Hoarding: Storage for Off-Season Sale
Q: When a certain commodity is in season, it is available in large quantities and at cheap prices. Later, when the supply decreases, the price increases. This is normally a gradual process. Some businessmen buy large quantities of crops and commodities when they are in high season and store them in order to sell them when the commodities are in short supply. In this way, they make better profits. Is this acceptable or does it come under hoarding?
A: We have to differentiate between monopoly and a good sense of business. It is a wise businessman who buys his supply of goods in season when the prices are down. If he stores them for a period of time and manages to keep them in good condition, he is able to make good profit when he releases his stock when the commodity is out of season. In this way, he makes a good use of the relationship between supply and demand. If such a businessman plays fair, there is nothing wrong with his practice. The profits he makes are legitimate. But I must emphasize the aspect of fairness in this game, because it is a very important aspect. The businessman must be fair to his fellow businessmen and to the consumers.
Perhaps the best way to illustrate the aspect of fairness is to explain what is unfair. This is normally known as hoarding or monopoly. Sometimes a businessman or a group of businessmen buys a certain commodity in large quantities. The supply becomes short in relation to the demand. Therefore, the price goes up. Neither the short supply nor the higher price is natural. Both have been artificially created by hoarding. It is only because the commodity has been withdrawn from the market that the prices go up. This is the very purpose of those businessmen who combined efforts and bought the commodity. Their only interest is their own profit. Their practice is undoubtedly forbidden.
It may be suggested that in both cases, businessmen have bought large quantities of a certain commodity. What makes the first practice legitimate while the other is forbidden? The answer is that in the second case, the whole process is artificial. In the first one, it is natural. In order to differentiate one from the other, an important condition must be met. That is, the commodity itself must remain in good supply in the market throughout the period between buying it at cheap prices in season and releasing it later. When the commodity is not available, the businessmen who bought it in season must release it. Otherwise, they become hoarders and their practice is no longer legitimate. The difference between the two situations is very simple. Every businessman must understand this and should be careful lest he steps over the boundaries of legitimate practices.