PRICE INFLATION: OUTCOME OF INEFFICIENCIES & CORRUPTION
SHABBIR H. KAZMI
Sep 12 - 18, 2011
Commodity prices are on the rise in the global markets. This phenomenon is attributed to a number of factors that include from financial crisis-like situation in the United States and the European Union to the turmoil in the Middle East and North Africa (MENA) and the loss of faith in currencies in the global markets.
However, double digit inflation in general and skyrocketing food prices in Pakistan can be attributed to bad governance and uncontrollable energy crisis due to wrong policies, massive inefficiencies and corruption and above all failure in taking timely prudent decisions.
Some of the experts say offering global prices to the local farmers is the mother of all evils. However, this thought is absurd because if the country is ready to import commodities at international prices, it should also pay the same prices to the local farmers.
Good earnings of the farmers encourage them to grow more, optimize cost of production, and invest in technology, particularly the mechanized farming. Farmers face one of the most contentious issues that is yield far below the global average. Yield can be improved through use of certified seeds, application of balanced dose of fertilizers and following good crop management techniques.
However, it is regrettable that despite getting the global prices the farmers have not been successful in achieving higher production and productivity. Without any doubt, the government can be held responsible for the prevailing dismal state. It has failed on many fronts i.e. ensuring adequate supply of certified seeds and irrigation water, containing fertilizer price and above all failing in construction of modern silos.
The result is up to 30 per cent of the produce go stale and is rendered unfit for human consumption. Added to this is ongoing smuggling of good items to the neighboring countries, particularly India and Afghanistan.
One of the worst examples of following bad policies is acute shortage of sugarcane despite persistent hike in its support price. The gravity of situation is evident from the fact that the average sugar production in the country hovers around 3.5 million tons as against an installed capacity of nine million tons.
A question comes to mind why farmers have not been able to increase production of sugarcane. According to some experts, the situation prevails because around 3.5 million tons sugar is enough to meet the local demand.
Now the government has to come up with a comprehensive sugar export policy to encourage the millers to produce exportable surplus. The millers may be willing to pay a little higher price if the government grants independent power producers (IPPs) status to sugar mills and also come with an elaborate marketing of E-10 (motor gasoline blended with 10 per cent ethyl alcohol).
The hike in out of proportion prices in the country is because the government fails in monitoring prices. It is said that those responsible to monitoring prices get the booty for keeping their eyes closed and mouth shut.
At present, most of the vegetables are sold around Rs100/kg in Karachi and the reason given is loss of standing crops due to floods in Sindh. Similarly, sugar was sold around Rs75/kg, whereas its retail price hovered below Rs65/kg before commencement of Ramadan.
Meat is sold above Rs500kg, beef (without bone) at Rs340, chicken (meat) at Rs270/kg and eggs around Rs85/dozen. One just cannot find a plausible reason for the prevailing situation except excessive profiteering.
Lately, the government has consistently increased prices of petroleum products despite decline in crude oil prices around the globe. The hike in price was mainly aimed at enhancing collection of government levy, petroleum development surcharge.
The government in an attempt to bridge the budget deficit has been imposing tax on everything from food items to medicines and from petroleum products to the goods termed basic necessities.
If the government is serious in containing hike in the prices of eatables, it has to take two immediate steps 1) contain smuggling of these goods to the neighboring countries and 2) construct modern storage facilities to contain losses in transit and save the produce from getting decayed.
The government should impose temporary ban on the export of live animals and smuggling of India and Afghanistan.
Pakistan is among the top five largest producers of milk but less than 5 per cent of total quantity is packed in tetra packs that prolong its shelf life. It is also regrettable that only a negligible quantity of dairy products is exported, rather huge quantities of various products are imported as well as smuggled. The government must encourage establishing plants for packing milk in tetra packs.
Dairy farming should also be declared an industry for establishing modern ranches. Declaring it an industry will facilitate extension of loans on lower interest rate. At present, such loans are disbursed under 'agro loans' carrying huge interest rate. Extending agri loans at higher interest rate is attributed to the greater exposure to natural calamity. This problem can be overcome initially by seeking credit insurance and subsequently comprehensive insurance.
The government must also focus on enhancing production of edible oil that costs around US$2 billion per annum to the country. The central bank must make it mandatory to disburse 10 per cent of total agri loans to the growers of edible oil seeds. The added advantage will be higher production of oilcakes, the best diet for the milk-giving bovines. The government should also allow corporate farming because it can help in improving production as well as productivity. In fact, now the country needs another type of land reforms to consolidate smaller and fragmented units.
It must also be kept in mind the top most item on the agenda should be construction of water reservoirs, linking of canals and following drip water system of irrigation to overcome the limited supply of water.