A Call for Regulatory Vigilance in Malta’s Food Import Sector

By Stefan Gauci Scicluna

Political Economy Analyst and Business Lecturer?

14th October 2023

In the economic labyrinth where subsidies and regulations intertwine, the Maltese government faces a crucial conundrum: to subsidize or to regulate? With a significant proportion of food and drink being imported, the impact of global inflation, particularly in the context of the pandemic, has been palpable on the Maltese shores.

What role should the government play in this scenario? What is the impact of large food and drinks importers on supermarkets, small food outlets, restaurants, and the final consumers? Do small shops have to face higher prices from local importers? And what happens if a retail business decides to buy directly brands from abroad that are being sold by existing local importers?? Furthermore, can food retail outlets form associations to have a stronger purchasing power versus food importers? People are asking why food prices keep on going disproportionately up, and we need to understand the issues and the way forward.

The imbalance of purchasing power between importers and retailers

I understand that prices have started going up since last year, not only in Malta but across the world. This issue of food price inflation in Malta goes beyond imported prices as such. It is a fact that Maltese food retail buyers can buy imported products from abroad at much lower prices.

But you ask me, why don’t they import products themselves? This touches on the main argument regarding the dominant position of the food importers in Malta who manage hundreds and thousands of brands versus the retail outlet buyers. As we can all understand, supermarkets and other retail outlets want to make sure that they can continue selling the brands people want.?

However, I would ask whether they can truly buy a particular brand from abroad and bypass the local importer without any negative impact on the annual incentives provided and the rest of the brands they want to buy locally from the same local importer. I’m asking because I talk and deal with retail businesses, and they mention these issues repeatedly. They want to be free to buy from wherever they want, but they cannot do it because of local market forces and the risk involved.

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The Subsidy Dilemma?

There are calls from certain players to subsidize prices. Subsidizing imported food and drink, alongside utilities, has often been perceived as a straightforward tool to alleviate immediate price pressures on consumers. However, the long-term viability and economic implications of such subsidies must be scrutinized. Subsidies tend to create dependency, mask inefficiencies, and potentially de-incentivize local production and alternative solutions. Rather than being a sustainable solution, they might merely serve as a band-aid, temporarily veiling the underlying systemic issues in the local economy.

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Regulation and Market Dominance

On the flip side, effective regulation, aimed at preventing market dominance by select players, offers a potentially more sustainable approach to preventing exacerbated price surges and a healthier market composed of large and small players. In Malta, a few companies dominate the food import sector, enjoying a quasi-monopolistic grip on the market through their dominance in the hundreds and thousands of brands they manage. This concentration of power enables them to significantly influence prices, often to the detriment of consumers and small-scale businesses alike.

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Greedflation: An Unspoken Culprit

The term "greedflation" – inflation driven by the monopolistic tendencies and excessive profit motives of dominant market players – aptly describes this scenario. When businesses, unhindered by competitive pressures, raise prices to capitalize on supply constraints or elevated demand, consumers bear the brunt of unjustified price hikes. In the context of Malta, where the economy is permeated by a limited number of dominant players across various sectors, from import and retail to utilities, the risks of greedflation are notably high.

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The Need for Stringent Antitrust Mechanisms?

Antitrust mechanisms need to be robustly enforced to dismantle the monopolistic structures that foster greedflation. Whilst Malta does have regulatory bodies like the Malta Competition and Consumer Affairs Authority (MCAA), their effectiveness in fostering a truly competitive market landscape is questionable. The government, thus, must pivot more from being a provider of subsidies to becoming a stringent regulator, ensuring that no single entity or a coalition thereof has the undue leverage to manipulate market prices for its own benefit at the detriment of the consumer.

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Transparency and Accountability in Price Formulation

Price transparency is another pivotal aspect where the government’s regulatory prowess can shine. Ensuring that the cost structures and pricing mechanisms employed by importers and retailers are transparent and justifiable prevents unwarranted price escalations. Establishing frameworks that necessitate businesses to elucidate the rationale behind price alterations, especially during periods of economic instability, can shield consumers from arbitrary price hikes.

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Global Perspectives: Learning from Others

Global perspectives further underscore the importance of regulatory efficacy. For instance, the European Union’s stringent antitrust laws and their implementation have often been hailed for maintaining competitive markets, even though challenges persist. Similarly, countries like Singapore have managed to foster vibrant competitive landscapes through rigorous regulation and fostering SMEs, despite being heavily reliant on imports.

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I must also mention the fact that in the EU, retailers, and suppliers are pushing for European purchasing alliances like Eurelec, CORE, AMS Sourcing BV, AgeCore, ITM International, European Purchasing Group, and Alidis. Moreover, there is an entity called Independent Retail Europe that works directly with Chambers of Commerce across the EU member states, who support independent retailers to be stronger and more independent. However, I would ask whether the Malta Chambers supports small retailers through similar European networks.

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My Final Thoughts

Functioning regulatory vigilance safeguards against market exploitation, fostering an environment where fair pricing, innovation, and consumer welfare are paramount.

The Maltese government, thus, is at an economic crossroads. By eschewing the path of subsidies and embracing rigorous, transparent, and accountable regulation, it can foster a market where competition thrives, innovation is nurtured, and the spectre of greedflation is diligently kept at bay.

In the delicate balance of economic stewardship, the scales must tip towards regulation and competitive facilitation. Only then can a sustainable, equitable economic future be envisioned for Malta, where the ripples of global inflation are mitigated not by governmental intervention but by a market that is inherently resilient and consumer-centric.

#EconomicSustainability #MaltaMarketRegulation #AntiTrustMechanisms #SMEEmpowerment #Greedflation #PriceTransparency #CompetitiveLandscape #SubsidyVsRegulation #ImportMarketControl #ConsumerProtection?