Chan Chun Sing explains how panic buying can cause prices of goods to increase

Self-fulfilling prophecy.

Mandy How | Jeanette Tan | March 31, 2020, 06:44 PM

The Covid-19 outbreak has seen panic-buying in Singapore.

While that has generally proven to be a bad idea, Minister for Trade and Industry Chan Chun Sing explains the specifics behind it, at a media doorstop on Mar. 31.

Chan, expanded on what individuals can do to strengthen Singapore's position, in order to strengthen resilience for Singapore's food supply.

One of the topics he touched was keeping a collective calm.

So here's why panicking is not a great move.

Better bargain from suppliers

One of the reasons, according to Chan, is that panic buying tends to drive prices up.

Here's how.

Singapore gets its supplies from a number of countries.

Even with travelling restrictions and border movement controls, the government ensures that the flow of goods between two countries, especially essential supplies, food and medicine, remains constant.

However, while that is being done, it is nonetheless important for Singaporeans to maintain a "collective calm", as this will help our purchasers around the world to secure the supplies at competitive prices.

Chan said,

"Because when people see us maintaining our calm and composure and people know that we are not panicky or desperate, it helps our purchasers all around the world to get a better bargain.

[...]

Then we won't see this sharp increase in prices that we are all worried about."

Disruption of supply chain

Another factor that adversely affects price stability is supply chain disruption.

When there is a panic run to the supermarket, the supply chains get disrupted, resulting in a cascade effect.

Chan uses one aspect of restocking a supermarket as example.

"Usually, we need so many trucks, so many drivers to re-supply a supermarket.

But when there's a [panic] run, suddenly, we need to double, triple the amount of resources, number of trucks, number of workers to resupply this particular supermarket on this particular product.

It means that we have to draw in the logistic assets from elsewhere to come and do this right. But once we do that, it affects the rest of the other supply lines. Then, if we are not careful, then we can lead to a situation where it becomes a self-fulfilling prophecy and a self-feeding frenzy."

While using resources from another area to make up for an artificial lack in another, it creates a second shortage, Chan elaborated.

What that happens, and people react to the second shortage, it becomes another situation.

This is why supplies have to be distributed systematically, so that it does not end up causing "unnecessary panic" within the society.

"And so long as everybody buys responsibly, what they need. It's okay to keep a small emergency stockpile, but not too much. If that is the case, then we will have enough to go around and our logistics chain will be able to operate smoothly without this kind of feast and famine pattern, which is not healthy for the logistics system."

While fear is an expected reaction when faced with uncertainty, Chan continued, it is collective defence that makes the strongest defence.

He also urged Singaporeans, while individually fearful, to remember the more vulnerable members in the society, and to reach out to help them.

Top photo via Joshua Lee, Chan Chun Sing's Facebook page