COVID-19: Food market constraints threaten social fabric

No rules enacted to halt cartelisation, hoarding of essential commodities

ISLAMABAD: Pakistan has recently experienced flour, wheat and sugar crisis which is a result of bad policy, poor regulation and low private-sector capacity.

The Covid-19 pandemic has badly exposed constraints in Pakistan’s food commodity markets and supply chains. It threatens the very nature of social and political fabric of Pakistan.

Despite government’s assurance of consistent food and medicine supplies, there is shortage of essential commodities such as wheat, rice, sugar and medicines due to panic buying as well as supply-side constraints.

The response of the government also remains sluggish. In Sindh, for instance, factories have not received wheat from the government for the last 8 to 10 days, thus resulting in flour crisis.

At present, no rules have been enacted to halt cartelisation and hoarding of the said commodities.

In these rather straightforward economic transactions, bureaucrats should not be playing any role once a policy is defined. They cannot make quick decisions, especially when decision-making is likely to face penalties due to excessive outreach of accountability agencies in the country.

Tariff and non-tariff barriers to medical equipment and medicines are undermining efforts to treat the affectees and contain the spread of the virus. It should be recalled Pakistan has implemented an effective price control system for medicines in the past 20 years. The policy was relaxed a couple of years ago only to be resisted or reversed on the pressure of different quarters. Already, the worst losers of price control of medicines are the consumers.

The knee-jerk reaction of the government facing dual crisis of both constrained supply and excessive demand is to place price control and opt for rationing of supply.

It is certain to cause more harm than good. Very soon, we will see stocks vanish. We have seen it many times. It is high time for the government to reconsider its economic policies for mitigating adverse economic effects of the pandemic. In this regard, there are a few policy suggestions.

First, the government should resist the temptation of controlling prices as this provides wrong signals to both producers and consumers. When prices are controlled, consumers go for panic buying and producers stop investing in supply.

The government should still regulate, focus on supply and take measures against cartelisation and hoarding, especially when it comes to essential commodities such as food and medicines.

Second, as we have advocated in the past, open trade helps in a free flow of medicines and medical equipment, therefore, the government should withdraw tariff and non-tariff barriers at least till the time the crisis is over.

To provide a small example, if Pakistan was a signatory to the Information Technology Agreement (ITA), as we have recommended many a time, duty-free import of medical machinery would be possible today. However, it is noted that the government has relaxed import conditions given the crisis.

Third, the government should re-allocate its resources and should induce commercial banks to re-allocate capital to industries with plans to boost production of critical medical equipment such as testing kits, ventilators and hospital beds on a war footing.

Fourth, the government should announce a new regulation to ensure that the workers on daily wages, employed by the industry, continue to be paid during the closure of factories.

It is something that the government has already declared and it is hoped that the employers implement this, though it will not be sustainable without bringing any fiscal stimulus.

Lastly, the government should re-prioritise Zakat spending and should also encourage private foundations to create a pool of funds to provide cash to informal workers in industrial, agriculture and services sectors during the crisis.

The crisis like this provides a short window of policy reforms. In Indonesia, where strict controls on imports have been placed for the last many decades, the government has been forced to relax these controls, albeit temporarily.

One hopes that Pakistan’s government also learns some lessons. Whereas more investment is certainly needed in the healthcare system, we need to see lesser role of the government in food commodity markets.

For a population of 220 million, with a huge number living in poverty, a lack of access to food items can have the potential of threatening the political fabric of society, risking anarchy.

The writers are affiliated with PRIME, an independent economic policy think tank based in Islamabad

 

Published in The Express Tribune, April 6^th, 2020.

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