Food Crisis: Is it Smugglers, Hoarders and Speculators?

Food Crisis: Is it Smugglers, Hoarders and Speculators?
Over the past several months there has been an on-going search for those responsible for the recent price hikes in the wheat and sugar markets. The Government, as well as the Opposition, called for the culprits to be identified and brought to justice. Both have been quick to point the finger at the private sector, and in particular at food traders. This was incorrect and unfair as has been revealed by the recently published reports of the commission headed by the Federal Investigation Agency (FIA) which highlighted the role of well-connected politicians in the ruling party in the sugar crisis, along with bureaucratic bungling and inefficiency in the wheat market.

The private food logistics chain - which comprises traders ranging from large commercial houses to small shop keepers, and transporters, ranging from companies running several 40-ton container trucks to the humble Suzuki owners - plays a critical role in ensuring supplies and stabilizing prices. Their role has become even more evident in the on-going COVID crisis where shops all over the country have remained well stocked with food items. Even as far as Gilgit, shops are well stocked not only with wheat, rice and sugar, but also with fresh fruits and vegetables which require almost daily supplies from other parts of Pakistan. All this is not happening by itself. It is the thousands of private businesses that are putting in time and money, as well as risking their health to keep the country fed.

First, let us look at the accusation that private food traders are evil hoarders.  Annual staple crops, such as wheat, sugar, maize and rice are harvested at specific times during the year. Someone needs to buy and hold stocks, releasing them over the course of the year until the next harvest. In the case of wheat, the biggest holder of stocks is the government but, at any given time, substantial stocks are also held by millers, shopkeepers and bread producers. In the case of sugar and other crops, the bulk of stocks are held by the private sector. This means at the time of harvest they will have large stocks that will gradually deplete over the year. It also means that prices will tend to rise over the year in line with costs of holding stocks.

In the case of perishable crops, such as fruit and vegetables, the private trader helps get produce from farmers to consumers, bearing the cost of collecting, storing and transport, as well as the risk of spoilage of any unsold produce. The essential role of private traders’ role in the country’s economy should be recognised and appreciated. Instead, they have been demonised by our politicians - and the press has been complicit in this demonization.

Several newspapers and other media provided data on wheat exports that purportedly caused the country to fall short and resulted in the price rises. The FIA-headed Commission gives figures on exports by the public sector of about 163,000 tons of wheat – about 0.5 percent of the wheat crop – surely not enough to make any difference to prices. Total exports were estimated at 1.4 million tons with the bulk of this going to Afghanistan. These official exports are not substantially different from past years. While the newspapers were showing graphs and tables, the TV showed police raiding godowns and stores where wheat and sugar stocks were being held. It was as if this was a clear proof of their guilt.

Holding stocks is a perfectly normal commercial activity and certainly not a crime. Early in the year, when the crisis was at its height, harvesting of the new wheat crops was is still some months away - even in Sindh where wheat ripens earlier than other parts of the country, flour mills and other market operators had to hold stocks at that time. How else would they meet regular consumer needs? Similarly, sugarcane was being harvested and sugar mills are working, but not yet at full swing. So, as in the case of wheat, it is absolutely correct that traders were holding stocks to meet consumer demand. This is exactly what they should be doing!

The next in line to be blamed were wheat smugglers who allegedly moved wheat illegally out of the country. A slightly more detailed look suggests that this was highly unlikely to be the cause of the crisis. There are three neighbouring countries that wheat could be exported to – Afghanistan, India or Iran. There is no reason why India would import Pakistani wheat, as they could obtain supplies on international markets at lower costs. It could be that Iran may have been interested in Pakistani wheat due to sanctions. However, a look at numbers suggests that this is unlikely. In 2018/19 Iran had an excellent wheat crop of 13.4 million tons above that of previous years. As a result, Iran was not expected to import any significant amount of wheat (Food and Agriculture Organization of the UN, 2019 Food Outlook - Biannual Report on Global Food Markets – November 2019. Rome). Similarly, in the case of Afghanistan, the 2019 wheat crop, according to FAO was an excellent one due to favourable weather conditions with production at 5.1 million as opposed to 3.6 million tons in 2018. So surely, Afghanistan as well as had lower imports needs than other years.

So if it was not hoarders, smugglers or speculators, who was it? As the investigation team points out – in the case of wheat it was inefficiency and incompetence on the part of the government; while in the case of sugar it was PTI bigwigs taking advantage of the protected domestic market and government subsidies.

Whatever be the cause, finding and punishing the so-called culprits is not going to help. The system is wrong and provides perverse incentives. And if it not this set of politicians or inefficient bureaucrat, it will be the next lot who will make the country suffer. As I have argued on various forums, if the government is serious about lower food prices, it should free up imports. Even as wheat prices were spiking in Pakistan, there are record wheat supplies on world markets with substantial increases in in the EU, the Russian Federation, Ukraine and the United States. There is simply no reason why Pakistanis should pay higher prices for its most important cereal than the rest of the world.

Similarly in the case of sugar, Pakistan has a protected domestic market which a small and politically powerful group of producers is exploiting. Not only do they get to sell expensive sugar to the local market, they even got massive subsidies to sell their expensive sugar on export markets.

Please Kaaptan sahib. Don’t let Pakistani consumers suffer like this.

Daud Khan is a retired UN staff who lives partly in Italy and partly in Pakistan.

Leila Yasmine Khan is an independent writer and editor based in the Netherlands.