気ままなリライト３２

小麦価格抑制、最大350億円規模　市場ゆがめる弊害も

Governmental intervention in the free-market pricing of imported wheat and crude oil is arousing controversy. Price controls as a stop-gap measure are aimed at meeting domestic demand for the commodities in short supply. Does the monopolistic approach to decide the optimal price for a given commodity destroy market incentives to boost the production of goods and services ? Does fixing of prices just mask the demand and supply mismatch without addressing what is challenging the Japanese economy? Is locking in the prices set by dynamic market forces justified to put necessary items within reach of poor and middle-class customers? Doesn’t that depress the domestic market and lead to eventually a supply shortage?
 
As the government’s efforts at taming inflationary pressure on imported wheat, the government has pegged the resale price of wheat to sell the grain the government secured through planned overseas purchase to flour millers and other businesses. It sets the resale price for a six-month period each year. In the first half from April 2022, the resale price was raised by 17.3 % from the previous period and the grain was sold for 72,530 yen a ton on average. In the second half from October 2022, the government decided to freeze the resale price without reflecting a further hike in imported wheat price in the conflict-plagued international market. A 23 % increase in the resale price is going to be covered by a government subsidy. An increase of 15,000 yen per ton in the imported grain for the half period is worth 35 billion yen as the government imports 4.88 million tons annually, nearly 90 % of the wheat consumed in the country.
 
Capping the resale price of imported wheat is more likely to stay the country away from being self-sufficient in wheat production. The hike in the resale price flour millers are supposed to pay is shouldered by a government subsidy. That means a narrower margin for the growth in the market of domestic wheat farmers when a tariff on the resale price added by the government goes to domestic wheat growers as financial incentives. The arbitrary resale price setting of imported wheat puts domestic wheat at a disadvantage as domestic wheat loses its competitive edge over cheaper imported wheat due to the distorted price control.
 
The petroleum subsidy is posing a risk of twisting the dynamic market forces. As the crude oil price gets higher, oil wholesalers receive more money in the subsidy. A gradual increase in an allowance from 25 yen per liter in March to 35 yen at the end of April is making oil wholesalers less conscious about the predicament they are faced with. Capping the gas price around 170 yen per liter spoils oil wholesalers’ enthusiasm about boosting their competitive edge in the free market-based system. The subsidy is likely to put consumers under an illusion about no gasoline in short supply by masking the core causes of the demand-supply mismatch, leaving a source of trouble untouched. The sweetness of the subsidy is sweeping through all fossil fuels including kerosene, jet fuel, diesel.

An illusory sense of taming the inflationary pressure has come at a cost. The petroleum subsidy took a big bite in the government spending. Nearly 1.9 trillion yen as total was injected into the subsidy. The subsidy served as a money pit, eating 90 billion yen earmarked in the supplementary budget in fiscal 2021, consuming 1.2 trillion yen as the expenses in the period between June and September allocated from the supplementary budget in fiscal 2022. The subsidy is keeping sucking money.