What makes fruit and vegetable prices go higher?Archive
AN increase in fuel prices at the start of this year is expected to drive up already high food prices, especially those of fruits and vegetables.
In December, year-on year food inflation measured by the Consumer Price Index (CPI) shot up to 3.8 per cent, the highest since May when it was 4.9pc. A spike in fruit and vegetable prices played a key role in accelerating food inflation.
Now, after a rise in fuel prices from Jan 1, a further increase in prices of fruits and veggies seems certain as transportation charges from farms to marketplace have already gone up, media reports suggest.
The fall in the rupee’s value that began since Nov 8 and the imposition of regulatory duties on hundreds of import items — including those falling in the food category would — also continue to push food inflation up in general. But ideally, prices of local fruits and vegetables should not be affected much by these two measures.
Domestic prices of fruits and vegetables keep rising every year, and their exports either fall or remain static most of the time. An occasional drop in local prices and surge in exports have become exceptions, mainly because the total production of fruits and vegetables has not been growing at the required rate. And a troubling part of this sad story is that information about production is not free flowing.
No sustained build-up in surplus production and a rise and fall in local prices keep export volumes range-bound and volatile
Incentives are announced periodically for producers as well as exporters of fruits and veggies. But a lack of transparency in distributing and monitoring these incentives makes it difficult to assess why they often fail to meet key broader objectives, ie price stability in domestic markets and a sustainable increase in export volumes and value.
The true potential of the sector will remain untapped if the trend does not change, and consumers will continue to suffer and food trade deficit will keep expanding.
“During the past five years, our total production of vegetables has increased by at least half a million tonnes — from roughly 4.5m tonnes back in 2010-11 to more than 5m tonnes in 2015-16,” claims a senior official of the Ministry of National Food Security and Research.
More recent data is not available and is being collected from provincial crop-reporting centres.
This means the country is producing 100,000 tonnes of additional veggies every year. Considering the growth rate of population and a growing intake of veggies by people in daily meals, it is hard to imagine that this increase in annual production is enough for a nation of around 208m people. Naturally, no big rise in available surplus for exports can be expected.
This explains, at least partly, why vegetable exports gradually declined from about 857,000 tonnes in the 2010-11 fiscal year to nearly 624,000 tonnes in 2016-17, according to the Pakistan Bureau of Statistics (PBS).
During recent years, domestic consumption of fruits has also risen noticeably, and perhaps faster than vegetables because, unlike veggies, they are more widely used in food industries. However, fruit production remains around 7m tonnes between 2010-11 and 2015-16, according to officials of the food ministry.
Their exports declined from about 669,000 tonnes in 2011-12 to 645,000 tonnes in 2016-17, peaking at 786,000 tonnes in 2013-14, PBS data shows.
Domestic consumption of fruits has risen noticeably in recent years, perhaps faster than vegetables
Some erratic behaviour in export volumes of vegetables and fruits can be explained on the grounds of their perishable nature and in view of the fact that export market dynamics weigh too heavily on two big exportable fruits, ie mangoes and kinno.
But no sustained build-up in export surplus and a rise and fall in local prices are two key reasons that also keep export volumes of fruits and veggies range-bound and volatile, exporters say.
This takes us back to supply-side issues. Production of fruits and veggies are declining for various reasons, but the most important ones include a decrease in the area under their cultivation, high post-harvest losses and broken linkages in the supply chain.
The area under cultivation of veggies shrink or does not expand as farmers switch over to more profitable major food and non-food crops. But in case of fruits, militancy and terrorism in fruit-growing regions of Khyber Pakhtunkhwa and Balochistan, before a final crackdown, had reportedly forced many orchard owners out of business.
As normalcy has now largely returned in the past two years in these regions and the orchard management is being modernised, an increase in fruit production is already in sight and can be sustained, officials say.
Even a conservative estimate of post-harvest losses in case of fruits, the one that the SBP also believes, is 20pc. In case of vegetables, these losses are even higher, at 30-35pc, according to officials of the Punjab agriculture department.
“Unless these losses are brought down to single digits, supply issues will continue to create volatility in local prices and difficulties in building a sustainable level of export surplus,” one of these officials recently told this writer.
Besides, supply chains of fruits and vegetables are wanting on many counts. Small farmers and orchard owners face difficulties in transporting their produce to faraway market places so they have to auction fruit farms and orchards in advance on cheap rates and sell vegetables in bulk to the middleman at throwaway prices.
Investment-hoppers who buy fruit farms prioritise reselling fruits to exporters at the time of their own choice, thus creating occasional shortages in the local market. Wholesale markets of fruits and vegetables are very few in numbers and located far from fields and orchards which keeps the cost of transportation high.
“All such factors, together, are responsible for erratic supply (and volatile prices) of fruits and veggies,” says a former secretary of the Sindh agriculture department. “Moreover, exporters’ competitiveness is also affected by their inability to rely on pre-qualified suppliers under obligation of meeting quality standards and providing fruits and veggies as and when required by them.”
Published in Dawn, The Business and Finance Weekly, January 8th,2018