Many Pakistanis are currently grappling with a key question: what is the real cause of the high inflation that has overburdened them in recent years? Is it due to cost-push factors such as high production costs and the devaluation of the Pakistani Rupee, or does it stem from the inflated prices of essential commodities and unchecked profiteering by processors, middlemen, or farmers?

Against this backdrop, the Punjab Price Control of Essential Commodities Act 2024, passed by the Punjab Assembly on June 10, 2024, is an initiative by the PML-N, in line with its manifesto, which promises to curb inflation and enhance the populace’s buying power.

Up until recently, Deputy Commissioners used to refer to archaic legislation — the Punjab Food Stuffs Control Act 1958 and the Price Control and Prevention of Profiteering and Hoarding Act 1977 — to set the prices of essential commodities in the districts. Therefore, the introduction of a new legislation is indeed commendable.

However, the new legislation has unfortunately replicated not only the core concept, but also all the key provisions of the 1977 Act. The overarching objectives, scheme, and prescriptive regime have largely remained unchanged.

The new Act replicates older legislations and allows the government control over nearly all agricultural and livestock produce prices while failing to address regulation mechanisms to reduce inflation

Furthermore, the Act has ambitiously expanded the list of essential commodities to include additional agricultural crops, thus extending the scope of the 1977 Act to all major crops of Pakistan — wheat, paddy (not rice), cotton, and corn (maize) — as well as most minor crops, including edible oilseeds, pulses, fruits and vegetables. Surprisingly, all these crops account for over 80 per cent of Punjab’s cropped area.

By controlling the prices of both agricultural inputs, including fertilisers, pesticides, and seeds, as well as almost all agricultural and livestock produce, the Act predominantly reflects a tendency towards a semi-controlled agricultural production approach, ignoring the market forces of supply and demand altogether.

Regrettably, the Act fails to recognise the changes that have occurred in Pakistan’s political and economic landscape, as well as on the global front, from 1977 to 2024. In 1977, Pakistan, like many countries of that era, was influenced by philosophies of nationalisation and a controlled economy.

However, over the past 50 years, several countries — China, India, Vietnam, Brazil, Russia, and Mexico — have transitioned from controlled to market-oriented economies, allowing market forces to drive economic growth and agriculture development.

The new Act, with its long list of agricultural crops designated as essential commodities, stands in stark contrast to the principles of a market-driven economy, effectively dragging Pakistan back by 50 years.

This presents a peculiar dichotomy: while the government seeks to privatise state-owned enterprises, promote corporate farming, and attract local and foreign investment in agriculture, it simultaneously aims, through this Act, to control prices of nearly all agricultural and livestock produce, extending beyond the essential daily items needed by a common man.

After a massive financial setback in FY24 due to the government’s failure to honour the announced support prices for cotton and wheat, farmers are grappling with a pressing concern: who within the value chain of commodities is exploiting consumers? Furthermore, whose profits — those of farmers, processors, or middlemen — is the provincial government aiming to regulate with this legislation to secure low inflation in FY25?

For years, farmers have persistently demanded protection from mafias that control the supply of agricultural inputs as well as the marketing and processing of crops. Sectors like fertiliser, textiles, poultry feed, edible oil extraction, sugar, and wheat flour milling have very cohesive sector associations with deep pockets and political clout, enabling them to sway policy decisions and dictate crop prices.

Their hefty returns on investment and equity speak volumes about this phenomenon. Despite numerous complaints regarding unfair practices and cartelisation within these sectors, the Competition Commission of Pakistan often finds itself powerless to act.

Conversely, farmers have no control over market dynamics and the pricing of their produce, which is sold in grain markets and fruit and vegetable markets, through open auctions driven by supply and demand. Additionally, Arthis in these markets charges a commission of 3-10pc of the produce’s value (varying by crop and market) for a single day’s service, amounting to 10-30pc of the farmers’ net profit.

Given the rising production costs of crops, any government attempt to artificially suppress crop prices under this legislation could make agricultural farming economically unsustainable. This could lead to a national catastrophe, given the sector’s significant contributions to GDP, employment, and exports.

Many countries strive to keep essential commodities accessible to their citizens, typically through government subsidies and assistance schemes, avoiding direct price controls that could distort market dynamics. In India, the government established price ceilings for essential commodities but also enforced minimum support prices (price floors) for 22 crops to ensure adequate supply, offer fair prices to farmers, and stabilise agricultural markets.

Indeed, it is well documented that the prices of fruits and vegetables escalate several times from farmer to consumer due to multiple layers of intermediaries. Each of them, especially shopkeepers and street vendors, handles relatively small daily sales volumes. Due to high perishability, a significant portion of fruits and vegetables spoil daily. To offset these losses and maintain a viable profit margin that justifies their expenses and daily effort, they inflate prices. This is a primary factor in the government’s inability to enforce adherence to commodities’ official daily rates.

In conclusion, the PML-N has historically favoured short-term gains at the expense of long-term growth. To boost the agriculture sector and achieve a lasting reduction in food inflation, it is crucial for the government to recognise that simply relying on regulatory and administrative measures coupled with an effective monitoring system is not enough.

Khalid Wattoo is a farmer and a development professional, and Dr Waqar Ahmad is a former Associate Professor at the University of Agriculture, Faisalabad

Published in Dawn, The Business and Finance Weekly, June 24th, 2024