Wednesday, February 15, 2006

Still Doesn't Work

President Hugo Chavez is proving again that price controls do not work. Try it again. Same results. Wall Street Journal (paid subscription) reports:
After 21 years in the milk business, Ismael Cárdenas Gil is throwing in the towel. Mr. Cárdenas, who heads Alimentaria Internacional, can no longer make a profit selling imported powdered milk under government-imposed price controls. As a result, he has cut back his imports to "practically zero."
If the government puts on price controls, then suppliers can't stay in business and close. Venzuela is in an unusual position: it can export a lot of oil. So the government can buy food and sell it at a loss. But people don't like taking a loss and can't continue.
Last week, corn growers marched outside the presidential palace, protesting government controls they say have dried up demand for their corn. While the farmers are getting a decent price, processors are refusing to buy the corn because they can't sell it at what they consider an acceptable markup. The country's largest food company, Alimentos Polar, has warned it may have to halt production of corn flour for such reasons. In early December, coffee producers challenged the new price ceilings, paralyzing deliveries and causing an acute coffee shortage for weeks.
Chavez says he is doing this to control inflation. Inflation is now 14%, the highest in South America.

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