In a media announcement yesterday, the Prime Minister vowed to bring down prices of basic food items, “come what may”. For most of Pakistan’s wretched poor, the promise is a welcome hope – considering across the board double-digit inflation in CPI’s food basket. Price control of kitchen essentials is also crucial for a party which soar to popularity on the promise to usher in “Riyasat-e-Madina, where no being went hungry to bed.”
PM’s resolve to go after the hoarder mafia (ostensibly) responsible for the ongoing shortages is a noble cause. And it may be hoped that exemplary punishments for a select few restores sanity to the marketplace. But lost in this noise is PTI’s electoral commitment to bring structural reforms whose absence has allowed ‘mafias’ to flourish. Back then, the ‘movement of change’ displayed appreciation that Pakistan’s economic troubles stem not from outright corruption or law breaking, but from an unfair system of governance, where rules of the game are rigged.
Can administrative efforts at price control resolve the inherent distortions in the market which give too much bargaining power to a select few players, ‘by law’? To understand, look at wheat and sugar. While flawed estimates of production and available inventory may be blamed in hindsight, there is now consensus that both crops have fallen short for two consecutive seasons. While a confluence of factors played a role, crucial among them is rising cost of production. In both cases, the government has already responded to the price incentive by increasing the minimum guaranteed rate, which has begun to reflect itself in higher commercial rate in wholesale markets.
Beyond raiding ghalla mandis of Lahore or Rawalpindi, and a photo-op opportunity for a local administrator next to a ‘revealing’ stock of few hundred tons of flour and sugar, what exactly would price control entail? Precious little, because hoarding is simply a symptom – and not necessarily treacherous. Afterall, when cost of inputs increases, so does the price of output.
Wheat and sugar are not the only essentials whose output varies cyclically – nor is Pakistan the only country where crop output is at risk of climatic volatility. Yet, it may be the only place where such shortfalls/surpluses are not self-correcting. And if the PM is still faithful to the cause of structural reform, he must ask why a shortfall in flour or sugar production does not address itself the same way as a shortfall in pulses.
Short answer: because the markets aren’t free, and the rules are set to favour a select few; irrespective of their shifting political allegiances. When speculators foresee a shortfall in pulses or rise in its demand, they respond by increasing import to reap profits. Yet, the only way a trader can benefit from a shortfall in flour or sugar availability is by hoarding available stock. Why? Because import restrictions cap supply; leaving behind only the incentive to time the market and wait for prices to peak.
The PM must also ask whom does a blanket ban on wheat import protects, if not the consumers? He must also ask whether it is sensible to slap prohibitive tariffs on import of low-value add item such as raw or white sugar, when import of high-value dairy products do not face equally high duties.
Wiser still would be for the PM to avoid the cliché of political ownership of mills and beneficiaries, but instead ask what is it about sugar and wheat that only attracts those who wield influence? He will find that Pakistan’s otherwise quibbling politicians – both among friends and foes - often come together to protect the ‘license Raj’ that rules these two sectors.
Where regions are quite literally divided geographically (sugar) and by quotas (wheat) – as if territories. And the ‘run of the mill’ entrepreneur is barred from entry in the name of agro-ecological zones and water footprint. But in fact, it is done to monopolize supply and to keep growers beholden to millers’ bid price; using arcane laws such as ‘Control on Establishment and Enlargement’ of industries that harken back to colonial era.
Sugar and wheat are not unique; if any other commodity were to be brought under similar trade restrictions, its supply may quickly witness similar bouts of shortages & surpluses very soon. It is also quite likely that the Prime Minister is already aware of the structural problems that plague these sectors. But a government brought in power on the clutches of coalition may find it hard to fight the elite capture deeply embedded in the system through distorted laws and regulatory framework.
Should the government then not take price control measures to bring what little redressal it can bring to the public? It may bring temporary relief to consumers, but at the cost of short-changing growers who may no longer receive fair price for their crop.
A steep price to pay for abandoning the promise of structural reforms? Maybe not.