Almost every regime in Pakistan has been criticised at some point for the high prices of essential vegetables. Analysis indicates that two major factors primarily contribute to the high prices of vegetables and condiments.
Firstly, the mismatch between supply and demand. Secondly, the presence of multiple intermediaries in the supply chain. Although the cost of production, which has recently increased due to high-priced agricultural inputs, is another important factor, this is probably not the real cause of extraordinary high prices.
If the government does not intervene through any price control mechanism, prices tend to increase if demand exceeds supply. In the case of Pakistan, this mismatch between demand and supply tends to occur on the supply side of vegetables and condiments due to: a) limited crop acreage, b) crop failure due to extreme weather, severe pest and/or disease attack, and c) calamities like heavy rains, drought, flood, etc.
Conversely, prices tend to decline steeply due to an oversupply. Rudimentary value addition, slow response of the vegetable export system, limited storage places and the inability of small farmers to hold semi-perishable crops (onion, potato, garlic, etc) during peak harvesting season are some of the major factors that contribute to oversupply.
Keeping a record of the vegetables sown and thus preventing farmers from oversupplying may be a more effective way to ensure fair profits and fair prices than imports
In the past, farmers had to sell vegetable or condiment crops at throwaway prices, which were insufficient to meet even harvesting, packaging and transportation costs. After every crop loss or price loss, farmers become reluctant to grow that particular vegetable or condiment and many switch to other crops. Consequently, in the subsequent year, the crop acreage is reduced considerably, which feeds into prices skyrocketing.
The price disparity between farmers and end consumers is another major issue. In the supply chain, farmers and consumers are separated by layers of intermediaries, who jack up the prices two to four times. Since vegetables are perishable, every player in the supply chain, especially small retailers, adds exorbitant margins to preempt the loss caused by unsold stock.
Three options are worth discussing to assess their viability to keep prices low and less volatile.
First, the option of importing is not a sustainable solution for an agricultural country like Pakistan, as these imports often create market distortion and discourage farmers. We should not forget that the huge import of vegetables from India around the year in the previous decade ruined the tunnel farming production of vegetables in Pakistan.
Second, the government’s attempt to eliminate intermediaries through the introduction of “Sunday Bazar”, or “Kissan Bazar”, basically aimed to offer the opportunity to farmers to sell directly to end consumers, has not been able to reap the intended results.
Contract farming is one viable option to eliminate intermediaries. PepsiCo and other companies have successfully introduced contract farming in potato crops by procuring directly from medium and large farmers.
But when it comes to dozens of vegetables and condiments grown in Pakistan, managing such a supply chain effectively and efficiently is a very complex and capital-intensive task due to the wide geographic spread of vegetable clusters (growing areas). Contract farming with unorganised small farmers, who are major producers of vegetables (other than potatoes), is another big challenge in Pakistan.
The recent transformation of the retail sector of Pakistan has witnessed the expansion of “chain stores” in pharmacy, food, shoes, clothing and many other products under the franchise business model. Let’s hope that such chain stores also emerge in the vegetable retail sector, which will help reduce the intermediaries.
Improving the supply of vegetables through an increase in crop area seems the most viable option in the short term. The real challenge associated with this option is maintaining prices within an acceptable minimum and maximum range, whereby farmers can accrue reasonable profit and the consumer can purchase at affordable prices. This is only possible when the crop area remains within a range to avoid shortage and oversupply.
A control system to record the sown area can solve this issue. Before the sowing season, a farmer of a particular vegetable crop, having land in any major cluster (growing area) of that crop, will be required to get his crop acreage recorded in the nearby office of the agriculture department. The department will be responsible for updating the figures on a first-come, first-served basis.
After achieving the target figure for the acreage in the cluster, another farmer would not be allowed to grow that particular crop but is free to grow other crops. Contrary to crop zoning, the proposed system is very lenient.
Such a control system appears crucial to save farmers from selling their produce at a loss due to oversupply, which may cause a decrease in the crop acreage next year. For piloting in project mode, such a system can be adopted initially for tomato and onion crops, whose high prices have caught the attention of political circles in previous years.
Related to supply, another challenge that needs to be addressed is that crop acreage of a specific vegetable or condiment may remain less than the required target. For example, several crops like garlic are grown extensively in the country, but their acreage is insufficient to meet domestic demand. That is why Pakistan imports garlic every year to the tune of billions of rupees.
To increase the area of such crops to control market prices, the government may provide in-kind or cash incentives to farmers for a few years using the abovementioned registration process. The government is already providing cash subsidies to farmers to increase the area of oilseed crops.
Khalid Wattoo is a farmer and a consultant in the social sector.
Rahema Hasan is a political economist and graduate of the London School of Economics and Political Science
Published in Dawn, The Business and Finance Weekly, September 19th, 2022