Yes'. My answer to the second is: 'Taking one year with another, and bearing in mind the risks involved, No'. Why I feel confident in making these answers is to be found in the information paper, coupled with what happened over the seven years prior to 1962, and more important, sub- sequently.
The existence of buffer stocks cannot of themselves insulate the con- sumer from external fluctuations in price, but they can have a stabilizing effect on retail prices, which would increase more if there were no such stocks. The facts of the matter are that in the last five years, despite wide fluctuations in import prices, the retail price of rice remained remarkably stable until the world rice shortage made itself felt in October 1966. A glance at the trend of retail prices in Appendix VIII will confirm this. On the other hand, the mark-up between import price and retail selling price increased substantially in 1965, when import prices began to rise consistently and importers' costs were also increasing. Up till then, wholesalers and retailers had the balance of commercial advantage. But in 1965, it shifted back from the wholesale/retail sector of the trade to the import sector as it always does when buying prices rise. There was reason therefore for wholesalers or retailers to seek to adjust the position, because their profits were affected. On the face of it there was perhaps also reason to argue that registered importers conspired together to rig their auction prices. I have been unable to find any evidence of such auction rigging; indeed such independent evidence as I have been able to secure is the reverse; and representative registered importers have twice denied in writing that their auctions are rigged. There are indeed perfectly good ordinary commercial reasons why importers' selling prices were held down in 1962, 1963 and 1964, and why they rose in 1965 and 1966. Let me explain.
The mark-up between the c.i.f. price for rice and the price at which it was sold was very narrow or even negative in 1962-1964; that is to say import prices were stable with a tendency to fall, and large domestic stocks, perhaps unnecessarily large stocks, had to be turned over. In late 1964, when Government deliberately initiated some reduction in stocks, import prices were tending to rise. But more importantly, money was tight, and interest rates and other expenses also were rising. For similar reasons, wholesalers were in a weaker position to provide credit to retailers, and retailers under greater pressure to sell and therefore less able to hold prices up. The position intensified in 1965, and persisted in 1966, aggravated by the uncertainty of supplies, ameliorated however by an improvement of credit for commercial business, but not for consumers.
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These changes are demonstrated by adjustments in the relationships. of the price trend curves in Appendix VIII. I might add that such differences as there are in trends of whole and broken rice prices reflect on the one hand direct competition between Thai and China whole rice for the consumer' dollar; and on the other hand, the merely indirect effect of competition on the price of broken rice of which Thailand is the principal, indeed now almost the sole, supplier to Hong Kong.
Prices after October 1966
As from October 1966, what might be called psychological influen- ces on price levels in Hong Kong became important. Bangkok selling prices had continued to rise, until in November with the ban on exports, quotations for export ceased and prices therefore became nominal. In the Hong Kong market, consumer demand was strong, indeed as I said earlier, abnormally strong. In the circumstances, wholesale and retail prices in a free market were bound to rise, which they did very steeply. It is notoriously difficult to pin down retail prices in the rice trade with any exactitude, so I hesitate to quantify this rise. But with the courage that characterizes critics on the rice control scheme, I will attempt to do so. My rice control staff estimate that between 1st October of last year and mid-January of this year the retail price of whole rice rose by 15-20 cents a catty above the average of the previous four years, or approximately 25%. The equivalent figures for broken rice are 5-10 cents a catty, or approximately 30%. All sectors of the trade-and there should be no misunderstanding about this-all sectors, in fact anybody who held unsold stocks, were beneficiaries of this price rise.
I do not think that these high prices can be maintained. There are indications that demand has slackened, and there has already been some decline in importers' selling prices at auction. New crop rice, especially whole rice, from Thailand is now coming forward quite strongly. Import price levels are not yet identifiable with certainty, but new crop rice normally sells at some four or five dollars a picul less than old crop. And I have little doubt that the expertise of registered importers will ensure that it is bought for Hong Kong at a price at once consistent with market demand and the need to build up stocks. I can assure honourable Members that I shall be watching the trend of prices very closely, and will be ready to use the quite considerable powers that are conferred by the Reserved Commodities Regulations to ensure that prices do not rise unduly when supply and demand and stocks are
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