Uncontrollable price hike?

Provincial food departments in Sindh and Punjab have failed to ensure smooth supply of essential commodities

Prime Minister Imran Khan has called the price hike artificial and a conspiracy against his government. He was speaking at a party meeting in Islamabad on November 15.

However, economists, however, believe that it is not a conspiracy against any government but mismanagement and bad governance on the part of the government, especially at the provincial and municipal levels.

They also argue that the price hike is the result of a number of economic factors, such as substantial increase in the prices of utilities — gas and electricity, petroleum products, reduction in agricultural production and devaluation of rupee.

“Increased government borrowing from banks and international lenders because of low tax recovery and increase in interest rates are also reasons for the rising inflation,” says Dr Shahid Hasan Siddiqui, a senior economist and chairman of the Research Institute of Islamic Banking and Finance.

He says hoarders and mafias also have a role in increase in prices of commodities with the support of government machinery. “Increase in sugar and wheat prices is an example. Indirect taxes have also increased, which has affected the poor and middle classes,” Dr Siddiqui adds.

The Food Departments in Sindh and the Punjab have failed to ensure smooth supply of essential commodities, like wheat and flour. Flour mills in Sindh have been complaining that commodity traders are hoarding wheat to manipulate the prices.

To make matters even worse, the Sindh Food Department did not procure wheat this year on the pretext that government warehouses were full with last year’s storage. This resulted in an exponential increase in the price of a 100 kg bag of wheat in November.

Flour mills say it was not the wheat crop that failed this year. It is but due to corruption, mismanagement and inefficiency in the provincial governments that prices have increased and are still rising. This year, the government also allowed export of wheat before disallowing it in September after a significant amount was already sold.

According to statistics of the Department of Plant Protection under the Ministry of National Food Security and Research around 17655 tons of wheat was exported between August 1, 2018 and August 25, 2019.

Mills are of the view that since the government had realised that earlier estimates of wheat supply were not correct it should have allowed prompt import of wheat to fill the gap.

Sindh’s wheat crop comes early in the market. But this year, due to food department’s failure to procure the commodity traders found an opportunity to make windfall profits. They purchased the crop cheap from Sindh’s growers and sold it in Punjab’s markets at higher rates. The raise in wheat procurement price has thus not benefitted the growers. Only some traders have minted money.

Interestingly, there was an official ban on the movement of wheat in the Punjab. Early supply of wheat from Sindh to the Punjab resulted in an artificial shortage of wheat in Sindh. Thus, the price of a 100-kg bag of wheat rose to Rs 4,400.

The federal cabinet’s Economic Coordination Committee (ECC) asked the Pakistan Agriculture Storage and Services Corporation (PASSCO) to release 650,000 tonnes of wheat to the three provinces — Khyber Pakhtunkhwa, Sindh and Balochistan. Sindh has reportedly received 100,000 tonnes from the PASSCO so far.

Experts say such price hikes are the result of mafias’ control on supply of essential food items like sugar, wheat flour, and milk. District administrations responsible for price control have miserably failed to control prices. For example, the commissioner of Karachi has fixed the price of a litre of milk at Rs 94 but nowhere in the city is it available at the official rate. It is being sold at Rs 110 to 120 per litre.

“We have been raising our voice on price control in the meetings at Commissioner’s office in Karachi but the administration seems helpless in dealing with profiteers,” says Shakeel Baig, chairman of the Consumers’ Rights Protection Council of Pakistan.

The case of the prices of roti and naan is no different. The government has asked the tandoor owners to sell a 150-gram roti at Rs 10 but it is not being sold at the official rate anywhere in the city. “We have conducted our own research in the market and we have found that tandoors sell a 110 or 120 grams naan, which should cost them around Rs 8,” he says. Tandoor owners, however, come up with their complaints of raises in flour and gas prices.

In August this year, the prime minister had asked gas companies to reduce gas rates for naan/roti makers in response to public complaints. Reports from various cities indicate that prices have not been reduced.

Electricity, gas and petroleum prices have risen countrywide since early 2018. This has affected every section of the society. The Gross Domestic Product (GDP) growth rate has shrunk this year to 3.1 percent and growth in large-scale manufacturing was reported to be negative due to financial crisis.

The sky-rocketing prices of fruits and vegetables, especially tomatoes, have made lives difficult. Once prices of a kilogram of tomato crossed Rs 400, the government found no other solution but to allow import of tomatoes from Iran, which took some time to reach the Pakistani markets.

Import of tomatoes from India is still banned. Some three years ago, regulators had found infectious germs in the Indian tomatoes, so they put a ban, which remains in place. However, local production of tomatoes is insufficient to meet the demand.

Sindh is the province where crops ripen first, followed by southern Punjab and Balochistan. But this year, the tomato crop in Sindh was badly affected due to climate change. It was destroyed at the sowing stage due to heavy monsoon rains followed by rains in September and October, which resulted in heavy losses to growers.

“Farmers had to re-sow tomato seeds after the rains ended. The crop yield was about 40 percent less than its regular production,” says a local farmer. The tomato crop from southern Sindh, especially from district Badin, has started arriving in Karachi’s vegetable markets. However, it is still insufficient to fulfill the demand. With the arrival of Iranian supply, prices of tomatoes have dropped to around Rs 200 a kilogramme.

Uncontrollable price hike in Pakistan?