Product pricing: back to basics.

Byline: Jawaid Bokhari

THE PTI government's measures to tackle the recent spurt in sugar, wheat and vegetable prices have thrown up within regulatory bodies a vital underlying issue of how the prices of products and services should be determined to protect the consumers.

In setting market prices, official competition analysts observe that the most important factor is the relationship between the market price and the cost of a product or service being offered by a dominant entity or group in a given market.

In a policy note, the Competition Commission of Pakistan (CCP) has urged the Securities and Exchange Commission of Pakistan (SECP) to immediately reinstate the requirement of cost audits as per existing laws, particularly in sectors specified by it.

The commission has stressed that an SECP cost audit and its creditable data will help relevant official agencies to make policy interventions in a fair, transparent and independent manner. It would facilitate government agencies to make informed decisions while extending subsidies, support prices and price controls.

To elaborate the point made by CCP, one may point out that the PTI government has just announced a Rs50 billion package for the agricultural sector that earmarks a Rs37bn subsidy for farmers for the purchase of fertiliser.

Fertiliser, cement, sugar, oil and wheat flour are the prioritised sectors which the CCP has recommended for SECP's immediate cost audit. Similarly, there is an official move to fix the support price for the cotton crop as growers are shifting to other crops where returns are better.

In these days of lockdown, it would be interesting to look into the justification of two leading car assemblers raising prices of their vehicles despite plant closure, zero production and no sales for the past over two months

In the case of farming, there is a crash in prices if a crop is in surplus of the domestic demand whereas prices surge in the case of a shortage. Industrial capacity utilisation is however promptly adjusted to varying domestic and international demand, by higher or lower utilisation of installed capacity as per the requirements of the business environment.

But in some cases, the prices are manipulated by the presence of a few errant dominant players in certain market segments. A lot of government funds are blocked in ensuring the supply of essential items of mass consumption at affordable prices to urban dwellers. Expense on subsidy is also a burden on the...