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ARGENTINA: Price Freeze Agreements Have Little Effect on Consumers

Marcela Valente

BUENOS AIRES, Mar 10 2006 (IPS) - “I’m calling because the government price list has 100-page lined notebooks at 3.90 pesos and I paid 8.90,” a shopper complained to Argentina’s consumer defence service. “Which brand costs 3.90?” she asked. “We don’t know,” was the official reply.

This exchange, witnessed by IPS, casts doubt on the effectiveness of the government’s strategy to curb inflation. For the last six months, the Economy Ministry has been signing agreements with businesses across a variety of sectors, which have committed themselves to freezing the prices of certain products.

The government of Néstor Kirchner is thus attempting to create a cushion to protect consumers until investment, production and the supply of goods increase. But many observers believe that lack of supply is not the problem. They say the problem is structural, because business is highly concentrated, and the largely dismantled State is incapable of regulating it.

Last week, together with the inflation figures for February, price lists were issued for food, beverages, cosmetics, cleaning materials, school equipment and clothing. A total of 351 products and their reference prices were distributed in stores and supermarkets.

The price list leaflets carry the telephone numbers of the complaints line in the consumer defence service, but the employee answering the phones has no information. “We don’t know anything at all, the lists were drawn up by the Economy Ministry and that’s in a different building,” said the person answering the toll-free complaints line.

A different phone rings, at a different address.

“I’m calling because your business signed an agreement and isn’t honouring it,” Kirchner chided the head of one of the main food companies in the market, over the telephone. According to a columnist writing in the newspaper Clarín, the president demanded an explanation for the prices of sausages, oil and flour.

The astonished businessman explained that the items – in those particular quantities and brand names – were not included in the agreement. Not satisfied, Kirchner warned him that cheating and tricks would not be tolerated, and that if the agreement was not fulfilled, the government would increase export taxes on flour and oil.

This personal monitoring of prices demonstrates official concern over the inflation rate, which threatens to undermine other economic gains. In 2005, the economy grew by 9.1 percent and poverty and unemployment fell.

But the consumer price index rose by 12.3 percent, and food prices, which have the greatest impact on low-income families, rose by 15.7 percent.

This year’s budget presupposes price increases of between seven and 10 percent. To achieve this target, the president and Economy Minister Felisa Miceli have become personally involved in reaching price agreements with businesses. However, consumer organisations and economists are sceptical.

“The price agreements are doomed to failure,” Pedro Bussetti, of the DEUCO consumer defence organisation, told IPS. In his opinion, prices rise because of the “concentration of production in too few companies,” including key sectors such as food, gas, petroleum, steel, iron and public services.

According to Bussetti, inflation is caused not by lack of investment or saturation of productive capacity, as the government suggests, but by a situation inherited from the 1990s, when an orthodox free-market economic model prevailed. “Today there are 200 to 250 companies that dominate the economy, and they are more powerful than the State,” he maintained.

The activist said that the State’s diminishing ability to regulate corporate mergers and industrial cost structures is also part of the legacy of the 1990s which continues to have an impact. “State bodies work with data provided by the companies,” he said..

Things were different in the mid-1980s, Bussetti pointed out.

The Law for the Defence of Competition, in effect since 2001 to prevent monopolies, is not enforced. The law provided for an independent tribunal of experts which was never created. Instead, there is a committee of Economy Ministry officials.

Bussetti criticised the government for passing up the opportunity to strengthen the role of the State when it approved recent mergers by large companies in the fields of cellular telephones, beer and packaged bread. The mergers were approved by the National Commission for the Defence of Competition.

“Prior to the 1990s, there were 200 biscuit factories in the Buenos Aires area. Now we have two dominant companies producing all of the country’s brands,” he said, referring to Arcor and Kraft, the two firms that have carved up the market between them.

With regard to the products on the reference price lists, Bussetti noted that powerful dairy companies like Sancor and La Serenísima market 150 different products, but only offer nine items on the Economy Ministry list, among them milk, butter and yoghurt..

The case of another dairy company, Danone, is even worse, as it has frozen the prices of only two products out of a total of 500. “To buy articles at frozen prices, consumers have to purchase a given brand in one size only, say one kilo,” Bussetti complained.

Meanwhile, the Centre for Consumer Education visited supermarkets and reported that nearly 40 percent of the products on the list were absent from the shelves. Most of the missing items were food products. This is the kind of cheating to which Kirchner was referring.

Although the Centre found that products on the agreed list were indeed cheaper, it said they comprised only one percent of all of the goods on display in the supermarkets, and in some cases were not even available. Under such circumstances, the strategy makes no sense, it argued.

In an interview with IPS, economist Martín Hourest, of the Central of Argentine Workers (CTA) trade union confederation, said the current inflation cannot be blamed on fiscal or monetary questions, or on increased demand that has supposedly outstripped production capacity.

Hourest believes that production in some markets is determined internationally, and the internal price structure is defined accordingly: for example, in the case of beef, dairy products, flour, cooking oils or petroleum. But there is also competition for profitability within the production and marketing chains, he said.

Supermarkets put pressure on their suppliers to lower their prices, and they don’t always pass the savings on to consumers. On the other hand, the smallest retailers have the opposite problem. “My milk supplier charges me the same price I have to sell it at,” the owner of a neighbourhood grocery store complained to IPS.

Hourest said the price agreements might be effective, not so much for lowering prices, but to contain “inflationary expectations.” “I think, too, that the government isn’t trying to reduce prices, because if it were, it would take other measures that it hasn’t used, in order to really regulate them,” he remarked.

“What the government wants is to calm people’s worries and expectations about price increases, by showing the middle and upper classes, in particular, who are the main consumers, that the entire administration, including the president, is concerned with keeping prices under control,” the economist said.