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21 - 27 July , 2012
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ECONOMIC REVIEW
Containing Profiteering
Implementing prudent policies to improve production must be supplemented with appropriate risk hedging
by SHABBIR H. KAZMI

Containing Profiteering

With the holy month of Ramadan approaching vendors have already started hiking, prices which is likely to further spiral till Eid. It is a bitter truth that in our country, during Ramadan and Eids, prices go up, but in other parts of the world prices of almost every item is brought down to facilitative the haves-not at least. For this the blame goes to the government as well as consumer associations and the general public. Though there is some muted response, most of the people are in a mad rush to buy anything and everything at inflated prices.
The government allocates huge sums for selling items of daily consumption at discounted prices through Utility Stores, but not only is the outreach of these outlets limited, too often the rush is only to buy sugar and edible oil. Knowing buyers' preferences these stores often make purchase of a few other items mandatory, if anyone wants to buy sugar and edible oil. A common observation is that instead of selling recognised brands, these stores deliver relatively lesser known brands. It is also alleged that poor people hardly get sugar at a discounted price, and that the real beneficiaries are the traders. It may not be wrong to say that selling items of daily use through Utility Stores proliferates corruption and is a waste of tax payers' money. Critics say that it would be better if the government can ensure sale of these products at stipulated prices.
Containing ProfiteeringThe first shot has been fired by the government by enhancing prices of POL products, which will results in hike in prices of almost everything. Over the years the government has been increasing the price of HSD without any realisation that that the product is used in public transport. Added to this is the attitude of owners of public transporters, who use CNG in the vehicles but charge on the basis of HSD price. Lately, there has been a move to ban use of CNG in public transport but proponents are completely ignorant of the fact that use of gas in vehicles is still less than 10% of the total gas used in the country.
Another factor responsible for hike in price is depreciating Rupee. Analysts say Pakistan suffers from cost pushed inflation and if the government is serious in bringing down prices, it should bring down the applicable rate of GST on food items too. Some critics say that GST is not applicable on fruits and vegetables therefore, the logic is incorrect. They are partly right because now the government charges GST on some of the agricultural input i.e. fertiliser.
Many experts say instead of improving yield, growers have been demanding hike in support price of wheat, sugarcane and rice. It is on record that yield of major crops in Pakistan is nearly half of the global average and even lower than the yield achieved in India, enjoying similar soil and weather conditions. They also say that nearly 30% of the total produce goes stale because of inadequate transportation and storage facilities. Transportation of fruits northern parts of the country faces serious difficulties because of military operations going on in those areas.
Pakistan is among the top five largest milk producing countries but it is sold at very high price. This is also because of lack of appropriate infrastructure i.e. transportation and storage. Less than 5% of the total milk produced in the country can be preserved in tetra packs. If even half of the quantity can be Containing Profiteeringpreserved, through conversion into milk powder or making dairy products, the country can earn huge foreign exchange.
Lately, prices of beef and mutton have also gone up in the domestic market because of unchecked export of these products. It is encouraging that many Muslim countries are keen in importing 'halal' meat from Pakistan and also offer attractive price but in no way should this continue at the cost of local consumers. Pakistan has a limited livestock and putting restrictions will not be a prudent approach. One of the ways out is breeding of animals on scientific grounds, if poultry farms can help in keeping prices of chicken and eggs at modest level establishing breeding farms can also help in keeping prices low in the domestic market, despite export of beef and mutton.
The objective can be achieved by providing loans to the owners of cattle breeding farms. The risk can be mitigated by ensuring insurance of these animals. In Karachi insurance companies are already providing insurance cover to 'baras' and now the cover could be extended to other cities also. The only problem is that the rural population does not seem keen in establishing cattle breeding farms. One of the reasons is said to be lack of availability of 'green fodder'. However, this is totally incorrect because cultivation of corn offers an ideal solution. In fact this will on one hand help in enhancing production of fodder and the added benefit will be enhanced availability of corn flour and corn oil. Pakistan spends around US$2 billion annually on import of edible oil. Availability of domestically grown corn will help in saving huge foreign exchange as well as minimising adverse impact of depreciating Rupee.
Experts are of the opinion that formulation of long-term policies for achieving food security, construction of modern transportation and storage infrastructure can help in containing inflation rate in the country. The objective can't be achieved unless all the stakeholders join their hands. Among all the stakeholders the Government of Pakistan has to play the lead role. Attaining higher production and achieving greater value-addition will not only help in containing process of food items but also in poverty alleviation.
Most probably financial institutions and insurance companies will also have to play proactive role. They will provide not only much needed capital but also hedge risk. Since agriculture produce is exposed to natural calamities, hedging risk will not only lesser worries of farmers but also save the government from paying huge compensation, if at all any calamity hits.


 
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