After a wild ride lasting 2 years, regional disparity between flour prices seems to be returning to its long-term range. Since July 2021, premium between flour bag price in Karachi and Lahore has fallen to 1.13 times, down from average 1.40 times starting September 2019 to March 2021. Conversely, wheat (grain) in Karachi is now back to trading at 1.10 times its price in Lahore, which had fallen to a discount of 0.9 last year.
What does this mean? Traditionally, commodity prices are higher in Karachi than elsewhere in the country (Islamabad may be a conspicuous exception to this rule). This is chiefly attributable to greater per capita demand in the port city, higher income and spending levels, and distance from farms. Thus, staple food items such as wheat grain and flour have historically been more expensive in Karachi than in Lahore, for example. Historically, price premium between two urban centres is usually anywhere between 1.05 to 1.15 times (especially under low inflationary environment).
But two interesting patterns developed over past 18-24 months that bucked this trend. First, flour became much more expensive in Karachi than in Lahore: more than 1.40 times to be exact. As if this weren’t anomalous enough, beginning June 2020 wheat (grain) prices in Karachi became cheaper than in Lahore. Even though the raw material (wheat) was cheaper in Karachi, the final product (flour/atta) was more expensive!
By January 2021, the anomaly led rise to a peculiar situation in Lahore when 10kg flour bag became 30 percent cheaper than a 10kg wheat bag. Historically, flour prices are 10 percent higher than wheat prices, reflecting the cost of value addition (conversion from grain to powder). What was going on? Flour prices in Lahore were reportedly cheaper than both: flour price in Karachi, and wheat price in Lahore. This was attributed to a generous subsidy doled out by provincial government to ensure price of atta remained affordable. Because Sindh offered no such subsidy, flour prices in the province remained high. But that still doesn’t explain why wheat grain prices were lower in Karachi than in Lahore.
Turns out, the subsidy may have lowered the “official” price of flour in Punjab, it didn’t exactly make lives easier. Naturally, the abnormal price differential between regions meant that subsidized flour flowed out of Punjab to other regions such as Balochistan and Sindh – where traders could fetch a higher buck. Moreover, because mills in Punjab were mostly dependent on official reserves for grain supply, wheat disappeared from open market in the province, as private stocks ran out. But at least flour was substantially cheaper in Punjab than elsewhere. Right?
If PBS is to be believed, yes. However, while subsidy on flour resolved the mystery of regional price disparity, it could not answer why for 40 weeks PBS reported a constant price for flour in 36 markets located in 8 cities/towns of Punjab. Traditionally, PBS separately reports minimum, average, and maximum prices from various retail bazaars and markets on weekly basis. Yet, for 8-long months, this was no longer the case.
Ever since PBS put an end to this practice beginning April 2021, the discrepancy in regional prices is now disappearing, and premiums returning to their long-term territory. Differential between flour bag price in Karachi and Lahore has fallen to 1.13 times, while wheat grain is back to being more expensive in the port city than in heart of Punjab.
So, what exactly happened there for 8 long months? More significantly, what fixed the broken trend? One theory posits that once Punjab Food department stopped releasing grain (from its previous year’s purchases) at subsidized rates, prices began to adjust upwards in the province. In coming weeks, if the provincial government once again announces another subsidy, the trend may reverse depending upon the level at which official rate is fixed.
But that only raises further questions. Between Aug-20 and Mar-21, PBS recorded weekly prices for markets in Punjab at the DC rate, without accounting for any deviations (minimum or maximum) from the official rate. The DC rate has not since been revoked or rescinded. Yet, how is it that for 8 months, provincial price control administration was so effective that there was no deviation from the official rate, and suddenly became so ineffective that the DC rate is no longer reflecting in PBS reporting (since April), not even as the minimum price?
Secondly, Punjab is not the only province where official DC price lists are imposed on essential kitchen items. All other 8 consumption centres included in SPI reporting by PBS had DC rates fixed for flour bags, yet DC rate was not reported for even one of those centres, not even as the minimum price. Is price control administration in provinces other than Punjab so ineffective that not a single out of 40 markets in three provinces could report flour selling at DC (official) rates even once in 40 weeks?
Of course, average market prices are usually much higher than the DC rate in official price list. Thus, PBS should not be faulted for conducting truly representative price reporting, even if it was only done for three out of four provinces. But to this date, PBS does not report DC rate in any consumption centres other than those in Punjab. Apparently, DC price list has recently made a comeback in PBS reporting, as evidenced by prices once more ‘going constant’ in some centres in recent weeks, even though Punjab is yet to announce a subsidy on flour, if any.
It is hoped that PBS fixes its price reporting methodology, once and for all. It is possible that DC rate may be the only effective price in small consumption centres where PBS collects data from only one market in town; but the practice becomes less convincing for bigger consumption centres such as Lahore, Faisalabad, and Rawalpindi, where price data is collected from as many as 5 or 7 markets.
Moreover, consensus needs to be developed whether price reporting methodology should include DC rate only as the “minimum price”. If that is the way taken forward, then DC rate from all consumption centres should be included in the weekly reporting. If no market in a region reports commodity price at DC rate for a considerable length of time, it should raise questions on the efficacy of official price list and price control administration.
Equally important, enumerators at PBS must consider whether it is accurate to claim that minimum, and maximum prices for any staple commodity such as flour can truly go “constant” for long intervals. PBS is finally expected to have a new chief statistician soon. As the new supremo takes over, some soul searching is long overdue at the nation’s heart of data and statistics.