What would you do if you needed to quickly stock up staples at home to deal with an impending crisis? You would, most likely, look up the stores and order from those that offer the best price.
Now, what if, many others like you decide to stash the same goods for they too sense a looming emergency? They too, like you, will scout for the supplier with the best price.
There’s nothing unusual about it.
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The problem arises when the goods that you are seeking to amass are in extreme short supply. The problem compounds even further when there are only a very few producers of these goods. It gets even more complicated when the nature, and technology, of production does not allow quick capacity ramp up by adding assembly production lines rapidly.
You, and many others, would be jostling against each other to get a bigger slice of these deliveries as soon as possible. This, in effect, seems to be playing out among Indian states in the race to secure large volumes of COVID-19 vaccine supplies as quickly as possible.
Bid To Outbid
On May 12, the Municipal Corporation of Greater Mumbai (MCGM) floated global tenders to acquire 10 million doses of COVID-19 vaccines for Mumbai citizens at the earliest.
Uttar Pradesh, one of the most severely-affected provinces, has floated global tenders for 40 million doses. Others like Delhi, Tamil Nadu, Karnataka, Odisha, and Andhra Pradesh are in the process of issuing tenders.
This follows the Centre’s decision on April 19 to allow opening up vaccine procurement and empowering state governments to procure additional vaccine doses directly from the manufacturers.
The ability to carry out the world’s mass vaccination exercise in record time, will depend on keeping vaccine supplies of hundreds of millions of doses flowing uninterruptedly for months.
India’s first goal should be to vaccinate about 700 million people, which would include all above the 18 years. The task, for vaccine producers and the government, is to secure continuous supplies of 1.4 billion doses over a 12-month period. Given this titanic necessity, the current COVID-19 supply capacities fall significantly short.
Currently, two vaccine producers — the Pune-based Serum Institute of India (SII) and Hyderabad-based Bharat Biotech Ltd (BBL) — are producing 85 million doses a month in India. The SII is manufacturing 65 million doses of Covishield, while BBL is producing 20 million doses of Covaxin a month.
This, effectively, translates into just above 2.8 million jabs a day. The current rate of about two million daily shots is primarily driven by existing supplies that have been stockpiled since January.
Seller’s, Not Buyer’s, Market
Both SII and BBL have a limited pipeline of stocks and states have not been able to secure procurement contracts for assured vaccine supplies from either. Several state governments, therefore, have decided to scour the world.
The Centre now allows import of fully ready-to-use COVID-19 vaccines and states want to scout around the globe to strike supply contracts. This is, however, not prudent economics.
For one, there are only a finite volume of vaccine doses available in the world. Too many buyers entering the market would only end up pushing up prices. Worse, states will end up inflating costs even without ensuring immediate supplies.
In ordinary circumstances, when a bid is floated for buying products in bulk, it is the buyer who commands the market. The buyer would, assuming reasonable quality, end up buying from the supplier who offers it at the least price, exemplifying a ‘buyer’s market’ phenomenon. With competition among potential sellers, the buyer is also in a position to negotiate better deals including timelines for deliveries.
In the case of COVID-19 vaccines, the opposite is likely to play out. There are too many buyers (state governments) chasing too few sellers (global vaccine producers) with limited production capabilities.
In this race, the state governments carry the risk of stitching up supply deals not only at high prices, but also fail to negotiate timely deliveries. What if a state government manages to ink a vaccine supply contract edging out others, including many national governments, offering a higher price, but the vials arrive only in September? The net result: high prices and crucial time lost due to late deliveries.
A single national tender may be a better option. India, as a sovereign entity, invites global bids for vaccine supplies. This will eliminate the unhealthy competition among states, and can help keep the prices low. The flip side, however, is that the Centre as a single canalising agency for imported vaccines could make states dependent on the central bureaucracy for last mile deliveries to their destinations.
That said, on balance, a national bid for global vaccine supplies still appears a better option than states pushing and shoving around among themselves to secure vials for a country that otherwise takes pride in being the pharmacy to the world as also the world’s largest vaccine manufacturer.
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