No Datuk Seri, Restricting Competition Doesn’t Encourage Higher Productivity

I think I’m going to barf (excerpt):

Local veggies only by 2015

KOTA BARU: All farmers’ markets and National Agribusiness Terminal (Teman) outlets will no longer be allowed to sell imported vegetables by 2015.

This move is to give support to the local farmers, said Agriculture and Agro-based Industry Minister Datuk Seri Noh Omar.

“From 2015, all farmers’ markets and Teman outlets should source their vegetables locally.

“The move will indirectly encourage productivity in the country’s agricultural sector.

“If we market products from outside, then all the efforts to set up farmers’ markets and Teman outlets would be rendered meaningless,” he said after attending the ministry’s monthly gathering here yesterday.

He also said the ministry encouraged farmers to utilise modern technology to enhance their productivity and increase the supply of local products in the market.

“At the moment, 40% of vegetables sold at Teman outlets are from the neighbouring countries.

“These vegetables are also grown locally. We want local vegetables to be sold at Teman outlets,” he added.

Classical economic theory says that if you reduce the number of players in a market (really a shift in the supply curve to the left), you raise prices and reduce both quantity demanded and supplied at the market equilibrium point, thus reducing consumer surplus and social welfare. Higher prices means higher profit margins means less incentive to improve productivity. And in the context of consumer reaction, all this does is shift demand away from protected farmer’s markets and Teman outlets to retailers who are willing to carry both local and imported vegetables.

[Digression: I’m assuming here that the reasons why these outlets are carrying imported vegetables in addition to local veggies are either because 1) the prices of imported veggies are lower OR 2) local farmers have not been able to meet total demand OR 3)  local and imported veggies are of different varieties. In all three cases, restricting supply to local veggies only will not produce a greater incentive for higher productivity or higher production, but rather a shift in demand away from the restricted outlets (sales will decrease) to unrestricted outlets. In case 1, you’ll also see prices increase.]

Doesn’t this move go directly against what the NEM is supposed to be about? Much less the newly minted Competition Act? Is it too much to ask for a little more plausible economic sense to be embedded in policy design?