Rice hoarders cause 100 percent price hike

In spite of the fact that Pakistan is one of the largest rice producing countries, having annual production of more than 5 million tons, it is facing an unprecedented price hike mainly because of unchallenged and unchecked hoarding by profiteers, traders said.
Rice, after wheat, is the second largest commodity consumed in the country. Its annual local consumption crosses 2.5 million tons mark and it is considered as poor man's meal. The prices of all varieties of rice, which started soaring in December 2006, have now gone up by 100 percent just within six months, adding extra burden on kitchen cost of the low-income people of the country.
Soon after harvesting of the paddy crop, news of shortage of rice crop in India and Pakistan spread and, in the absence of any scientific crop monitoring system in the country, these reports quickly gained currency, motivating hoarders and speculators to invade markets of this essential commodity across the country.
Sources said that these culprits not only pushed the prices sky high in a very short time but also made helpless those smaller rice exporters who were holding L/Cs for export. It was interesting to note that bigger rice exporters and traders having huge bank finances also joined this marathon of hoarding and manipulated rice supply to the disadvantage of real small and medium size exporters who are considered backbone of the country's exports, they added.
Today, the prices of all varieties of rice have almost doubled and going up owing to strong muscles and big tummies of profiteers and stockiest, sources said, adding that "at the moment rice market is totally in the clutches of these macho men, who are controlling the prices in Karachi and upcountry markets."
These big tummies are fearlessly operating in all grain markets of the country, making billions of rupees' transactions through their established network, and are enjoying tax-free income, they said.
The Export Finance Scheme (EFS), which is meant for value-addition in exports, was also allowed for rice export by State Bank of Pakistan (SBP). It has now proved a brutal weapon, causing ever-high inflation in prices of rice, which is one of the essential commodities.
Sources said that EFS Part-I is availed by exporters on pre- as well as post-shipment basis for 180 days, whereas under Part-II, an exporter may enjoy the export finance limit based on half of his previous year's exports. EFS Part-II is mainly being misused by exporters who avail huge bank limits against stocks pledged at the current rate of 7.5 percent and, after paying bank's mark-up, they sell rice in open market at much higher rate of profit than that of exports at mere margin.
This facility is encouraging hoarding of rice, which is evident from current price hikes. Besides, in volatile market prices, the quality of exported rice has also been lowered, an immoral practice which causes loss of consumers' trust built in the international market over the years, they said, and added that the SBP should immediately suspend EFS Part-II against pledging of rice stocks as has been done in case of wheat, to normalise rice prices.
Rice millers, traders and exporters who have huge finance facilities, as also export refinance facilities (ERF) Part-II, are hoarding rice stocks in bulk quantities against pledging and offloading their older pledged stocks in local markets after enjoying huge premium of Rs 26 per kg in Punjab Super Basmati old crop, which was pledged at an average price of Rs 26 per kg and being sold in local market at Rs 52 per kg this week at wholesale market, whereas same is being sold by Dandia Bazaar traders at Rs 65 per kg.
Punjab Super Basmati new crop was available at Rs 27 per kg in December 2006 which has been traded this week at Rs 48 per kg. Sindh Super Basmati, which was available at Rs 24 per kg in December 2006, was sold last week at Rs 44 a kg. Another variety grown in Sindh, known as D-98, was available at Rs 22 per kg in December 2006, touched the unprecedented level of Rs 42 per kg this week. Prices of non-basmati varieties PK-386 and Irri-9 were also at Rs 22 per kg and Rs 15 per kg respectively during December 2006, and now are being sold week at Rs 42 and Rs 27 per kg, respectively, sources said.
A leading rice trader said that due to erupted high prices, 50 percent of rice reprocessing mills in Karachi have been closed, which halted smooth supply of broken rice to local market. Accordingly, Basmati rice broken, which was previously sold at wholesale price of Rs 18 per kg has now gone up to Rs 36 per kg. 'Ponia' broken and B2 type broken prices increased from Rs 15 to Rs 30 per kg which is mainly consumed by poor people of the country every day. Now the question is that at these exorbitantly high prices, who will manage monthly budget of a poor man who is getting Rs 5000 salary with five children living in a rented house? It is the duty of the government to take effective measures to ensure availability of basic food items at affordable prices to its people, sources said.
It is indigestible to comprehend how the government will provide relief of Rs 5 per kilo discount on rice prices if buffer stocks are not maintained by the government or the utility stores, traders said.
They said that naturally they have to purchase from already inflamed local market through tenders and anyone can imagine what standard of poor quality, adulterated by inferior varieties by the bidders, would be supplied.
If government is really is serious in maintaining smooth price levels of essential commodities, it must maintain buffer stocks of these essential commodities to encounter nasty hoarders and speculators, they suggested. These buffer stocks may be released at the time of any uncertain situation emerging in the country to control price hike, they said.
The Ministry of Commerce should also request SBP for the suspension of Export Refinance Part-II scheme against pledge of stocks till arrival of new crop to create a situation where everyone has the same opportunities, they added.
They said the ministry should realise now that incentives should be given up to a certain level to promote exports, as over-dosed incentives only destroyed the trade. The ministry should also take actions, on its own, to eliminate rice exports on D/A payment, and exports of brown rice.
In most cases, remittance on D/A did not reach the country as the importers refused to pay, or discounted a huge amount, on the plea of lame excuses of quality or other reasons. Major chunks of the stuck up payments include those exports which were made on D/A basis, they said.
Another thing to be noted is that export of brown rice is bitterly damaging export of white milled rice, and brings no benefit to the country as it has to compete with own Pakistani milled value-added rice in the same international market. The Ministry of Commerce should also take actions on its own to eliminate rice exports on D/A payment and export of brown rice, they added.
Further, owing to high moisture content, brown rice is causing problems to the indigenous milled white rice in many countries. The ministry of commerce also discourage the sale of basmati rice in bulk quantities through tenders as this low price exported commodity competes with export of value-added basmati rice in a particular country. Export of Pakistani branded rice in consumers' packing should be encouraged which would fetch premium price of basmati rice in the international market, they said.