag.gov.hk/reference/cc.pdf

Issues
Does HK need a competition law?
General? Food? Fuel?

What should such a law contain?


Obvious? price fixing Grey areas? pricing out competitors

Further readings
(Ronny Tongs speech in Chinese) http://www.ronnytong.org/public/contents/1836 http://www.economist.com/business/displayStory.cfm?Story_ID=413357&CFID=3131 http://www.hkdf.org/newsarticles.asp?show=newsarticles&newsarticle=13 http://www.webb-site.com/articles/noncompete.htm http://www.channelnewsasia.com/stories/afp_asiapacific_business/view/129871/1/.html

Fair trade in the global context


1999 US & China sign WTO deal most important event since Dengs open-door policy (SCMP) 1999 WTO in Seattle 60000 demonstrators. 13-18 Dec 2005 WTO in Hong Kong.
The Police Tactical Unit has ordered rubber bullets and lead-filled bean bags, Commandant Suen Kwai-leung said. The thumb-sized bean bags are fired from guns and, like rubber bullets, are intended to be non-lethal. (AP)
http://www.taipeitimes.com/News/world/archives/2005/02/17/2003223390

Whats the problem?

Globalization
International economic integration
Integrated international trade & financial markets
Capital mobility

Transnational economic institutions


World bank, WTO, companies, e.g. Citigroup, GE

Cross-border division of labor


Outsourcing, manufacturing bases

Global sourcing of raw materials


E.g. Japanese chopsticks from rainforests

Case study: EU sugar dumping


Relies on sugar beet instead of cane because of climate. 2nd to Brazil in world market share Govt subsidies: HK$20 billion per year Over-production depresses world prices and hurt poor farmers Costs
Brazil: loses HK$4 billion a year. Ethiopia: HIV/AIDS budget Malawi: primary health care budget

Who wins?
Large European sugar refiners Frs Beghin, Germany's Sudzucker, Britains Tate & Lyle.

Why is this so bad?


http://www.maketradefair.com/en/index.htm

Inconsistent rhetoric
Unfair competition while pushing for open markets and fair trade. Tariffs on imports (Thai frozen prawns) Receive $1 of aid, lose $2 from unfair trade.

Devastating consequences on poor countries


EU sugar, & milk (West Africa) US cotton (West Africa), rice (Haiti), corn (Mexico)

What can you do?


Think about it. Talk about it. Show your concern. Make responsible consumer choices.

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