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Food

for

Thought

Lecture #7

Joe Lau

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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.

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Free market

All economic decisions and actionsregarding transfer of money, goods, andservices 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?

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Hong Kong (1st)

Singapore (2nd)

Luxembourg (3rd)

Estonia (4th) Ireland (5th)

New Zealand (5th)

United Kingdom (7th)

Denmark (8th)

Iceland (8th)

Australia (10th)

2005 Index of Economic Freedom

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

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World Economic Forum

Global Competitiveness Report 2004-2005

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World Economic Forum

Business Competitiveness Report 2004-2005

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Supermarket duopoly

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Market dominancehttp://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 periodwithout 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

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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

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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 forstationary / mobiles phones).

Carrefour pulled out in August 2000.

Difficulties finding good location.

Pressured by 22 suppliers not to cut prices.

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TELECOMMUNICATIONS ORDINANCE Ch106, Section 7K

(3) Without limiting the general nature of subsection (1), a licensee engages inconduct prescribed under that subsection if he-(a) enters into an agreement, arrangement or understanding that has the purposeor 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, customerequipment or service conditional upon the person acquiring it also acquiring or notacquiring a specified telecommunications network, system, installation, customerequipment or service, either from the licensee or from another person;(c) gives an undue preference to, or receives an unfair advantage from, anassociated person if, in the opinion of the Authority, a competitor could be placedat a significant disadvantage, or competition would be prevented or substantiallyrestricted.

(1) A licensee shall not engage in conduct which, in the opinion of the Authority, has thepurpose or effect of preventing or substantially restricting competition in a

telecommunications market.(2) The Authority in considering whether conduct has the purpose or effect prescribedunder 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 themon agreed geographic or customer lines;

(d) the conditions of relevant licences.

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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 ofintroducing a competition law framework in HongKong; similar to that which exists in othercomparable 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

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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

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Fair trade in the global context

1999 US & China sign WTO dealmost important event sinceDengs open-door policy (SCMP)

1999 WTO in Seattle 60000demonstrators.

13-18 Dec 2005WTO in Hong Kong.

Whats the problem?

The Police Tactical Unit has ordered

rubber bullets and lead-filled bean bags,Commandant Suen Kwai-leung said.

The thumb-sized bean bags are firedfrom guns and, like rubber bullets, areintended to be non-lethal. (AP)http://www.taipeitimes.com/News/world/archives/2005/02/17/2003223390

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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

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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.

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Why is this so bad?http://www.maketradefair.com/en/index.htm

Inconsistent rhetoric

Unfair competition while pushing for open markets andfair 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)

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What can you do?

Think about it. Talk about it.

Show your concern.

Make responsible consumer choices.