It is common knowledge in Paki-stan that in the present day market mechanism, middlemen buy crops or product of the agriculturist ‘upfront’ much before the production as the agriculturists/producers do not possess sufficient money for seed, fertilizer, pesticides and labour. It is quite interesting to note that in many sectors the number of actual producers for a particular commodity is very large, at time in millions, whereas there are very few middlemen. This shows serious ‘cartelization’ in that sector by few people. In fact, there is no real competition. These ‘unknown’ rich people control the prices and create price hike as there is no effective real market mechanism to check undue profits.
Agricultural society and the quality of agricultural produce will therefore never improve and unnecessary urbanization will not stop unless we rectify the primary issue of pricing difference between the producers and ultimate consumer is not solved by creating real competition with modernization in that sector. There will be continued ‘urbanization’ as agricultural economy is getting unsustainable for the people who have to live in rural areas.
(i) Revamping administration of agricultural economy and integration of the same with urban consumption;
(ii) Research of ground realities and dissemination of information and transparency;
(iii) Improving documentation and taxation system; and
(iv) Improvement in logistics.
When we were ruled from the Whitehall in London, there was a role of ‘market committees’ in our civil administration. Those committees were administered by civil administration. That system still exists in theory and we unfortunately believe that the system is working. Nevertheless, in reality such market committees are now the source of corruption not being any correction. The present market committees not only lack competence to understand the intricate role of traders/middlemen but their mode of operation has become obsolete, archaic and useless. This can be described by using the same example of ‘banana’ trade in Karachi. The producer exists in the adjoining districts of Thatta or Hyderabad whereas the bulk of product is sold in the city of Karachi. When the colonial system of market committees was designed, the produce and market place were generally closer and integrated therefore any form of control or management could have been conceived. Now that possibility is not there. Now, due to development in logistics and preservation whole dynamics has changed and rightly so. This system should be completely revamped and its role, if any should be the dissemination of information about prices and supply at each level on public websites and media. In a similar manner, the concept of state-sponsored ‘bazaars’ is also a farce. There is a need to correct the system; not to do the patch work.
The second aspect is transparency and awareness. We can find thousands of research papers on Pakistan’s economics and many sentimental and non-sentimental discussions in media about price hike and listen to all the theories imported from Harvard, Wharton, Oxford and other places. However there is no genuine research about the role of middle man in our price structure, level of documentation and extortionist financing with respect to basic food items which are locally produced and consumed. We expect to hear soon the comment in near future from fruit vendor that banana has become expensive because there has been devaluation of rupee against USD. The tragedy is not the use of this lame excuse. The real tragedy lies in believing the same and confusing the common man on this subject.
What is required is a genuine pro-Pakistan and pure Pakistani economic data availability on this subject. We all should know the price at which a goat is sold in rural areas and the price at which meat is available in the market. We require appropriate and reliable data about value addition chain and its aberration in pricing structure. That data should be made public instead of gaining useless popular mileage and creating false hopes about economic future of Pakistan. We as a country will be living in fools’ paradise if we consider that there can be any successful economic policy or IMF program unless we are able to understand ourselves how our own system is operating and make real efforts for rectification.
The third and the most difficult aspect is the level of documentation and then ultimate taxation of real profit in dealing in agricultural produce. This subject has nothing to do with tax on agriculture. At present, whole of the economy run by these middlemen traders is non-documented. Such traders who are actually the real money makers are treated in tax as commission agents and are taxed on very nominal amount of recorded commission or remain untaxed in all senses. It is a hard reality in Pakistan that tax (on real income basis) and documentation is considered a subject of urban areas for salaried people, industrial sector only and large-scale industrial organisations only. Using the same example of the university professor and his butcher the tragedy is the fact that the professor who is actually poor is a ‘taxpayer’ on his real income whereas his butcher who is really rich on account of undue profit margin is considered to be outside the regime as our taxation system has not been able to grab the traders of any kind within the tax system. This has resulted in a serious aberration in society in addition to unnecessary price hike.
With reference to future course of action it is author’s view that real solution lies in elimination of middlemen and replacement of such persons by documented sector having improved logistics and preservation capabilities. We need to create effective competitive environment with adequate financing and automation. This will be a long drawn task however the same should be a priority item if Pakistan really wants to sustain agriculture economy and curtail unnecessary price hike for locally produced items for her 60 percent urban population. The aforesaid analysis appears to be a message away from general economic theory. Nevertheless it is a universal truth in any economic analysis that unless there is proper knowledge and data there cannot be any sustainable possibility for any solution.
Syed Shabbar Zaidi, "Inflation, price hike and Pakistan’s economic structure – II," Business Recorder. 2019-05-07.
Keywords: Economics , Economic data , Economic analysis , Economic theory , Money makers , London