The country's economic life is periodically shadowed by political convulsions, so Premier Isarescu has set out to limit as much as possible the influence of the electoral cycle on business. Nevertheless, we are witnessing various distortions of reform on a daily basis.
The most burning issue is our daily bread. With all the assurances of minister Muresan, some sceptics see wheat imports as the only way to bolster the market supply and keep the bread price reasonable. The price of bread - the poor man's food - has a solid electoral weight. To explain its recent growth, assorted scapegoats have been identified: drought, the Romcereal monopoly, cereal speculations, the diesel price, insufficient wheat fields. Mostly at fault are intermediaries who offer wheat growers a discouraging purchase price: 2,000 lei/kg. In local markets in some counties, it approaches a "fair price," 3,500-4,000 lei/kg.
The strange thing is that, after ten years of "traditional capitalism," the intermediary is still confused with the small-time crook.
Economists define speculation as "commercialisation by extracting profit out of changes in market prices." Speculators are often said to exploit natural disasters (drought, hail, floods, etc.) and adjust prices accordingly.
Already, the corn harvest is expected to be weak and the corn price should go up this fall, with implications on the pork price. Consequently, people who think this may happen will expect higher corn prices next year. This prospect will prompt some peasants (farmers, agricultural producers, etc.) to stash some of the current-consumption corn until the next harvest, when they expect the price to go up. This is speculation.
Therefore, peasants may want to retain their wheat stocks so that next year they don't have to buy for higher prices, or so they can sell then for higher prices. Therefore, mills (as industrial consumers) are already increasing their stocks, when the wheat price is relatively low (2,000 lei/kg).
The lack of well-organised cereal exchanges is supplanted by the emergency of these intermediaries. They are trying to make a profit buying cheap now and selling for more later. Ultimately, everyone of us has a trace of speculation inside. A speculator who reads in the press that the corn price will go up reacts by filling up his barns. If the forecast is wrong, the speculator loses. In this case, some of his "fortune" is locked in the commodity that waits to be sold, and the speculator cannot buy other, more valuable assets: real estate, dollars or term deposits.
Any rumour about certain prices going up is treated by an average housewife in the same fashion. She buys vegetables for the winter when they are cheaper. So the idea is wrong that these intermediaries, who cash in on a special situation, are a "public enemy."
Nevertheless, this is only part of the picture. Speculation always leads to corn, wheat or anything else being transported, in time, from a period of relative abundance to one of great shortage. Consequently, speculators level the flow of commodities in time and diminish price fluctuations. Since these fluctuations are a peril for those who cultivate wheat or corn, or for those using it, in reality speculators abate the risk to others. In other words, they "buy risk" in hopes of profit, from people less willing to assume the risk but willing to pay something as an anticipated (lesser) profit to avoid it.
All of this demands a speculator to be very precise in his expectations. What happens if bakeries resort to imports for cheaper flour? The low wheat supply does make flour more expensive, because the speculator banks on a higher wheat price.
Then, speculators will undergo losses where they expected gains. They should not be expected to behave as such unless they are ignorant. But none of them knows everything. Speculators make mistakes, too. Why, then, would they be called speculators? They (like us) live in an uncertain world, and have no other option than to buy in the presence of uncertainty. We cannot escape uncertainty and the consequences of ignorance by refusing to think about the future. And if we do, we may know more than speculators do. We can counteract them by betting against them and scoring the profit ourselves. It is interesting and important to note how people who criticise speculators for misinterpreting the future rarely voice their own intuition (which is allegedly better). Of course, on the information market, "late intuition" is in ample supply, and thus has a low price.
For a proper operation of the markets, information plays a major role. As any economic commodity, information is important because it provides greater chances in exploiting the comparative edge. Speculators supply information. Their offers to buy or sell cereals reflect their reasoning of the future compared to the present. Consequently, prices generated by their activities are like any other indication of value. In other words, decision makers value information on the cost of chances, present and future.
Indeed, in our eyes the information they provide is "wrong" every time they go wrong. To insist on this is to return to the comparison of a situation with another, which is better but unattainable.
Come to think of it, farmers could read the future better than speculators. They are free to express whatever they believe to be right and cash in on their competence.
In time, people whose business involves the use of commodities which are speculated must efficiently use the general information supplied by speculators. Therefore, farmers look up prices anticipated in commodity exchanges, and industrial users (bakers and millers) do the same.
We all use prices as information, and prices reflect competing auctions and offers, inevitably based on a (speculative) interpretation of the future. Reflecting on the above, you may conclude that a significant portion of the public distrust and aversion for speculators probably comes from the suspicion that speculators unrightfully use the edge they've gained with information.
If they anticipate that corn prices are about to go up in autumn, and livestock breeders believe them, they will try to ask for subsidies, higher import duties, etc. The same information will reach importers, who will move to complete the deficit of meat on the market as a result of higher prices.
This is how the Meat Employers Union came to demand the Government to extend the validity of import duties for chicken meat (raised at domestic producers' demand from 15% to 45%). Also, according to CEFTA accords, imports in this sector will be subjected to contingents. Although the Government protects domestic producers, for economic or electoral reasons, consumers are those who suffer at the end of the day.
In this "chicken ethnic war" (domestic vs Hungarian) the one who loses is the Romanian consumer, who would pay 40,000 lei/kg instead of 65,000 lei/kg for imported chicken, and save 25,000 lei. The domestic producer would restrain production or even go bankrupt. And let's not dramatise everything and say jobs would be lost.
The 25,000 lei saved by the housewife in her "anti-patriotic" gesture would afford her a pack of detergent, three lumps of soap, a book, or perhaps a couple of beer bottles for the tired husband who comes from work. This saving will encourage production and demand for jobs in detergent, soap and beer factories.
Moral: in the economy, as in life, don't believe everything you see. Often, "that which is not seen" (the housewife's potential saving) is much more important. Apparent antagonisms, at a closer inspection, may turn out to be in harmony.
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