Price Agreements: Why Didn’t They Work in 2018? Will They Work This Time?

By Luigino Bracci Roa

President Nicolás Maduro announced on September 4 2019 that he will reactivate the Fair and Agreed Price system, and instructed the economic vice president, Tareck El Aissami, to inform the population about these prices. He also said that the Price Agreement system is the only one that really worked, in contrast to the price control system, which “controlled absolutely nothing,” and price liberalization, which is where the right “wants to take the country”.

As will be recalled, the Price Agreement system consisted of meetings between the Venezuelan government and representatives of large congromerates, in order to agree on prices for 50 products of great importance to the country.

Only the first agreed upon price list, published at the end of August 2018, was fulfilled to some extent, and for a few days. In fact, a “revised” list was published a week later to correct some prices. Then they began to climb, and there was no control or sanctions by the State. In December, in fact, a new price agreement list was published, which had no major impact because all the prices published there were outdated, and what was found on the street was well above what was published.

I am writing here what I perceived as an ordinary Venezuelan, as a person that buys groceries, about these price agreement lists, with the hope that this information will reach the decision makers and the mistakes made in the past will not be repeated.

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Problems:

• The price agreement lists were published in the media, but were not mandatory. There were no penalties for companies and brands that violated the agreed upon prices.
• The meetings to set prices were held with representatives of companies that were considered “price markers”, that is, they were important national producers of that product. It was believed that if these companies set a price, the other producers would also follow.
• However, this was not so. Often only the companies that met with the government were the ones that promised to maintain a given price, but the others did not.
• The brands with agreed upon prices, in most cases, were very difficult to obtain (or to find).
• Very often, a company committed itself to the government to maintain a given price, but in practice it did not. This was extremely common with Polar Companies: their price agreements on margarines, mayonnaises, cornmeal, household products, cleaning and many other products were never met. Being one of the largest producers in the country – and, in fact, in some parts of the country people only get products from Polar Companies – this immense disrespect only caused frustration among people, seeing that a company violated the agreed upon prices with impunity and was not punished.
• For some reason, it was not mandatory to print the prices of the products on the packaging, which made it easier for everyone to set the prices they wanted. In other cases, some companies, such as Polar, did print the prices on the packages, but set the prices they wanted, disrespecting the agreed upon prices.
• Although an immense number of consumers made complaints through social networks, in particular on Twitter, also placing photos and complete data in their complaints, there was an immense silence on the part of the inspection agencies, ministers and presidents of entities related to these problems. A problem that we continue to see until today.

All this makes me deduce some things:

• There is no control after setting the “agreed upon prices”: after government officials met with businessmen, no monitoring or inspection was done to verify that the prices they promised were actually met.
• There are no plans to sanction: Except for very exceptional cases, we do not remember that any businessman was sanctioned, fined or detained for violating the price agreements. In the absence of sanctions, what ended up happening was predictable: after a few weeks, nobody met the price agreement.
• There were no explanations to the public: If the President said one thing, but within a few days the opposite happened publicly and notoriously, and if no one in the government went out to explain what was happening, this inevitably demoralized the population.

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In 2018, meetings between businessmen and government officials, given the results indicated above, seemed more like “between pals” meetings that tended to cover up faults among insiders, and not meetings between a supervisor and the supervised, in which the latter had to give an account of what he was doing.

If we put the same people in 2019 to do the same thing they did a year ago, can we really expect different results? Anyway, I want to leave some recommendations here. I know they are obvious, but it is important to reiterate them.

Recommendations:

• It is not bad to sit down with the businessmen to agree upon prices, but once they are fixed …
• You have to monitor and ensure that the prices set are met.
• The price of the product must be printed on the packaging.
• You have to make surprise visits to the factories and packaging machines, to verify that the agreed prices are being met.
• You have to constantly visit the markets, shops and supermarket chains to verify that they sell at the prices agreed.
• You have to check invoices and purchase orders.
• The government has to constantly communicate with the population, receive their complaints and process them.
• If it is announced that those who violate the agreed prices will be sanctioned, then keep that word and sanction them.
• If you decide not to sanction them, but allow them to raise prices because there was an increase in raw materials, in the price of currencies or for any other reason, communicate it to the people and publish the new prices constantly.
• People who have the function of supervising have to be honest, and they have to be constantly inspected. But they also have to be adequately remunerated for the function they will perform.
• If there is no inspection, this will collapse quickly.

Source URL: El Espacio de Lubrio

Translated by JRE/EF