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Collusion in Poultry Market and Collective Bargaining Agreement: Analytical Essay on Microeconomics
Q1 “Egyptian Competition Authority (ECA) has announced evidence of collusion in poultry market.” What is collusion? How does it affect supply, demand, production, and prices (show its impact)? What is ECA? What is the case of poultry market in Egypt (give a brief)?
The Egyptian Competition Authority (ECA) has been established in 2005. Its objective is the protection of competition and the prevention of monopolistic practices to ensure free entry and exit from the market and provides the competitors with equal rights and opportunities to compete in all economic sectors, which guarantees a fair competition to all competitors.
Collusion is a term used to show an illegal agreement between people or companies that are usually competitors in a market as they work together to influence a market or pricing for their own advantage. Also, it refers to collective attempts to reduce competition.
Acts of collusion include price-fixing, synchronized advertising, price rigging and sharing insider information. These acts lead to significantly increased prices, which leads to a decline in consumer surplus, and decrease the demand, in addition to allocative inefficiency. Also, it leads to reductions of output and supply. Collusion acts as a barrier to entry that may discourage new firms from entering the market as they aim to exclude new firms to prevent the market becoming more competitive. It make firms lazy and avoid innovation, efforts to increase productivity and efficiency because of the easy profits they gain from collusion.
As we can see in the graph, that collusion restricts quantity produced to Q2, which increase prices to P2 (in the first graph). And producers capture more from consumers surplus (Shaded part in the second graph) which means that consumers surplus decreases.
In Egypt, collusion actions led to the closure of many farms, where 40% of small breeders preferred to exit from the industry. Feed prices have risen from 5000 to 7000 pounds per ton. And cost of feeding birds represents about 70% of the cost of the production process.
The increase in the prices of broiler chicks led to the emergence of many poultry owners and the lack of their capacity to meet this insane price of chicks, and therefore decreased quantities of meatballs, which led to higher prices of chicken to retailers.
Q2- Labor economics is a branch of microeconomics that tries to give better explanation of labor market and deciding wages. What is the role of labor union in affecting the market? What is collective bargaining agreement? How collective bargaining agreement can affect the labor market? Give examples of collective bargaining agreement in Egypt lately.
A labor union is an organization that works with employers to resolve labor issues such as improving workers compensations, benefits, and working conditions, such as regulating labor wages where they use “price flooring” which is a minimum wage set by a regulator or by law that prevents employers to charge wages lower than the floor. Labor union and employees unite to make decisions and represent collective interests of workers that are classified upon their mutual agreements called (Collective bargaining agreement) to resolve any burdens or conditions that affects their work. Labor unions also strive to bring greater fairness and due process to the workplace; as one of their main roles is to resolve disputes in the workplace, they act as an intermediary between employers and business owners. Moreover, labor union leaders are advocates for workers’ rights and benefits through collective bargaining as they are experienced at solving problems through formal arbitration and grievance procedures.
Collective bargaining agreement is a set of negotiations that takes place between employers and a group of employees aimed at agreements to improve and regulate multiple aspects in their work such as determining employees working salaries in addition to regulating working conditions that may affect the cost of labor as it includes number of holidays, and overtime and night shift pay. Another aspect it regulates are employees benefits such as: (vacation days, health insurance, life insurance, dental insurance, etc… ) as well as granting workers compensation and fulfilling their rights. However, some collective contracts also specify which workers can do which jobs through further constraining reallocation of labor within a firm.
The people that are responsible and are mostly involved in negotiating a collective bargaining agreement are HR leaders, lawyers, and their direct reports by delegating these tasks to them; the company must give them the authority to negotiate the terms of the union contract on the company’s behalf. Some of the positive effects of collective bargaining agreement include freeing yourself from the often laborious tasks of compiling wages rates, researching benefits trends, and calculating labor costs and is a huge time saver in negotiating wages, benefits, hours, and working conditions for individual employees, management will be able to negotiate compensation packages for 100 employees in one union contract which will save money as well. Moreover, collective bargaining agreements help to resolve issues and conflicts raised from the workplace as these agreements include clauses on how to resolve potential conflicts between employees and supervisors in a so called grievance process. These contracts provide the process, conditions, and the steps required to either resolve or escalate issues. Workers’ quality of live is also improved due to increased level of pay for workers and improved safety and working conditions. In addition provides an extra level of security for employees and employers in the labor market because both parties are bound to the collective bargaining agreement, if one side or the other is not performing to the stipulations that have been set forth in the contract, then they can be held responsible to them by the injured party.
