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Why You Can’t Just Simply Raise The Price Of Fishball Mee And Expect Young Hawkers To Do Better

Just because you raise prices doesn’t mean net profit will increase.

 

In the past month, many bloggers and food websites have been advocating an increase in local food prices in support of existing younger hawkers and encouraging a future generation of hawkers.

Their kind intentions cannot be faulted; the local food culture in our country is built upon all the great and diverse food found in many of these local hawker centers and coffeeshops, and we need this culture to persist.

If the new generation of Singaporeans do not find sufficient incentive to be a hawker given the hard work and long hours required for the job, then the trade will eventually disappear. That’s the argument.

We take a look at whether the matter can be resolved by simply increasing the prices of local food in hawker centres. Would this translate to a more lucrative business and career for local hawkers?

David Ricardo’s Law Of Rent

David Ricardo (April 1772 – September 1823) was one of the most influential British economist who also served as a Member of Parliament. He formulated the theory of the Law Of Rent, which explains how the rents of land sites are set in place.

The Law Of Rent States that the rent of a land site (your coffeeshop space) is equal to the economic advantage (how much more you can make) obtained by using the site in its most productive use (selling fishball mee), relative to the advantage obtained by using the marginal land (a lousy location) for the same purpose, given the same inputs of capital (your equipment, ingredients) and labour (salary of the hawker and his helpers)

A little complicated, but here are some thoughts based on our understanding of David Ricardo’s Law Of Rent.

1.  The theory indirectly implies that if the price of a certain good being sold (e.g. fishball mee) were to increase, there will be a higher “economic advantage”. This “economic advantage”, being that it should equate to rents, will cause an increase in the rental of the fish ball mee stall.

2. Rental is all about location. The rent at a hawker center in a prime location such as Lau Pa Sat will no doubt be higher than the rental of a space at the local coffeeshop (marginal land site) in the neighbourhood.

3. Contrary to popular belief, landlords do not have infinite power to increase their rental cost at will. Hear this. They only have it because there isn’t a shortage of hawkers willing to pay and compete for the land site. Ironic?

What Can We Learn From This? 

There are a few things we can understand from our evaluation. For starters, as rosy as the picture may appear for all of us in Singapore to start paying $1 more for our fishball mee, nasi briyani or nasi padang to support local food and hawkers, there is no economic theory to suggest that these additional revenue will eventually translate into better profits for these young enterprising hawkers.

With all due respect to the trade, fishball mee stalls are fairly common in Singapore and there isn’t a shortage of good hawkers (or bad ones). In theory, perfect competition suggests that if existing players make excess profits, new entrants will bid up the price of the existing rent such that no economic profits are made. So it doesn’t matter how much you pay for your fishball mee because ultimately, the net profit to young hawkers will not increase, because there is someone else already willing to make fish ball mee (good or bad) at that price.

In Singapore, due to the lack of space, paying more for your fishball mee will only make the landlord of the coffee shop richer.

What Singaporeans Can Do? 

There is however one thing Singaporeans can do together to help good local hawkers fare better. And that is, to simply boycott the stalls that are bad. When you give your business only to good hawkers, you force the bad ones out of the industry.

That gives the existing hawkers more flexibility with their quality and quantity, rather than to be forced to compete on price with other sub-standard hawkers.

At the same time, landlords do not have leverage against the remaining good hawkers because are less takers for land site with fewer players in the industry.  In this way, a fish ball mee seller can retain their price, sell more bowls of noodles while obtaining a more affordable rent.

This, in our opinion, is a much more feasible solution than to suggest a blanket increase in price across the board for all local food without regards on the long term implications of inflation that it will cause.

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