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Prices of tea and pulses to shoot as taxes rise

March 03, 2013

Consumers should brace themselves for higher prices of pulses and tea as they visit grocery stores this month.

That is so because the government has increased the withholding tax on import of pulses, and also decided to impose the standard sales tax of 16 per cent on import of tea products, instead of the five per cent that had been the norm till now. Meanwhile, Basmati rice prices continue to rise, despite a better crop yield and lower export shipments. Rice traders and wholesalers cite a host of reasons for the hike, which range from delayed harvests to consumption by overseas Pakistanis.

Meanwhile, prices of other edibles, including wheat and white gram (whole), continued to rise in February, whereas those of sugar and black gram (whole) remained stable.

Anis Majid, chairperson of the Wholesale Grocers Association, says that importers were paying a two per cent withholding tax on import of pulses till February 26, as they had been exempted from paying an additional three per cent. However, the Federal Board of Revenue (FBR) has withdrawn the exemption through an SRO, and now importers have to pay a withholding tax of five per cent on the pulses they get shipped from abroad. Majid fears that prices of Mash, Gram and Masoor pulses would rise as a result.

Meanwhile, traders at Jodia Bazaar claim that prices of Mash and Gram pulses (washed), remained almost flat during February, mainly due to stable import prices and no wild swings in consumer demand. Tea prices also remained largely static in February, said sources in various markets.

Pakistan imports more than half a million tonnes of pulses every year from India, Australia, Myanmar and Vietnam, among other countries. In seven months of the current fiscal year, 309,000 tonnes of pulses were imported, compared with 369,000 tonnes during the same period of the last fiscal year. The increase in local production of Moong has been cited as a reason for the lower imports this year.

On the other hand, the country imported nearly 77,000 tonnes of tea in seven months till January 2013, up from 71,000 tonnes in the same period a year ago.

Offering an advance explanation for the oncoming hike in the prices of pulses, traders in Jodia Bazaar say that their cost of business continues to go up, as militant activities in the area disturb their regular business. The withdrawal of withholding tax exemption would only make things worse, they observe.

Meanwhile, traders predict that the withdrawal of the tax concession on tea imports would eventually force manufacturers of branded tea products to increase prices. Taking advantage of the sales tax concession, many leading tea brands had introduced new retail packs, while they also only marginally increased prices. The trend is likely to change soon enough.

However, no one seems to be able to answer why importers of pulses (particularly in case withholding tax and tea companies would pass on the burden of the new taxes onto consumers in the form of higher prices, instead of absorbing the hit on their own financial statements.

Meanwhile, explaining the rise in the per kilogramme wholesale price of Basmati rice (old) from Rs105-Rs130 last month to its current level of Rs110-Rs135, Jodia Bazaar traders say that lower production and delayed harvests had been pushing up prices since last October. And they have apparently yet to hit the ceiling. The traders added that every time rumours of a short Basmati crop circulated in the markets, semi-wholesalers and retailers would purchase the available stock in bulk, to cut their imaginary losses. However, the profits they make are real enough, as prices naturally rise given the shortage caused by their purchasing spree. We are therefore unable to supply the staple in large quantities, argue traders.

However, rice millers say that output this year is much better than last year (7.2 million tonnes compared with 6.9 million tonnes). They blame speculation for the hike in the prices of rice, particularly of non-Basmati varieties. “Speculators push up rice prices during the peak export season. That’s no secret,” said a former chairperson of the Rice Exporters Association of Pakistan.

Basmati rice exports have been on the rise since last November, yet the number of Basmati shipments going abroad has declined. The country exported 29,000 tonnes of old Basmati rice last November, followed by 35,000 tonnes in December, and 44,000 tonnes in January. Exports of non-Basmati rice followed a similar trajectory, as they went up from 241,000 tonnes in November to 301,000 tonnes in December, and to 432,000 tonnes in January.

Meanwhile, rice exporters who don’t have their own rice milling facilities buy old Basmati in large quantities, as soon as the harvesting of the new crop begins. “They normally export it in small retail packs to consumers in the United Arab Emirates and other Middle Eastern countries. Overseas Pakistanis there prefer old Basmati for its easier cooking, and better taste,” says Syed Sameer Ahmed, a Karachi-based commercial rice exporter.

The price hike in almost all edible items, including rice, has also been attributed to the frequent suspension of inter-provincial traffic by protesters, who would often block the National Highway and other important roads. Frequent strikes and closures on appeals of political parties continue to keep prices of agricultural commodities under pressure.

Commodity dealers say that prices of new Basmati rice has also been on the rise, mainly due to purchases by exporters and delays in harvesting of the shorter crop. An increase in the volume of exports from November 2012 onwards explains why even new Basmati is short in the market, they say.

Meanwhile, flour millers say that wheat prices rose in February, but not by as much as it did in January.

They credited a liberal release of subsidised wheat by provincial food departments to flour millers ahead of general elections as the main reason behind the moderate increase in wheat prices. “News reports that Pakistan had not started shipping wheat to Iran under a barter deal for fertiliser also provided some relief,” said a Karachi-based flour miller.— Mohiuddin Aazim