Vitamin C Can’t Fix This
Vitamin C, the Old-Fashioned Way
Vitamin C is good for you, right? So how come some governments are making it tougher to get? It’s the old story of comparative advantage subverted by government actions.
India has had a healthy $43 million market for Vitamin C, and Indian manufacturers did well supplying the health supplement. As often happens, foreign suppliers – in this case, Chinese companies – saw the market growing and moved in with a less expensive or better product. Some of the less competitive Indian producers folded. Just the way Adam Smith said it was supposed to work. Indian producers grumbled, of course, but the Chinese prices prevailed.
This all began to unravel, according to an article last week in Asia Times Online, when China began to get serious about controlling pollution at its factories. Some Chinese plants that make Vitamin C (or the special salts that are used for making Vitamin C) were shut down – and others had to raise their prices to pay for the pollution controls. All this caused a shortage of affordable Vitamin C in the Indian market. A classical economist would expect that Indian producers would have risen to the opportunity. But no. Their own government put a stop to that.
The Chinese situation forced a rise in the world price of the salts used to make Vitamin C, but Indian regulations on pharmaceutical pricing won’t allow Indian producers to pass on the price increase to the Vitamin C consumer. So Indian producers haven’t stepped up production to meet potential demand in their own market. Then, in a belated and misguided attempt to protect India’s Vitamin C producers, the Indian Government imposed an anti-dumping duty on Vitamin C from – you guessed it – China. This duty further raises the price to the Indian consumer of a product that had already had its price raised by the cost of environmental protection in China. (One marvels at the creativity of the Indian bureaucrats who found a dumping margin on a product with rapidly rising prices.) This would be a wonderful opportunity for Indian pharma companies, if only they were allowed to benefit from the higher prices, which they are not.
Now the Indian consumer is having a tough time finding Vitamin C at any price, at the same time that a $43 million market has become a loss-making business, leading to another round of scarcity. This is exacerbated by consumer worries about swine flu, which has raised demand for Vitamin C even further. See what happens when governments don’t let comparative advantage work? The Indian government may be harming their citizens health while failing to get the anticipated advantages for their local industry. What next? Scurvy?
