LAHORE: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Standing Committee on Agriculture recommended that instead of fixing the sugar and wheat prices, the government should deregulate to promote free trade mechanisms where price signals can be effectively conveyed to all stakeholders to attract investment, increase competitiveness, and reduce distortions in local supply.
FPCCI Chairman Standing Committee on Agriculture, Ahmad Jawad said the government is also contemplating abolishing the indicative sugarcane price after taking a decision in principle about deregulating the sugar sector.
Jawad said we observed that since Punjab and Sindh are the only provinces to set a price ceiling, one immediate effect could be that sugar move to other provinces, where no price ceiling is in place and it can command a higher market price. The FPCCI Standing Committee cautioned that the “price controls could provide relief, though only temporarily, to the poor directly affected by high prices. More crucial is the fact that price of sugar and wheat may rise more rapidly once the controls are lifted to recoup the losses incurred during the period of price control, triggering high price inflation. Rapid inflation is always a concern for consumers whom the price controls intend to protect.”
The FPCCI panel chief further stated that the price control could also encourage hoarding by suppliers or impulsive buying by consumers, especially ahead of Ramadan, both of which will likely result in shortage in the market and even higher prices for consumers.
In addition to the economic costs of price controls, there is also an administrative cost of a price fixing decision.
Jawad also recommended that the free trade in sugar and wheat would make consumers better off by discouraging hoarding and over-pricing in the domestic market. These measures would definitely impact the development of the competitive sugar industry in Pakistan, leading to economic efficiency. “Price controls have a direct distortionary effect on the supply-demand equation,”.
Most of the problems in the sugar and wheat sector stem from both over-regulation and lack of competition.
If the market is deregulated, with free entry and exit, regulations and repeated interventions would not be needed. Even in an environment of open market competition, even mandatory crushing laws would not be required.
He also quoted the example of last year wheat procurement by PASCCO where we recieved numerous complaints that in some zones PASSCO officials didn’t issue gunny bags to the farmers, it was issued to middleman. Ultimately farmers suffered.
On wheat scandal question, he said we must know who benefitted from the $1.1bn import of wheat the entire year and why the government felt the need to import when wheat is expected to be a bumper crop in the country. Similarly wheat crisis was the result of numerous policies’ failure, calling it a “multipronged problem” which needed to be tackled with an all-hands-on-deck approach. Over the past few years, the government’s procurement system has been inefficient, he added.
FPCCI official also urged the government to limit its role as a regulator and make a mechanism to avoid hoarders with strict penalties in important cash crops.
We must understand in fair market, farmer will be winner if they can’t cultivate the cash crops, the millers can’t do anything. he concluded.
