Smuggling curbs

State authorities are cracking down on smuggled products seeping through the borders, in part to bring some sanity into the currency market. It is a step in the right direction. The government should have a special focus on curbing smuggled food imports which was successfully clamped down after an issuance of SRO 237 in 2019. However, in the last few months, due to increased overall smuggling activities, these illegal food products are back in the market.

In 2019, to curb illegal trade, the Commerce Ministry issued an SRO which requires imported products to have 66 percent shelf life at the time of import,ingredients mentioned both in English and Urdu, and have Halal certification from prescribed accredited authorities along with the logo and labelling in specified format.

That move was effective, as thereafter a significant reduction in those products’ penetration was witnessed. That has helped to develop local food value chains, as one can find a flurry of local brands (small and big) selling cheese, butter, cream and other dairy products, cereals, juices and so on. This kind of “import substitution” bodes well for the macroeconomy. Big companies (including MNCs )have been mulling over introducing new products in the country such as chocolates, cereals, and coffee.

Pakistan has become a net food importing country due to growing population, lower productivity, and lack of penetration in food value chains. For any company to launch a new product, it must do test runs; but when smuggled products are available at a lower price, the incentive to develop the market diminishes. Slowly due to better regulation and currency adjustment, Pakistan was inching towards developing key value chains in dairy, fruits, and other markets.

However, last year,with the imposition of import restrictions by the SBP, the conduit of smuggling was widened in the country which is being observed across the industries in petroleum, petrochemical, engineering parts, food, and others. The flow of goods increased across the borders and through traditional Khyappias. And in the process, the violation of SRO 237 expanded as well.

The smuggling of food items under SRO 237 was never stopped completely, but it was restricted to remote areas of KP and Baluchistan and in smaller cities of other provinces. Now products like water, cream, butter, juices, and coffee are readily available in supermarkets of Karachi, Lahore, and Islamabad.

This is not only adversely impacting the currency demand (due to settling of payments through hundi/hawla) and reducing potential tax revenues of FBR but also creating risks on health, as there is no mechanism to ensure that the products are not expired, or close to expiry date. Then the products could not be confined to the required health standards and may not be strictly halal.

According to a study conducted by Lahore Chamber of Commerce, Pakistan is losing $2.6 billion in tax revenues due to smuggling pronefood items which are estimated at $9 billion. These leakages alone are enough to have concentrated efforts to curb smuggling of foods items.

This is an issue of multiple jurisdiction and various state bodies should play an active role in curbing this. First, enforcement at borders is utmost important and here the role of customs department- part of FBR and federal government, is critical. Especially in term of border compliance connecting Pakistan to Iran and Afghanistan through Baluchistan and KPK. Also, the border controlling agencies have an important role to play – especially the Frontier Corps which oversees the law-and-order situation on these borders. Sources reveal Chaman border is extremely porous and coordination of Customs and Inspector General Frontier Corps (IGFC) is imperative to curb smuggling. Then the role of Pakistan Standards & Quality Control Authority (PSQCA) is critical to ensure the standards of products in the supermarket shelf to confine with the requisite laws and standards.

And one cannot undermine the role of respective provincial food authorities as its their mandate to ensure the compliance of Halal and general food standards. They have to ensure that the products have requisite shelf life and no tampering of expiry labels. And it’s the moral responsibility of big supermarket chains to ensure these products do not reach their counters.

In the last five years or so, the provincial food authorities have established their writ in terms of maintaining the quality in the food value chain. The star performer within provincial bodies is Punjab. It has done a good job in terms of checking adulteration of milk and other food related compliances. However, recently, low quality powdered milk is being smuggled which raises a question on the quality of milk produced using that raw material. Sporadic presence of illegal imported food items in supermarkets shelves is challenging their authority. The Punjab and other food authorities have to rise the occasion to ensure no illegal food item in their jurisdiction.

In a nutshell, coordinated effort of federal and provincial authorities is warranted. Recently, the federal government has written letters to Chief Secretaries of all provinces to have such compliance. If the situation is controlled at the front end, the demand from the back end would fall and incentive to smuggle would diminish. Sooner it is done, better it is.