Demand, supply and asylum seekers – what has caused the drop in the price for boat people?


The price for Sri Lankan asylum seekers to travel to Australia has dropped significantly. According to this report in the Australian:

Sri Lankan people-smugglers are reportedly offering asylum-seekers cut-price trips to Australia for as little as $500 in a bid to keep the illegal trade alive and swamp the immigration system.

Security services are reporting instances of offers for passage from Sri Lanka to Australia for a small portion of the usual fee of up to $10,000.

The article tends to suggest that the cut-price deals are associated with an increase in arrivals of boat people to Australia.

In the past three months, more than 3500 people have arrived illegally by boat from Sri Lanka, overwhelming the detention system …

Immigration Minister Chris Bowen told The Australian yesterday: “People-smugglers will continue to do everything they can to maintain their trade.”

But at the same time, there have been some high publicity cases of boat people being returned to Sri Lanka.

Mr Bowen said the voluntary and involuntary return of Sri Lankans was beginning to “make inroads” but that people-smugglers would do anything to keep the trade going.

… “The message is being relayed loud and clear in Sri Lanka that people-smugglers are telling lies and making false promises about what awaits people . . .

“Australia has returned a significant number, almost 600 people, to Sri Lanka involuntarily who were clearly economic migrants …”

Further, as the Sydney Morning Herald notes,

Sri Lanka’s people-smuggling industry is not an ad hoc, opportunistic racket, a few struggling fishermen with an old boat and a desire for a new life. It is a business, a sophisticated and well-organised operation, run for profit.

So there is a market for places on boats to Australia that is operating in Sri Lanka. What does the economics of this market tell us about the relationship between the drop in price and the success or failure of the government’s asylum-seeker policies?

Let’s assume that the government’s policy objective is to lower the number of Sri Lankan asylum seekers trying to reach Australia by boat. So really we don’t care so much about the price but about the quantity. Does the drop in price reflect a reduction or an increase in the number of Sri Lankan’s risking their lives to reach Australia?

The price drop could reflect two things – a drop in demand for places on the boats, or an increase in supply. Both of these changes will lead to a fall in price. But they have very different implications for the number of asylum seekers trying to reach Australia.

If the price drop is driven by a fall in demand, then this suggests that the government’s policies are working.

A fall in demand would mean that potential asylum seekers see less benefit in buying a place on a leaky boat. For a given price, fewer asylum seekers want to buy such a place. This may reflect that asylum seekers see greater safety risks in using those boats, but it is not clear that a higher proportion of boats are sinking today than in the past.

Alternatively, lower demand may reflect that potential asylum seekers see their chances of successfully gaining residency in Australia as lower than in the past. The recent return of Sri Lankan asylum seekers may have changed perceptions so that “buyer’s” of boat places see their chances of successful asylum falling.

So if the drop in price reflects a fall in demand then the government can claim that their suite of ‘deterrence’ policies are starting to bite. And this would be reflected in a drop in the number of asylum seekers coming to Australia from Sri Lanka. In economic terms – a fall in quantity.

Alternatively, the drop in price may reflect an increase in supply. This would be driven by boat owners and organised crime in Sri Lanka expanding their activities. If this has occurred then, for a given price, more parties want to supply space in boats to potential asylum seekers. Why?

Well the boat owners and organisers must see the ‘asylum seeker’ business as more profitable. This is likely to reflect changes in Sri Lanka itself. For supply to increase, whatever barriers were restricting entry into the ‘boat people’ business in Sri Lanka must have decreased and more entrepreneurs must be seeing a potential profit in people smuggling.

These barriers may relate to information. Put simply, the ‘word may have got out’ that using fishing boats to ship people to Australia is more profitable than using those boats to fish, encouraging more entrepreneurs and criminals to enter the people smuggling racket.

Alternatively, there may have been other changes in Sri Lanka that have encouraged more people to become people smugglers. But I have no information about these possible changes.

If the drop in price reflects an increase in supply then this would be bad news for the government. It would mean that the deterrence policies are not working. Indeed, it would reflect that the government is probably focusing on the wrong areas. Supply-side factors are likely to be driven by developments in Sri Lanka and if the government wants to deter the boats it would need to work closely with the Sri Lankan government to stem the supply. And the drop in price will be reflected in an increase in the number of asylum seeker arrivals.

So the key issue for the government is not the price drop by people smugglers but the cause of the drop in price –  whether it is driven by decreased demand or increased supply.

This ‘market analysis’ is more than an intellectual exercise. Understanding the cause of the price drop will help the government understand the impact of its own policies. And it will tell the government whether it is focussing its attention in the right place. Even if deterrence policies are having some bite, if these are being swamped by a supply-side expansion in Sri Lanka then the government needs to refocus on the source of the problem – and that is overseas.

3 Responses to "Demand, supply and asylum seekers – what has caused the drop in the price for boat people?"
  1. Do you any sense of the $$$ involved to “work closely with the Sri Lankan government to stem the supply”? And, if we paid them to attend to the serviceability of selected fishing boats, would we have any say as to their methods?

  2. There’s a lot more you can write about the perverse economics of this business.

    For example, the policy of confiscating and burning the boats ensures that only those too unseaworthy even for Indonesian fishermen are used, These are then grossly overcrowded (gotta amortise that capital loss). And crewed wholly with minors with little seagoing experience (cheaper to hire than skilled sailors and anyway the Aussies don’t like jailing kids).

    What I can’t understand is how the punters don’t insist that full payment only occurs AFTER successful resettlement (an earlier generation of boat people also died in large numbers on the voyage to Australia until the UK government started paying the shipping companies only for convicts delivered alive and well). One possible interpretation of the nosediving price is that such a market has in fact developed – the $500 is just a deposit, with the rest to be extracted later from either family remittances or by local representatives.

    Or it could just be that the publicity of the returns has forced the business downmarket to a more price-sensitive segment too poor to read the papers.

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