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BR Research

Oh dear Daal (and Roti)

  The inflation number has taken some by surprise. It should not have. Previous episodes of food driven inf
04 Feb 2020

 

The inflation number has taken some by surprise. It should not have. Previous episodes of food driven inflation mostly hovered around one-offs in perishable food items, for one reason or another. Onions and tomatoes price spirals are still fresh in memory. There have been instances of chicken and potato driven food inflation in the past. But, perishable food prices, much like others, do not last long. A better crop here and there, resolved supply chain issues, and the prices return to normalcy.

Much focus has been on wheat flour – and rightly so. Wheat flour has the second highest weight in non-perishable food items after milk, in CPI. Minus the so-called ‘crisis’ part – wheat flour prices averaged 9 percent higher in 2019 year-on-year. Roti in Pakistan is coined as the most vital food staple. It has gotten dearer. What is often coined in tandem with Roti is Daal (pulses) – and that has gotten even dearer, without much uproar.

The uproar on wheat flour is understandable, considering it has five times more weight in CPI than pulses. But surely, a three-times price increase in pulses warrants at least half the wheat uproar. Unlike wheat, pulses are a heavily imported dependent commodity group – as Pakistan imports 60-65 percent of its annual requirement of 1.4-1.5 million tons.

Weighted average price of pulses, has gone up by 45 percent year-on-year as per the latest numbers – to Rs188/kg. Average imported price in dollar terms in the meanwhile has gone down by 28 percent. Even accounting for the rupee depreciation, average imported pulse price has decreased by 19 percent year-on-year.

Make room for general inflation adjustment – and even then, the sky-high prices of pulses make little sense. Not that pulses require high-tech processing either, the cost of which may have gone up. The gram pulse is mostly locally produced, and the sharp increase in January prices could still be attributed to crop patterns. But all other pulses are largely imported, and with both unit value and currency stable –price increase tells traders are pocketing hefty margins.

More interestingly, it may actually start making more sense to have the Daal outside at roadside hotels. As the graph shows, cooked Daal prices have only tailed up recently – and that too at a much lower rate than the retail market price. There is very little else that goes in cooked Daal other than Daal itself. The huge differential goes on to hint at two possible explanations.

The fact that cooked Daal outside is mostly consumed by working class should be taken into consideration in terms of pricing power. Someone is at a loss in this equation. If the hotels are keeping their margins without increasing the price in proportion – there may be a case of reduced serving size – as often observed and reported in case of Roti. And if that is not the case, a lot of roadside hotels are taking a deep cut on their profit margins.

Alternatively, there could be a case of retailers pocketing massive margins, as most hotels would be buying from the wholesale market, where prices may not have increased as significantly. Whatever the case, Daal Roti may no longer be the go-to diet for the working class.