PUNJAB is in the middle of a potato crisis, with prices escalating and the federation withdrawing duty on imports from India to stabilise them. As a further measure, the government is imposing taxes on its export from Pakistan.

Punjab’s administrative machinery is in full swing to deal with hoarders holding the crop. Even harsh measures like imposing Section 144 to recover the vegetable from traders’ stocks are being contemplated at the official level to bring the prices down, especially during Ramazan.

Unfortunately, the official reliance on administrative measures in the agriculture sector is so strong that it runs the risk of ruining long-term potential of the potato business, both in domestic and international markets. A look at the events in the run clarifies the point.

Pakistan’s decision to import 200,000 tonnes of potato hardly meets one month’s national

requirement. But it has driven prices up in India — almost equalising them with domestic prices here

To begin with, Punjab, contrary to the advice from the federal ministry of food security, pressed for a Statutory Regulatory Order (SRO) to withdraw regulatory duty of 25pc, 17pc sales tax and 5pc withholding tax on potato imports between May 5 and July 31.

Owing to its political clout at the federal level, this was done to facilitate imports of 200,000 tonnes of potato from India, to stabilise prices in the domestic market. To discourage export, the federal government had another go at the potato business and imposed 25pc duty on export. But all these measures failed to control the prices.

In addition, during the last few weeks, Punjab’s agriculture and food ministers have held meetings with growers and traders to find ways to bring prices down to Rs30 per kilogramme (official) from the current Rs50/60 per kg. But this was all in vain! The rumour is that extreme measures like Section 144 and raids on private stocks are being considered to bring prices down.

All governments take measures to protect the common man from price hikes caused by speculative trading. The Punjab and federal governments are within their right to do so, but not at the cost of the crop and its business. The federation’s withdrawing duty on imports for a specific period makes sense, but slapping duty on export does not have an expiry date.

Pakistan, on average, produces around 4m tonnes of potato per annum. Its domestic consumption is around 2.2m tonnes. The remaining 1.8m tonnes are meant for export. Heavily taxing the export of a crop — 50pc of which is exported — does not make much sense.

According to the SRO, the import duty withdrawal is effective only from May 5 to July 31, but the imposition of duty on export has no expiry date. This sends a wrong message to farmers and traders.

The government also needs to study the crop’s anatomy before arbitrarily fixing a preferred price level. The potato crop suffered from frost this year, and its yield slid. This drove up prices even during harvest in February. That is precisely why the farmers dug up the crop early and sold it much before full maturity.

At that point of time, the wholesale price was around Rs35 per kg. Hoarders, or traders, bought them at that price and stored it in cold storages, which must have added another Rs5-10 to the price. Now, the Punjab government wants them to sell at Rs30 per kg, even though it cost them Rs40-45 per kg.

The government also needs to look at the crop trade before taking important decisions. Being a perishable item, the entire crop moves to cold storages after March 18. Treating this as hoarding may not be right. It is not to argue that those holding the crop are not doing it for profit and should be given free hand by the government. But only to argue that controlling prices should also mean facilitating crop production.

If yield goes down — for any reason — administrative measures at later stages, especially when the crisis has developed, have limited impact on the market. By then, the government is left with no option but to get caught in a vicious cycle of tightening administrative squeeze and decreasing utility of its administrative measures.

Pakistan, apart from its population, has also been feeding neighbouring countries for many decades. Its outreach to as far as Russia andIndonesia shows its potential for the crop.

The government should concentrate and exploit that potential rather than ignoring the crop and trying to control the situation much after the propitious time. The import of 200,000 tonnes of potato hardly meets one month’s national requirement, but has driven prices up in India — almost equalising them with Pakistani prices.

Published in Dawn, Economic & Business, May 26th, 2014