Agri marketing flaws

The fifty-year-old main fruit and vegetable market located near Badami Bagh is the largest fruit and vegetable market in Lahore. It is a busy place bristling with economic activity, full of noise of trucks loading and unloading agricultural commodities. The air is filled with the pungent smell of vegetative waste, which can be seen lying all over the ground in the market. It is the central hub where the prices of fruits and vegetables are determined and the responsibility of monitoring and supervising the functions of the market rests on the shoulders of the market committee.

The agricultural produce grown by the producer passes through various hands before it finally reaches to the consumer. The raw commodities produced by farmers are purchased by collectors or ‘beoparis’ who, in turn, bring the produce to the designated markets in large quantities to sell it to the wholesalers through auction. This whole process is supported by commission agents who often give money as credit in advance to collectors/beoparis so that they can buy the produce from the farmers on cash and also help in negotiating deals between collectors/beoparis and wholesalers. Sub-wholesalers are also sitting in the market, also known as ‘Pharyas’, purchase bulk quantities of agricultural produce from the auction and later sell it to the retailers from all over the city/district. This mechanism works for the retailers, who sell the commodities to their consumers, as they cannot spend the entire day in the market to attend every single auction of every single commodity every day and instead buy from the wholesalers. Around 2,500 wholesalers sit in the main fruit and vegetable market, Lahore. Although the auction of most of the commodities takes place in the morning, different times are allocated to major commodities to keep the market from choking. For example, the auction of onion takes place at 11am, potato at 1pm and tomato at 3:30pm, etc. Although the bidders in the auctions are usually and mostly wholesalers, by law anyone can participate in the auctions. The auctions are monitored primarily by the market committee auctioneers and by inspectors, sub-inspectors and magistrates present at the location.

The Directorate of Agriculture Economics and Marketing has two main functions: to protect the interests of growers by increasing the share of producers in consumers’ rupee and to protect the consumers from the impact of price hikes. To achieve this purpose, the department regulates the sale and purchase of agricultural produce by exercising control on the sale and purchase of agricultural produce through the market committees in their notified areas. The market committees achieve these objectives by ensuring sustainable supply of agricultural produce and monitoring fair auction of agricultural commodities. In order to ensure sustainable supply according to the demand, the demand for certain commodities in different districts is determined and meetings are held with commission agents to ensure the supply of an adequate number of trucks of different commodities to the market. The main function of monitoring the auction of agricultural commodities in designated markets is carried out by auctioneers, aided by the administrative and legal help of other officers such as inspectors, sub-inspectors and price control magistrates. Market committees also supervise the processors, transporters and dealers of agricultural produce within their notified areas and issue licences to them.

Two rate lists are determined daily by the market committee: a wholesale rate and a retail rate. Wholesale rate is the maximum price at which the wholesalers can sell the different commodities to the retailers. Price fixation at this stage occurs through a sophisticated process. Data on prices, on which the commodities are sold at the auction during the day, is compiled. Around eight in the night, the compiled data is usually examined by a committee comprising senior district officials of agriculture department and the secretary market committee, and a weighted average of all transactions that took place in the auction during the day is taken to determine a price. Then, one rupee to account for miscellaneous expenses like loading and unloading, and 10 to 15 percent profit margin, depending on whether the commodity in question is perishable, eg, tomato and other vegetables and non-perishable, eg, onion and potato, etc, is added to arrive at a final wholesale price, which is then finally made official for the next day. This wholesale rate list is displayed in the market during the auction very next day and is also announced on the speakers for the benefit of illiterate traders. Auctioneers monitor the auctions to ensure that no wholesaler charges more than the determined rate. Price control magistrates and market committee inspectors sit in the market during auctions to take legal actions, such as fines and FIRs, against wholesalers who overcharge. The retail rate list, which is the maximum price at which retailers can sell different commodities to the final consumers, is determined by adding a 10 to 15 percent profit margin, depending on whether the commodity in question is perishable or non-perishable, to the official wholesale price. Legal action can also be taken against retailers who overcharge, if they are caught by the price control magistrates. Grading is done both at the wholesale and retail level and the higher grade commodity fetches a higher price. Because large shopping malls have huge overhead costs and usually sell better quality fruits and vegetables, they have entered a special arrangement with the market committees in which they are allowed to sell at a price greater than the official retail rate. It must be remembered, however, that the prices of wheat, which is procured by the government at the support price while on the other hand, sugar, ghee and pulses are determined separately by the district government.

Agribusiness is usually thought of as a textbook example of pure competition; therefore, it must seem weird that the government intervenes in the setting of prices of agricultural commodities, and on the surface, it may seem to go against the principles of pure competition. However, in reality it is still the forces of supply and demand that influence the market rate in the long run. There are large variations in yearly prices of some commodities, such as potatoes due to changes in the availability of supply depending on the crop production along with import and export. The government also uses the crop reporting data and forecasting done by the agriculture department to determine if the production of some commodities, such as wheat, is enough to satisfy the domestic demand and whether it would need to import wheat in case of shortage, or it could export the surplus quantity to keep the prices at a stable level. This shows that the market is the hub and centre of competition, and prices are ultimately determined by the demand and supply of commodities at market gate. However, as there are a large number of poor people in Pakistan, the government has to fix the prices of agricultural commodities in the short run to protect the consumers from artificial price hikes.