It is often commented that the inflationary impact of increase in input costs of food commodities is irreversible. Although this phenomenon is frequently observed in case of commodities where administrative controls (floors or ceilings) exist on the price of inputs – for example, flour - it is worth investigating whether the same can be generalized.
Consider the curious case of pulses and legumes. By various estimates, Pakistan imports close to 60 percent of its national demand for pulses and lentils (in volume terms). Since the country began adjusting its exchange rate three years ago, the currency has depreciated by over one-third. Although retail prices of major pulses – daals – have increased by an average of 53 percent during this period, price of cooked plate of daal has only risen by 30 percent – or 9 percent annualized; less than the rate of food inflation during the period, which has averaged in double-digits.
Of course, several explanations can exist for why price of cooked daal has increased at a slower rate than the inputs. The most intuitive explanation – obviously – is that as input prices rise, producers reduce use of costly inputs. Therefore, a plate of mixed daal at a roadside café may use a higher proportion of gram (chana) today than it did three years ago, considering chana prices have been the slowest to rise.
Similarly, it isn’t beyond realm of possibility that as input costs rise, serving sizes may have grown smaller. Afterall, PBS uses ‘price per plate’ as the unit of measurement for cooked dal, hardly a perfect metric. Considering that price of roti and naan have also increased by as much as 50 percent during the same period, the subject merits attention of food security experts. Given wages have hardly kept up – rising by roughly 25 percent during the 3-year period – it is worth investigating whether low-income workers are going far more hungrier than before, even if average price of cooked food has increased at a slower rate.
Which brings us to the third possibility – that increase in local production has helped keep a lid on prices of pulses and lentils. That would make sense, considering Pakistan noted a two-third increase in production of moong daal during FY21. Except, out of the commonly consumed pulses in Pakistan, moong and mash are considered rich man’s daal, as these are also the most expensive. But more importantly, the rise in local moong production coincided with a commensurate fall in gram chana output, which fell by nearly half!
And it is the case of daal chana (gram) which is most curious. Although retail price of moong daal have adjusted to the rise in local supply – falling by 27 percent over the past 12 months – daal chana prices have only grown by 6.5 percent. As readers would note, dal chana is not the only most consumed dal, it is also one where three-fourths of supply comes from local production. Why then has a shortfall in gram dal chana production not led to a price spiral?
The answer like most things - it would seem is – lack of administrative interference in gram dal chana market. Not only is foreign trade of most pulses (including gram) largely unrestricted, but trade channels are also well-developed, with dozens of importers ordering consignments from hundreds of supplier across the globe all year round. This, coupled with relatively stable prices of gram (dal chana) in the world market over the past three quarters, have helped ensure stability in domestic retail prices over last several months.
It seems then, that when markets are well-developed, no amount of generic explanations such as “global commodity price spiral, container shortages, and currency depreciation” can stop prices from falling too – even when local output suffers setbacks.