Egg prices fluctuate. Does that mean the market is rigged?

Over the last few years, the Bangladesh Competition Commission accused many poultry companies of artificially increasing the price of chicken and eggs. Several poultry companies, including Kazi Farms, were ordered to pay fines of crores of Taka. However, the proceedings made it clear that the Commission did not understand the economic principles which cause prices to fluctuate in markets for agricultural commodities. 

The Competition Commission's method of inquiry was to compare cost of production and selling price. A short period of "unusually high" profit was considered evidence of collusion. This does not accord with economic theory. Price fluctuation is normal in markets for agricultural products. Eggs and chicken, like other agricultural products, are not made in factories, but grown on farms over a period of months. The quantity of vegetables available in the market today depends on how many acres were planted with vegetables by farmers at the beginning of the last vegetable growing season. The same principle applies to eggs and chicken. 

How do farmers decide how many vegetables, eggs or chickens to produce in each growing cycle? Supply and demand determine the market price at any given time. If there is a shortage today, the market price today will be high. A high market price today will motivate farmers to produce more in the next production cycle. So a high price today will lead to more production (more supply) in the next production cycle. When the increased supply reaches the market, the price will fall.  

Prices of agricultural commodities fluctuate in the short term. However, as food demand gradually increases (as the population increases), periodic shortages will cause periodic high market prices, which will motivate farmers to increase production. So over time, the fluctuating market price will cause supply to grow to match increasing consumer demand.  

Occasional high prices are considered fair by economists, as long as there are many producers competing with each other to sell the same products. In fact, the markets for chicken and eggs in Bangladesh are competitive markets. Tens of thousands of small producers (and a handful of large companies) sell these products to traders. If any farmer or company tries to sell at a price higher than the market price in his area, traders will not buy from him.  An economist would say that any market with thousands of sellers is a competitive and fair market, and not susceptible to collusion.

The prices of eggs and broilers continuously fluctuate in Bangladesh, and broiler and egg farmers usually make losses for at least a few months each year. The fluctuations we observe are evidence of a competitive market.

It takes time to grow chickens. If a farmer buys day-old chicks today, he will have broiler chickens in 35 days, or eggs in about four months.   However, farmers do not know what the price of eggs or broilers will be in the future. No one can accurately predict future prices. In a particular production cycle, there might be a surplus (too much production compared to the demand) or a shortage (too little production).  

Such imbalances cause prices to fluctuate. This explanation of agricultural commodity price fluctuation is called the "cobweb theory." It was named by economist Nicholas Kaldor at the London School of Economics in 1934. Within a few years, chapters on the cobweb theory were found in economics textbooks such as 'Agricultural Price Analysis' by Geoffrey Shepherd, which was published in 1947 (which is available for free download from Iowa State Digital Press). 

Let us look at the egg market. Just a few months ago, the supply of eggs exceeded demand. This resulted in a low price of eggs during the first few months of 2026. The low price made farmers pessimistic and motivated them to buy fewer day-old chicks (to produce a smaller quantity of eggs in the future). The result is that today, the supply of eggs has fallen, creating a shortage. The reduced supply has resulted in a higher market price today.  

It is critical to understand that today's shortage and consequent high price happened naturally, without collusion among suppliers. When the egg price was low, farmers were unable to predict today's high price. If they had been able to predict the future, they would have produced more eggs to sell today. However, the market corrects itself. Farmers will see today's high price as an incentive to produce more in the next cycle. So they will buy more day-old chicks today and will produce more eggs in a few months. So the high price now means we can expect higher egg production (and a lower egg price) in just a few months. 

This sequence of events describes the cyclical fluctuation of prices normally seen in markets for agricultural products. Economists say that the natural remedy for a shortage is a temporary high price. In a competitive industry, a high price always results in increased supply, which reduces prices over time.

From the above, it is obvious that the Competition Commission's repeated accusations of price manipulation (whenever egg or broiler prices increased) were misguided. Cyclical fluctuations in agricultural markets are normal and do not indicate collusion. There might have been grounds to accuse the poultry industry of wrongdoing if high prices persisted for a year or more, and if supply did not increase to reduce the shortage. 

However, this has never happened. The cobweb theory predicts that prices of agricultural products will fluctuate in a competitive environment. The record of egg and broiler prices shows that these prices behave as the cobweb theory predicts. 

There is further evidence that the poultry market is competitive. If prices were being controlled by a cartel, egg farmers and broiler farmers would never lose money. Cartels reduce production to ensure continuous high prices and profits. But in fact, the prices of eggs and broilers continuously fluctuate in Bangladesh, and broiler and egg farmers usually make losses for at least a few months each year. The cobweb theory predicts such price fluctuations in any competitive market for agricultural products. So the fluctuations we observe are evidence of a competitive market. 

Other countries also have competition agencies. In developed countries, such agencies are generally staffed with professional economists holding either Master's or even PhD degrees. An advanced understanding of economics is required to determine whether high prices are caused by illegal collusion. 

Unfortunately, the proceedings conducted by our Competition Commission showed that it lacked economic expertise. It was apparently unaware of economic theories such as the cobweb theory, even though this has been presented in many economics textbooks over the past century. 

The Competition Commission has erroneously concluded that cartels control the competitive chicken and egg markets. Ordering companies to pay crores of Taka in fines without justification has discouraged investment in these industries and slowed down their growth. To ensure justice, as well as the future growth of the poultry industry, the baseless cases against poultry companies should be dropped.

Zeeshan Hasan is a director of Kazi Farms Group 

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.