THE ongoing hike in tomato prices is a chilling reminder of the structural problems facing the marketing of perishable food items in Pakistan.

Tomato and onion prices peaked before and during Eidul Azha, which also coincided with heavy rains in Sindh this year.

A temporary respite came towards the end of the holy festival, but the price of tomatoes shot up again as Muharram arrived.

As a policy matter, the government has decided not to import tomatoes from India this time around, something which has prolonged the spell of higher prices.

Vegetable and fruit prices rise abnormally for several reasons, including a sudden spike in demand. And when the demand exceeds supply, prices go through the roof.

During Eidul Azha, prices of onion, garlic, lemon and tomatoes skyrocketed as their demand soared to unusual heights. Similarly, fruit became prohibitively costlier for the same reason during Ramazan.

The production of vegetables (except potato) has remained range-bound between 3m and 3.3m tonnes during 2010 to 2016, according to stats compiled by the Ministry of National Food Security and Research. However, fruit output slightly fell from 4.7m tonnes at the beginning of this decade to 4.2m tonnes last year.

This trend remains at the root of all volatility we see in the prices of perishables year after year.

However, we often see their prices crashing after a seasonal peak in demand is over. This happens because of flawed marketing system and weaknesses in external policy.

Growth in informal economy, lack of checks on informal money transactions, cash-rich segments of society, little awareness about inflationary expectations and lack of consumer resistance also play their part in temporary surge in prices

Some years ago onion prices skyrocketed in Punjab, not because of a real supply shock but because of market manipulation by some traders who had business links with India. Similarly, bananas became too pricey in Sindh a few years ago chiefly because some informal money lenders had manipulated the market on news of low production of the fruit.

Growth in informal economy, lack of checks on informal money transactions, cash-rich segments of society, little awareness about inflationary expectations and lack of consumer resistance also play their part in temporary surge in prices.

In Pakistan, people sitting on cash piles find investment opportunity in everything big or small. They invest in sacrificial animals. They invest in livestock. They invest in illegally developed properties. And they invest in the production of major and minor crops.

Future output of vegetable farm fields and orchards are routinely auctioned well before production in Sindh and Punjab, farmers lobby groups say.

Such investment-hoppers who buy next season’s crop of perishables from farmers fetch the produce of their “purchased farms” on time and resort to hoarding for a brief period.

During this period, inflationary expectations are fuelled by unsubstantiated reports of low production of a particular crop amid soaring demand. As a result, prices of that particular perishable shoot up.

“Small farmers who are left behind in the race of hoarding and market manipulation are left with no option but to sell their produce at throwaway prices after the artificial shortage created by hoarder is over,” says an official of the Bureau of Supply and Prices of the Sindh government.

Lots of farmers with little or no access to low-cost formal finance have no other option but to auction future produce of their veggies’ farms or orchards to these investment-hoppers, middlemen or informal money lenders.

As successive but half-hearted drives for documenting the economy have so far yielded little results and high incidence of corruption continue to create lots of money that cannot be put in banks, rent-seeking remains rampant.

Volatility in the price of perishables can be checked effectively if small farmers get more access to formal finance and if expansion of money circulation outside the banking system (for unusually longer periods) is contained.

A surge in the distribution of formal agricultural credit seen in the last two years should have ideally ended financial woes of small farmers, but that has not been the case and it might take banks a couple of more years to reach out to them.

“Even when credit requirements of producers of perishables are met, they will need better farm-to-road market infrastructure, better storage facilities and a more reliable pricing indication mechanism to get out of the clutches of informal money lenders,” says the head of the agriculture division of a local bank.

Administrative control over prices proves ineffective not only during occasional peak demand like in Ramazan or Eidul Azha, but even in normal days.

There are many reasons for it but the most important, according to officials, is the duplicity of or ambiguity in price control regulations and workload on administration officials. Ensuring fair market prices, which currently rests with the district administration, should ideally be the job of the local government.

Price lists are issued by commissioners in consultation with stakeholders. But over the years this has become a cosmetic affair. Officials visit markets of perishable items during Ramazan only or on other occasions if there is a lot of hue and cry in the media about overcharging. Otherwise, official price lists are seldom given any importance.

The recent price hike of onions and tomatoes kept poorer sections of population worried but no real relief came to them in the form of government intervention.

Retail market price of first-grade tomatoes was shown at Rs138 per kg in the price list for Karachi on Sept 25. “But the same day I bought a kilogram of tomatoes for Rs200 from our local shopkeeper in North Nazimabad,” complains a housewife. Media reports suggested that tomatoes were being sold at Rs200 also in Lahore.

Prices of onions and tomatoes even touched Rs280 per kg in some areas.

Published in Dawn, The Business and Finance Weekly, October 3rd, 2017