25/07/2011 (Financial Express) - M S Siddiqui, Commerce Ministry of Thailand proposed two solutions to palm oil shortages problem. They proposed to import additional quantity of palm oil in an attempt to solve product shortage. The private sector was unable to cope with the delivery cost. In addition to the price of raw palm oil sold in Malaysia at 39-40 baht (Thai Currency) per liter, the costs of bringing it into Thailand will inevitably hike the price of imported palm oil.

Government wants palm oil should not be sold above the ceiling price of 47 baht per liter or else it will be too expensive for consumption in the country. The private sector was reluctant to proceed as costs are getting higher to import the product from Malaysia.

In the second solution, since the Malaysian prices for both processed palm oil and the raw one are high, the government should cover the costs of importing the product into Thailand in order to maintain the price at 47 baht per liter. Without the government's intervention, the price of oil could reach between 50-56 baht per liter. Accordingly a 1.0 billion baht budget is being proposed in compensation for the private sector coping with the cost of importation. A committee will be set up to monitor its spending to make sure the efforts are being carried out in a transparent manner.

On the other hand, in Bangladesh, there is widespread belief among Bangladeshi media and the civil society that collusion exists in the supply chain of many essential commodities, and many blamed business persons for the price fixing of essential commodities. Local and foreign researches of commodity market found the allegation not true. Many countries like Thailand have specific market intelligence that can ascertain the shortage. Accordingly the import cost and probable market price can be determined if traders import the product at global price.

Situation in Bangladesh is quite different. We tend to blame the manufacturers and traders, and only monitor the retails price. There is no policy to control the production and import cost like other countries.

The Ministry of Commerce recently discovered that the Delivery Order (DO) system is responsible for price hike of edible oil and Sugar. The local manufacturers have many wholesale buyers who use to pay and take a DO for a future date. The wholesalers sell the DOs to retailers or to any other traders and the bearer of DO finally take the delivery. This is in well conformity with future market and very much practiced in commodity marketing system for many years. This is a kind of finance in marketing system.

Bangladesh Government recently decided to ban DO and issued The Essential Commodities Marketing and Distributor Appointment Order 2011 under the Essential Commodities Act-1956. The new order will be effective temporarily for soybean oil and sugar and may be imposed on other products, if needed.

The proposed strict regulated distributorship system is one of the marketing channels for distribution of essential commodity in any market. Distributors and dealers are participants in a supply channel; the distributor is usually a wholesaler who sells to dealers and dealers usually to retailers who sell directly to the consumers. Distributors actually purchase the goods from manufacturers and sell to the dealers. Relationships among manufacturers, distributors, and dealers are typically contractual in nature. Distributors and in turn dealers participate in incentive programs offered by the manufacturers such as subsidised advertising programs, bonuses, and special discounts

A distribution channel can be as short as being direct from the manufacturer to the consumer or may include several inter-connected intermediaries such as wholesalers, distributors, agents, resellers, retailers. Direct distribution of manufacturer is the direct selling of services or products to an end customer. It is an effective distribution method when the manufacturer has a range of services and products that entice the customer to engage them or their retail location depending on nature of industry.

The Distributorship order of the Government has direction of fixing the mill-gate, distribution and retail prices of essential products by the manufacturers, refineries and importers must be fair. The prices will be fixed by the national committee after discussions with the refineries, importers and trade bodies. The order has ignored the importance of distributor and dealer and the marketing part to develop the brand value and secure market for the brand.

Government policy seems reduction of more than one tier sales route of intermediaries such as wholesalers, distributors, agents, resellers, retailers. This may be a good idea to reduce the middle persons but cannot ignore the importance of dealers and retail outlets. The global experience has established system of Chain stores and outside city markets under sponsorship of local government or trade association. The government policy is to reduce cost of products, delivery and distribution. The order has indirectly banned the direct sales channel of manufacturers and importers. It has ignored the internet shops and other modern marketing methods in the era of digital Bangladesh program.