The Minister of Manpower and Migration (MOMM) supervises and observes collective discussions and agreements. Wages, benefits, and job classifications are set by the government for the public sector. On the other hand, the private sector where Egyptian Trade Union Federation ( ETUF) has weak representation, from which laborers disrespect government rules and requirements on the minimum wage, social security, and other matters as they are not interested in collective bargaining. Some of the examples of Collective Bargaining Agreement in Egypt lately include that:
- Employers should notice and respect the right of employees to freedom of association and collective bargaining.
- Employers should apply to all national laws, regulat,ions and procedures concerning freedom of association and collective bargaining.
- Workers, without distinction whatsoever, shall have the right to establish and to join organizations of their own choosing subject only to the rules of the organization concerned, without previous authorization. The right to freedom of association begins at the time that workers seek employment and continues through the course of employment, including eventual termination of employment, and is applicable as well to unemployed and retired workers.
- Q4) Food subsidy is one of the ancient tools the government uses to affect the market of food. What is food subsidy? Explain using consumer and producer theory its impact? How food subsidies affect prices and production? Give summary of food subsidy situation in Egypt.
Food subsidy is a financial aid paid by the government to the suppliers in order to reduce their costs of production and encourages them to increase output, also the subsidies are financed from general taxation or by borrowing as well as subsidies cause the supply curve to shift to the right and the amount spent on the subsidy is equal to the subsidy per unit multiplied by total output. Subsidies is used to increase the production and decrease the price.
The theory is the consumer and producer surplus, where the consumer surplus: the difference between the highest price consumers are willing to pay and the actual market price of goods, it is found by the area below the demand curve and above equilibrium. While for the producer surplus: it is the difference between the market price and the lowest price a producer would be willing to accept, it is found by the area above the supply curve and below the market price. And both consumer surplus and producer surplus together create an economic surplus.
The price effect of a subsidy is to shift the supply curve downward by the amount of the subsidy. Effectively this is an increase in supply. The impact of the subsidy is to lower prices for consumers but to increase the price received by producers. While for the Marginal subsidies on production will shift the supply curve to the right until the vertical distance between the two supply curves is equal to the per-unit subsidy; when other things remain equal, this will decrease price paid by the consumers (which is equal to the new market price) and increase the price received by the producers.
Statistics are sounding a warning bell about the state of Egypt’s food security, poverty, and malnutrition. The number of food-insecure Egyptians has increased about 21 percent from 2009 to 2011, according to a 2011 analysis of household incomes, expenditures, and consumption. Results for poverty and malnutrition were even more dramatic, with poverty increasing around 25 percent from 2005 to 2011, and, in 2011, almost one-third of children ages 6 months to 5 years suffered from stunting, a direct effect of undernutrition. Anemia rates were at 50 percent for the same age group. A recently released policy note, Tackling Egypt’s Rising Food Insecurity in Times of Transition, produced jointly by IFPRI, the United Nations World Food Programme (WFP), and Egypt’s statistical agency, CAPMAS, delves into the complexity of food subsidies and nutrition in Egypt and offers some policy recommendations for reform. According to the note, the Egyptian government’s food subsidy program is designed to protect the most vulnerable from shocks such as rising food prices, but only 30 percent of Egyptians really need this protection while more than 70 percent receives it. And while the food subsidies did succeed in preventing an even more dramatic spike in poverty during the recent succession of crises, the program is very expensive and not well-targeted to those who need it most. And subsidies may indirectly contribute to malnutrition, as they keep the prices of rationed, calorie-dense foods far below market prices, increasing the relative costs of non-subsidized, often more nutritious, foods.
References
- https://www.economicshelp.org/blog/21475/economics/collusion-meaning-and-examples/
- https://en.engormix.com/poultry-industry/articles/poultry-industry-egypt-rise-t40853.htm
- https://www.concurrences.com/en/authors/info-egyptian-competition-authority
- https://bizfluent.com/info-7958760-benefits-collective-bargaining-contract.html
- https://legal-dictionary.thefreedictionary.com/collective+bargaining
- https://www.bartleby.com/essay/The-Role-of-Labor-Unions-PK6PYWFBYRPS
- https://www.fairlabor.org/sites/default/files/documents/reports/may-2016-independent-trade-unions-in-egypt_0.pdf
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