There is a popular belief that inflation rises during Ramazan, with authorities solely fixated on stocking up and artificial price hikes. Prices tend to escalate during Ramazan, with a general surge of 31.5 per cent in recent months, and several food items experiencing up to a 60pc increase in prices from their pre-Ramazan levels.

While stocking up may be a contributing factor towards higher prices, it does not play a pivotal role. There are structural inefficiencies in the retailers’ supply chain and a lack of regional trade in Pakistan, which causes a price hike.

Click to see more

This phenomenon is simply an application of the law of demand and supply, which remains applicable during both Ramazan and Christmas, just as it does throughout the year. Only when the demand for a product exceeds its supply a disequilibrium arises, leading to fluctuations in price.

Some local intellectuals have cited Western countries where prices for certain goods remain unchanged or low during Ramadan as an argument against the idea that prices increase during religious holidays in Pakistan. However, this explanation overlooks the fact that Muslims are often in the minority and may not be as well-off as the majority population in these countries.

An increase in regional trade of in-demand food items and a more efficient supply chain could curb higher prices during the holy month

Conversely, during Christmas in these same countries, prices for certain goods often increase due to higher demand from consumers who celebrate the holiday such as gifts, decorations, and special foods and drinks associated with Christmas.

Similarly, during the holy month of Ramazan, certain food items and fruits are in high demand, particularly during the suhoor and iftar meals. Middle-class and lower-middle-class consumers tend to purchase these items on a daily basis during Ramazan, even if they cannot afford them at other times, as this month holds special significance for them.

In addition, well-off individuals and charitable organisations often donate food and fruits to those in need as an act of charity, particularly to the labour class working in metropolitan cities. This practice further increases the demand for specific food items and fruits during Ramazan by 30-40pc, while the supply remains constant, leading to a disequilibrium in the market between demand and supply.

The state can overcome the challenges related to the availability of food items and fruits during Ramazan by bolstering its regional trade with neighbouring countries, including India, Iran, Afghanistan, and China. By enhancing regional trade, Pakistan can potentially increase its access to a wider range of products, including cost-effective and high-quality food items and fruits.

This would enable Pakistan to effectively address supply-related issues during Ramazan and ensure a steady supply of products for the general public.

Regarding the solution in the domestic market, one approach that can potentially address the issue of high prices is to enhance the efficiency of the value chain of retailers and marts, eliminating the intermediary role. In Pakistan’s big cities, several retail stores and marts, including Canteen Stores Department, Hyperstar, Al-Fatah, Metro, Imtiaz Super Market, Save Mart, and Punjab Cash and Carry, have been established.

Despite their establishment, their supply chain system could be further optimised for efficiency. By employing an efficient method for collecting materials from farms and production centres, these stores can ensure that they maintain sufficient stock levels and can source materials at reasonable costs. This optimisation can subsequently lead to the reduction of prices, thus making products more affordable for the general public.

The Utility Stores Corporation has reported that there are over 4,000 retail stores located throughout the country. As it currently manages 108 of these stores, the Canteen Stores Department has become the second-largest retail chain in Pakistan.

However, most retail stores in the country rely on intermediaries, particularly Sabzi mandi and wholesalers, for their supply chain operations. These stores do not have their own farms and also lack a direct link with farmers. As a result, they have limited control over the quality and pricing of their products, as the middlemen influence these factors in the supply chain.

Let us examine the example of Tesco, one of the largest retailers in the United Kingdom, which maintains a complex and extensive supply chain that involves numerous suppliers, warehouses, and distribution centres.

In the backward chain, Tesco collaborates with thousands of suppliers worldwide to procure products, including farmers, manufacturers, and distributors. It owns several large warehouses where products are received from suppliers and stored until they are required in stores.

In the forward chain, Tesco utilises various transportation methods to transport products from its distribution centres to its stores. Products are then stocked on shelves in Tesco’s stores and made accessible to customers.

Tesco’s efficient supply chain allows it to provide less expensive products and make them available to a larger consumer base. This is possible because Tesco has invested heavily in its supply chain infrastructure. This is a lesson for retail stores in Pakistan to own efficient supply chains.

In a nutshell, regulatory bodies could concentrate on developing stronger economic connections with neighbouring countries to promote the smooth flow of goods across borders. This can assist in increasing the availability of food products, reducing transportation expenses, and enhancing market competition, all of which can contribute to lower prices.

An efficient supply chain of stores can also help to manage inflation in food products, which is frequently impacted by inefficiencies such as the involvement of middlemen and traders who add extra costs and complexity to the distribution process.

By eliminating these intermediaries, retailers can decrease expenses and pass on these benefits to consumers. Moreover, by upgrading logistics and distribution channels, retailers can guarantee that food products are transported quickly and efficiently from farms to markets, which reduces spoilage and waste.

The writer is an Assistant Professor (PhD Financial Economics) at the National University of Modern Languages, Islamabad. He can be reached at (abwahid.fms@gmail.com)

Published in Dawn, The Business and Finance Weekly, April 10th, 2023