Thursday, June 20, 2019
By NEIL HARTNELL
Tribune Business Editor
The Government was yesterday warned that price controls threaten its healthier eating drive by making it “more attractive to invest in a fast food chain than a health food store”.
Gavin Watchorn, the AML Foods president and chief executive, told Tribune Business that the Government would be “penalising the industry that can be the greatest help to them” on its breadbasket food reforms if it imposed price control restrictions that force these products to be sold at a loss.
While the Government has yet to provide food retailers and wholesalers with the mark-ups/margins they will be allowed to charge on the revised breadbasket list, the BISX-listed food retail group’s top executive reiterated that it was “fundamentally opposed” to price controls in any form.
While backing efforts by Dr Duane Sands, minister of health, to tackle The Bahamas’ high rate of non-communicable diseases by pushing citizens towards healthier eating and lifestyle choices, Mr Watchorn said the Government was “not dealing” with the real issue through continually neglecting to address price controls.
Price-controlled items currently account for around 15 percent of the products that AML Foods sells, and Mr Watchorn said this proportion will likely increase as a result of the breadbasket reforms and if there is no change in policy.
To compensate for selling more items at a loss, he explained that AML’s Solomon’s and Cost Right brands, together with other food stores, would have to raise prices on non-controlled products higher than they otherwise would - a move that would be detrimental to consumers.
Warning that companies cannot be expected to “sell an increasing portion of your product” below cost otherwise they would be forced out of business, Mr Watchorn said the combination of price controls and breadbasket reforms effectively meant that investment in fast food outlets - which the Government is trying to entice Bahamians away from - would generate greater returns than food stores.
He added that food retail margins were already extremely thin, and voiced concern over the ability of family-run neighbourhood food stores to absorb and adapt to the changes the Government is planning.
“In terms of making perishables and healthier items VAT free, we’re very welcoming of that and we would encourage the Government to make more items VAT-free,” Mr Watchorn told Tribune Business in response to Dr Sands’ unveiling of the revised breadbasket list during his contribution to the 2019-2020 Budget debate.
The minister of health confirms that spinach, broccoli, almonds and certain fruits will be on the new list, making them both price-controlled and VAT free. “Specifically, Bahamians can look forward to spinach, broccoli, romaine lettuce, apples, oranges, strawberries, beans, peas, almonds and so much more being not only VAT-free, but price protected,” Dr Sands said.
Mr Watchorn said both the Retail Grocers Association and its individual members, including AML Foods, were still awaiting confirmation from the Government on the price-controlled margins/mark-ups they will be allowed to levy on the new breadbasket list when it takes effect.
Echoing concerns voiced by Super Value’s Rupert Roberts, the AML Foods chief said the second highest portion of every dollar spent by Bahamian consumers in food stores already went to the Government in taxes via a combination of VAT, import tariffs and Business Licence fees.
“Out of every $1 you as a consumer pay, the second highest portion goes to the Treasury,” Mr Watchorn said. “The highest amount is the cost of goods, and the third amount is for running your business. The profit element is miniscule. The profits earned by people in the food industry is miniscule compared to the tax take by the Treasury.”
While unable to detail precisely how AML Foods will respond in the absence of mark-up details from the Government, he added: “If you’re going to force retailers to sell perishable product at 18 percent there will be issues arising from that.
“You cannot force people to sell a large amount of product below the expense base and expect them to stay in business. There needs to be a realignment taken to counteract the losses incurred.
“Fundamentally we are opposed to price control,” Mr Watchorn continued. “There’s no price controls on attorneys, accountants and restaurants, so why are food stores and gas stations singled out for price controls when vast numbers of other industries are not?
“Food stores and gas stations are two of the industries most utilised by Bahamians, and they are two of the most taxed industries in the country. It’s a disincentive for investment. You cannot sell an increasing portion of your product below your expense base. It’s basic math. You cannot sell items below cost otherwise you will go out of business.”
Dr Sands’ proposed breadbasket reforms have thus reignited the debate over whether price controls have outlived whatever use they had, and should therefore be abolished, or if they remain a vital tool in ensuring lower income Bahamians can afford to purchase basic food items.
Food retailers, gas stations and other industries subject to price controls, such as auto dealerships, argue that they are outdated, antiquated and ineffective, and are a sign of how inefficient and bureaucratic the Bahamian economy remains.
Such industries suggest price controls are no longer fit for purpose, are failing in their alleged role to protect consumers, and cause unintended consequences for the Bahamian public. In the case of the food industry, selling price-controlled items at a loss forces them to hike the price of other products higher than they would to compensate, disadvantaging consumers.
In countries such as Venezuela, loss-causing price controls have caused companies to stop or restrict the supply of such products, resulting in shortages and price hikes. That has yet to happen in The Bahamas to any great extent, but the possibility could be there.
Price controls were first imposed under the Pindling government in a bid to ensure Bahamians were able to afford a reasonable standard of living, and their advocates argue that they remain fit for purpose.
Successive administrations have declined to address the issue, with many suspecting they are eager to avoid any negative political fall-out from abolishing or easing price controls and subsequently being accused of being against the “small man”.
Mr Watchorn yesterday said the Government was “quite frankly not dealing with the issue” and, as a result, was “penalising the industry that can be the greatest help to them on this”.
“Making kale price controlled is not going to do anything to stop people eating fast food three times’ a week,” he told Tribune Business. “Why is the industry that can be one of the greatest helps being penalised when the industry promoting cheap fast food.... why is something not happening to this industry?
“As a businessman, coming out of this it’s more attractive to sell fast food than it is to open up a new healthy foods store. You get greater returns from opening up a fast food chain than a new healthy foods store.
“That’s something to ask the minister to contemplate. As long as you make it more attractive to invest in activities, lifestyles impacting your health, you can make Kale price controlled all you like; it’s not going to make a difference to persons eating fast food.”
Mr Watchorn said the 15 percent of products that are price controlled include “all the top-selling items, and we have to take the other thousands of items and mark them up further than we would to offset the losses”.
He added of the changes proposed by Dr Sands: “It will increase that 15 percent even higher, and there will be increases on other items to offset the losses.
“Ourselves, Super Value and the Budgets have the ability to react to this. The family running a small neighbourhood store, running it not for profit but a weekly salary, are going to be impacted the most. We have the product range to adapt; they don’t.”