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Restore the Food Market

The article, Restore the food market, argues that the food crisis, i.e. food shortages and food price hikes, is a phenomena of nationally closed and protected markets.

by Dr. Khalil Ahmad

If you do not create a free market, a black market will emerge.
-Motto of the Lithuanian Free Market Institute

It has been a staple food of every government to control food prices. Be it Hammourabi of Babylon (1760 BC) or the Emperor Diocletian of Rome (AD 284), all attempted to provide their people with food items under controlled prices. People defied. But Diocletian won’t tolerate this and he punished those with death who sold items above the fixed price. This Draconian measure emptied shops and there was shortage of such basic goods.

The government in Pakistan, whether military or civil or a mix-up of both, has been doing the same on the issue of food prices. They control the production and movement of all food items from A to Z which starts from the stage of sowing of various crops, irrigating, fertilizing, harvesting, pricing and selling them in the wholesale as well as retail markets. Then they ban their movement from one province to another and even from one district to another. Also, there exist controls on their import and export.

All these measures time and time again have resulted in unintended consequences and benefit the elites at the expense of the people. It is this criminal complicity of the government with the elites of Pakistan that distorts the food market the consequences of which ordinary people have to suffer in the form of shortages and high prices. While people are told, and they believe it, that it is traders, wholesalers, retailers, hoarders, smugglers, profiteers, who cause the shortages and raise prices to earn huge profits. The fact is that it is the government which is the real culprit. It is because of its mismanagement that people suffer such shortages.

Actually, traders, wholesalers, retailers, all of them do business in a closed market where the demand is always greater than the supply of an item. And, it needs no deeper knowledge of Economics to know that limited supply and higher demand of an item causes its price to rise. And, it is basic to Economics also that the demand of food items is inelastic. Their demand undergoes no great fluctuations whereas their supply may decrease due to various factors. Thus, their prices may show an upward trend in such times. But in Pakistan presently it is no such time.

As to the hoarders, smugglers and profiteers, they are our benefactors. They ultimately serve us and supply us what we need in time of need. In some cases, they provide us with low-priced and quality items which are comparatively cheaper than the domestically produced ones. They charge their own price because their act of storing/hoarding and transporting the items involves many risks. They can lose the stored/hoarded items in the event of any disaster. There could be a greater supply from any unseen quarter in the face of which their prospects of earning profits are doomed. Or such factors may intervene as may deprive them of their expected profits. But the fact in point is that the shortage or greater demand of an item causes it price to rise accordingly.

How government acts in the matter of food items is quite pernicious! It has so many agencies, departments, etc. which, for example, oversee crops and advise about the time of their sowing, about using fertilizers etc., estimate the production of various crops against the expected demand in the country, then control its price at the time of harvesting by fixing a support price. Then, they purchase a definite quantity of the item to keep the local market supplied with it when there is shortage. Isn’t it hoarding? Done by the government itself! Then, they keep an eye on its movement and restrict it to move within a specified area, it may be a district or province.

To what avail, but? They never achieve their objective of keeping the people supplied with abundant food items at “fair” price. What all these agencies and measures easily achieve is the distortion of the food market. What else could be the greater signs of a distorted market than the ration cards, utility coupons, and long queues before the government utility stores and flour supplying government vehicles?

The present spell of food crisis exposes the government’s mismanagement incontestably. As discussed in other articles, first there were inflated estimates of wheat production on the basis of which its export was allowed. Then, of course, there had to be a shortage of the wheat/flour supply in the local market, and then the government started importing wheat at higher rates. It is height of the mismanagement that in that event instead of allowing unrestricted import of wheat from neighboring and other countries, government took such steps as played havoc with the food market.

As the government agencies control the supply of wheat to the local flour mills, in order to stop the flour “smuggling” and to ensure a desired supply of flour to the local market, paramilitary forces, Rangers, were posted at the flour mills. This outrageous act was tantamount to another act of nationalizing the flour mills. This panicked the owners of the flour mills and curtailed their freedom to do business. This did not stop the “smuggling” of the flour to Afghanistan, its prices rose in the local market, however.

As we know it takes time for economic policies to materialize and bear results. So, after about a century of such anti-market policies that kept market forces disabled and distorted their free working, we have reached a stage where every measure and step of the government to increase the supply of staple food items and control their prices has started backfiring. It was since the mid of the last year that the present spell of food crisis is taking its toll, and we are all witness to the fact the no measure or step on the part of the government has succeeded in bringing relief to the people. The shortage of food items particularly wheat/flour is persistent. The trend of the prices is constantly in upward direction. For us ordinary people, there is no relief in sight.

At this critical time, every one of us desperately wants to know what is for us in store! Is this upward spiraling of food prices our fate? Have we gone for a permanent shortage of food items and will have to live with it? Or there is any solution to it?

It was in the first half of the 19th century that Frederick Bastiat, a French economist, wrote the oft-quoted three word sentence: ‘Paris gets fed.’ He observed that whatever every Parisian needed was provided by the market without the involvement of a central planner. The traders brought every thing from every corner of the world to feed the Parisians.

Isn’t is surprising, rather ridiculous, that now in the 21st century, and in a world where so much food is produced and where so many growers and traders are just ready to sell their produce to others, people in Pakistan are facing the shortages? They are not receiving the due market price of their money and are being supplied over-priced food items only because the central planner, the government of Pakistan, is coercively stopping them from purchasing the required food items from producers in other countries and from selling their produce in foreign markets. No one is being allowed to have the best price of his money.

In a world where political boundaries and the mismanagement of the managers/planners of these boundaries are causing famine-like food shortages, is it a matter of argument? Is it a matter of argument that one district or province is facing shortage of wheat/flour, and other provinces or districts are imposing ban on the free movement of the item? Is it a matter of argument that in a world where abundant food is available, we are facing its shortage? It requires no argument; it’s a matter of survival.

Under the circumstances, what is urgently required of the government is that it should not manage, or better say mismanage, the food supply chain. It should lose the controls and let the food market work freely. This will help the growers receive the true signals from the market, i.e. they will see that what is it that is in high demand in the market and will fetch higher prices. This will spur the production of food grains and food items. In addition, the government should open the borders for food items’ import and export; but this should not create another form of “License Raj.” Instead, an open and transparent policy of issuing import and export licenses should be adopted and practiced. No doubt, this restoring of the food market to its original natural form will have Pakistan get fed. Also, this will in a short span of time stabilize the supply of food items and their prices as well.

This article appeared in The News on Sunday on May 18, 2008.