The manufacturers and importers will presumably seek to use the most efficient distribution method available for its product that is consistent with its strategic interests. An initial typology of distribution arrangements might include: distribution through one or more independent distributors with no long-term commitments and no restrictions or vertical restraints, distribution by the producer or through an agent whose decisions are controlled by the producer. The will determine the most efficient distribution method at any one point in time. This is likely to depend on a number of influences, including the nature of the technology in manufacturing and distribution, the nature of the market, uncertainty over how these may change over time, and the costs of writing - and then monitoring - contracts with distributors. A standard Competition Law prohibits agreements between undertakings having as their object or effect the restriction, prevention or distortion of competition through vertical instigation or arrangement.

As per the new order, the manufacturer / importer must appiont agents in Upazila, District and City Corporaion and marketing centre will be Upazila and Thana. The seller must advertise in newspeper asking for distributorship and appoint them within 90 days. Preference should be given to local businessman. The manufacturer and importer must sign agreement as per format given in the order. The appionting authority (manuacturer ) must inform respective Deputy Commissionar, Upajila Nirbahi Officer (UNO) and Monitring cell about appointment.

The trade association will take 'necesssary action' to implement the contract. The appionting authority will monitor delivery process. The distributor will sell product at price fixed by manufacturer, refiner and importer. The manufacturer, refiner and importer will fix reasonable price for the mill gate, marketing, wholesale and retail sell price. The prices will be same for presumely all manufacturer. The national commitee formed under the order will fix the method of pricing. The price may be changed for distance of the market from mill gate and warehouse. The trade body may change the price for reasonable ground but it should be notified to Montoring cell, DC and UNO.

As per standard Competion Act, any fixing or change of price by trade body is completely prohibited. The manufacturers and importers do not have free choice of selecting the methords of marketing and selling their products. Any fixed price for all manufacturers or importers are prohibited and distributorship for a fixed resigion also not allowed by competion act.

There is a difference between marketing and sales. The concept of marketing has been totally ignored and there remains no option of schientific markeitng practice to promote the products, brands etc. The authority even fixed the relation between manufacturer and seller. This means the theory of markeitng and selling has been totally changed with order of the government.

The law of Bangladesh leads to two main advantages for suppliers. Imposition of maximum /fixed prices is allowed and passive sales into other territories/customers groups are prohibited. But restriction of sales area is against Competition policy. The agents have to pay for stock and hold stocks and/or demonstration goods at his expense. Upon payment and taking delivery, question arises whether the agent has to assume liability for damage caused to the goods and for damage caused by the third parties, regardless of whether the agent is at fault.

The order further says the manufacturer, refiner and importer will fix the price but any change to increase or decrease shall be through trade association and it should be notified to the monitoring cell, DC and UNO. The business persons will take all risk but shall have no authority to change the price.

The proposed Competition Act pending with the government (available in the web site of Ministry of Commerce) has provision that there should not have any anti competitive agreements. It also tells: No enterprise shall enter into any agreement in respect of production, supply, distribution, storage, acquisition or control of goods or provision of services, which causes or is likely to cause an appreciable adverse effect on competition within Bangladesh. Any agreement entered into between enterprises or decision taken by, any association of enterprises or association of persons, including cartels, engaged in identical or similar trade of goods or provision of services, which-directly or indirectly determines purchase or sale prices; limits or controls production, supply, markets, technical development, investment or provision of services; shares the market or source of production or provision of services by way of allocation of geographical area of market, or type of goods or services, or number of customers in the market or any other similar way and shall be presumed to have an appreciable adverse effect on competition if there is any exclusive supply agreement; exclusive distribution agreement; resale price maintenance.

The other countries of the world control cost (manufacturing or import) of products to have control over retail price, but Bangladesh tries to control retail price only. Bangladesh is frantically trying to control sales price for long time without positive outcome.

The order issued under one act as delegated law should not conflict with another law of the country