Meddling with the ‘middlemanflation’

LAHORE: Prime Minister Imran Khan has asked the authorities to tame the runaway prices of daily use items and it’s not a big deal as their actual producers part away with them at an extremely low rate leaving things at the mercy of jobbers.

None other than Shabbar Zaidi, the tax wizard, established this fact that in agricultural produce a farmer fetches 15-20 percent of the market price, while the bulk of 80- 85 percent ends up in the pockets of the middlemen, who operate outside the tax net.

In an article published in May this year, Zaidi cited the example of banana produced on the outskirts of Karachi. He said the growers get only a fraction of the market price, while, in the city, it is retailed at five to six times the price they are paid.

When the end users end up paying billions over and above the producers’ price for this minor produce; one can imagine the profitability of middlemen in numerous other fruits, vegetables, and grains on daily basis.

Zaidi in his article revealed that rural and urban parts of economy are suffering in the present system as rural population being the producer is not getting right (appropriate) prices of their produce, whereas the consumers, being unban population, are paying the prices, which are many times higher than the prices received by the producers.

There are huge aberrations in the form of very high margin for the traders (middlemen) without any documentation and incidence for tax. We have been tolerating this practice for decades and no government has ever been able to break the hold of middlemen on agriculture based food commodities. We are passing through a high inflationary phase that is likely to last for a while but at the same time we could bring down food inflation appreciably if we could somehow eliminate the role of middlemen in agricultural commodity business. The federal government does not have the mandate in this regard as only the provinces are authorised to regulate the domestic commerce. The profits the middlemen make remain obscure both from the provincial and federal governments. It is because the entire process of purchase from the farmer and final disposal to the retailer is done without any documentation. The producer has the immunity from income tax but still he takes money without any exchange of documents. The wholesalers and retailers are liable to pay sales tax if their income exceeds a certain threshold. B oth prefer to remain outside the tax net as they do not leave the trail of their sales and purchases. Federal government would need full cooperation of provincial authorities to document these economic activities and ensure that profit earned on the purchase price is fair at each change of hand. The weight of food in the consumer price index is a little over 34 percent. It therefore has significant impact on inflation. The overall inflation could be brought down by 2-3 percent if authorities through prudent administrative measures succeed in bringing down the retail rates of the food commodities by 20 percent. We are sitting on highly exaggerated prices of food commodities on the basis of which not only the inflation remains very high but the state is also deprived of any revenue on transactions worth over one trillion rupees. Food inflation technically is cost-push inflation but realistically speaking this inflation is caused by the monopoly of the middlemen over agricultural commodity trade. The money they make in the process is immoral as they do not pay any taxes to the government. The huge devaluation of rupee has already put the economy on an inflationary path. Import compression and reduction of demand due to higher costs has kept the inflation largely under check.

Otherwise historical experience is the rate of inflation rises on average by about three percentage points due to depreciation of the rupee by 10 percent. Inflation for common man refers to price rise of important essential commodities like wheat, flour, milk, meat, medical services and other essential services of life etc. Inflation affects the whole social framework of society including economy of the country, production and political environment. It also impact the cost of living, the cost of doing business, borrowing, mortgages, corporate, and government bond yields, and every other facet of the economy.