How many things out of your regular consumption basket have witnessed no increase in prices over the past several months? Definitely not many, especially at a time when increase in CPI has averaged above 30 percent over the past year? How many could have recorded negative change, or price decline? There can’t be any whatsoever, right? How about you find out there is one, and much of it is imported.
If you believe you understand how markets truly function, this probably isn’t worth your time. But across Pakistan, many who exercise influence – whether those in the policymaking circles or those who set the tone and agenda (chiefly, the talking heads on primetime TV) – could benefit from studying micro-markets and see how order emerges out of chaos even when all everyone can feel is unprecedented gloom. Maybe, continuing down this article can help you understand why.
At a time when prices of basic food commodities such as grains and cereals have increased by 2.5 times on average; and prices of proteins have increased by at least 2 times, there is one odd category where prices have only increased by a trickle in comparison. Since 2020, the food index in the national CPI has more than doubled; meanwhile, during the same time, prices of various pulses have only increased by a half. In fact, on a yearly basis, prices of pulses such as masoor have actually declined compared to same period last year.
For too long, discussions in elite Pakistani drawing rooms – and by corollary, policymaking circles – have lamented how the food import bill of an agro-based economy has climbed up to $10 billion. Or, how Pakistanis have brought shame upon our houses by turning the country into one of net food importers. Or, for that matter, how Pakistani farmers have failed to cultivate oilseeds and pulses, part of our staple food diets, despite many programs to kick start the same.
Although many among us espouse the ideals of market economics and champion liberal values, we also often find ourselves deeply enamored will following three intertwined ideas. One, that Pakistanis should produce more of the things that we consume (import-substitution). Two, that Pakistan can only achieve food security if it is not dependent upon other nations for import of vital staple food items such as edible oil. And three, that inflation (or price increase) would be lower if we produced more of the goods we consumed locally.
Look at the price of moong daal in recent times, and you would discover that none of the tautologies that we hold so dear, hold true at all. According to the latest Economic Survey, Pakistan’s domestic moongdaal production went south during the latest season, declining to a 0.13 million metric tons from a peak of 0.26MMT. Meanwhile, not only did import of pulses skyrocketed over the last year, naturally, landed price of imports escalated with the depreciation of dollar, with average price increasing by 45 percent over the previous year. But at the same time, daalsuch as masoor can not only be found at a lower price compared to last year (despite currency depreciation), daal moong today costs less today than it did three years ago during peak Covid period.
What does this mean? It doesn’t take a rocket scientist to figure that daals must be cheaper today despite massive currency depreciation over the past year and general inflation because it is cheaper to import them today than it was a year or three years ago. But critics might insist that the reason why Pakistan is in the throes of the ongoing inflationary spiral is precisely because it imports so much more than it exports, burning through its forex reserves and launching a run on the Rupee. So, importing data might very well be cheaper today than it was few years ago, but it is also the reason why ‘everything else’ is so expensive, ‘ala’ trade deficit and a currency constantly under pressure.
They would be wrong. Pakistan produces almost all of the rice it consumes (and exports the additional one-third produced), yet rice costs almost 70 percent more today than it did last year. Could things cost less if we didn’t export them, especially if they are essential food items? Look no further than sugar, whose exports were just banned due to a 71 percent price increase over last year. Or wheat, for that matter, which has doubled in price over last year, even though close to 90 percent of domestic demand is met through local means and is almost never exported.
That moong daal prices have remained stable over last year because there is a glut in the international market, or because importers engage in under-invoicing and escape duties, or because it is being smuggled back from Afghanistan through transit trade – is immaterial. If you are a consumer the only thing that matters is that amid the economic gloom when many are struggling to pay their utility bills, some commodities can still help balance the monthly budget, albeit only partly.
And the reality is this silver lining isn’t just confined to select deals alone. From smuggled cigarettes to imported perfumes, prices have not adjusted exactly with the dollar, even if the cost to the importer might have. Whether it is due to lower international prices or importers trimming their margins cannot be deduced based on market prices alone. What is abundantly obvious, however, is that the consumer does not have to witness their purchasing power disappear into thin air. At least not every time, and not in every case.
Why then are prices of (largely) locally produced commodities – whether wheat, flour, rice, sugar, milk, or meat – are so much higher than they were last year? Maybe the cost of production has truly escalated by that much. But there is one more reason. In most cases where Pakistan boasts dependence on domestic sources, it has also erected export barriers; which means when currency is losing value, there is so much more incentive to outward smuggle, and make the most out of exchange arbitrage. For commodities such as pulses that are mostly imported, it probably might not make a lot of sense to take a bet on the currency.
Could Pakistan produce daal locally? Probably. Would food bill be lower if Pakistan was not import dependent for goods such as daals and edible oil? Definitely. But only Pakistani farmers can decide whether their interests are best taken care of by cultivating daalor grains. What is certain, however, is protectionism – in one form or the other – has been the road most taken in this country, especially in agriculture. And if malnourishment indicators throughout the 75 years are any sign, it is not the path that will ever lead to food security.