Pakistan's dire hunger crisis, ranked 102nd globally in 2023, is fueled by a shadowy world of illicit food trade that sabotages food security and economic stability. Tackling this hidden menace is key to turning the tide and securing a brighter future.

In 2023, Pakistan ranked 102nd out of 125 nations on the Global Hunger Index, scoring 26.6, indicating a "severe" hunger crisis. About 35 percent of households in the country face food insecurity. International food trade has successfully reduced global poverty and hunger, but illicit food trade poses a major threat to global and domestic food systems and public health, undermining efforts to address hunger and malnutrition. 
Soaring inflation rates in Pakistan have greatly reduced the consumer purchasing power and food affordability, fostering illicit food trade. When prices surge faster than incomes, consumers are forced to opt for cheaper alternatives, including illicit and black-market commodities and products. Poverty and distorted food prices in the domestic market contribute to the growth of illicit food markets. 
Pakistan faces significant challenges with illicit imports of food commodities and products such as dry and fresh fruits and vegetables, spices, animal, herbs, poppy seeds, cheese, chocolate, among others. Moreover, illicit exports of essential items such as wheat flour, cooking oil, rice, sugar, beans, fresh fruits and vegetables as well as dairy and poultry products are also prevalent. Illicit food trade perpetuates a vicious circle of associated criminal activities such as money laundering, organized crime, corruption, and tax evasion, which undermines the country’s economic and legal frameworks.
To address food insecurity, it is essential to discipline trade in food, a significant contributor to the problem. Government policies aimed at boosting tax revenue can inadvertently exacerbate illicit trade. By increasing customs and excise duties, price disparities between traded and domestic goods arise, making illicit food trade more attractive. These taxes, intended to generate revenue, ultimately raise the domestic price of importable goods, leading to an increase in illicit trading.
The Impact of Illicit Food Trade
Pakistan’s food sector is a significant contributor to the country’s gross domestic product (GDP) and job market outcomes. However, the country’s excess demand in essential commodities like tea, spices, and edible oil, are bridged through imports. Meanwhile, rice is exported, and sugar and wheat are traded based on the domestic market conditions, with exports of these commodities occurring during surplus periods and imports during deficit times, highlighting the complex dynamics of food trade in the country.
The illicit food trade destabilizes farming and the food supply chain, putting the production and distribution of food at risk. This trade is typically driven by a price disparity between the countries of origin and destination of a product, creating an economic incentive for illicit trade activities. There is a wide range of negative impacts that illicit trade in food has on businesses, resulting in economic losses. It needs to be underscored that due to the high demand for food and the growing population, the illicit food trade is expected to become more rampant in the future.

Pakistan faces significant challenges with illicit imports of food commodities and products such as dry and fresh fruits and vegetables, spices, animal, herbs, poppy seeds, cheese, chocolate, among others.

The food industry and agriculture sector are affected by illicit trade in both directions. When illicit exports occur, domestic prices rise if shortages emerge. However, if surpluses exist in the country, illicit exports benefit producers who are otherwise getting a lower price in the absence of exports. Since illicit exports are not documented, the country loses foreign exchange earnings. Additionally, the country loses export-related direct and indirect taxes on food products, as well as all domestic taxes if the products are consumed domestically.
On the other hand, when illicit imports occur, they lower domestic prices that were previously much higher, which motivated the illicit imports in the first place. This adversely affects the production of the domestic industry, which was previously protected from foreign competition. Additionally, illicit imports evade all import-stage taxes imposed by the country.
Illicit trade encompasses different forms; including, smuggling and not maintaining invoicing of trade. These activities are estimated to cause a significant loss of PKR 1.5-2 trillion for the national treasury. The combined value of (food and non-food) smuggling, under-invoicing, and non-declaration of imports, as well as counterfeiting and adulteration, is estimated to be around 18 percent of the formal economy. Strengthening enforcement measures and implementing track-and-trace systems launched by the Special Investment Facilitation Council (SIFC) can overcome these issues.

There is a wide range of negative impacts that illicit trade in food has on businesses, resulting in economic losses. It needs to be underscored that due to the high demand for food and the growing population, the illicit food trade is expected to become more rampant in the future.

Leveraging WTO Policies and Enhancing Measures to Combat Illicit Food Trade
The World Trade Organization’s (WTO’s) Trade Facilitation Agreement (TFA) has the potential to facilitate the legal trade flows. The challenge in this regard is to leverage such agreements, and indeed the whole WTO policy toolbox, to specifically fight illicit food trade. While trade liberalization can discourage trade-related criminal activities, controlling illicit trade is crucial for achieving high growth in the country and ensuring food security for growing population.
To this end, the government needs to implement comprehensive policies that reduce the incentives in illicit trade activities, i.e., by raising the cost of illicit trade and reducing its financial benefits. There is also a need for new measures to effectively counter crime, e.g., enhancing track-and-trace solution is essential in the fight against illicit trade. So, the government should allocate greater resources and technology to customs, prioritize border controls and set up check posts at entry points from non-tariff areas to curtail illicit food movements.
Furthermore, there is a need to develop effective law enforcement cooperation and intelligence information sharing with neighboring countries, especially where the illicit trade generates abnormal incomes for organized criminal and terrorist groups. 
SIFC's Proactive Measures to Combat Illicit Trade and Tax Evasion
SIFC has taken proactive steps to combat illicit trade and tax evasion by introducing a range of measures. Notably, it has established track-and-trace systems to monitor specific industries such as sugar and others, to prevent illicit trade activities. The system is designed to enhance government oversight and prevent illicit trading activities. Furthermore, plans are underway to expand the track-and-trace system gradually to other industries and activities, with the goals of increasing tax revenue, safeguarding domestic production and business activities, fostering transparency, and instilling confidence among domestic producers; eventually promoting a more transparent and accountable business environment.
The Far-Reaching Impact of Illicit Trade and the Importance of Policy Initiatives
Illicit trade is a far-reaching issue that perpetuates corruption, crime and money laundering, ultimately undermining country’s economic, financial, and institutional stability. This stability is crucial for maintaining favorable global credit ratings. This suggests that if Pakistan invests resources and develops policy initiatives to combat illicit food trade more effectively, the macro-economic benefits associated with eliminating illicit trade and related criminal activities can have a significant positive impact on the economy and society. Specifically, by reducing the quantum of cross-border illicit food trade, the business community’s confidence will grow, encouraging genuine taxpayers to invest and operate within the legal framework. Furthermore, it is important for policymakers to carefully consider the impact of their policies on the price gap between importable and exportable goods and domestic goods. By maintaining a balanced approach, they can help prevent any unintentional encouragement of illicit food trade and address food insecurity more effectively.

The writer is a Professor of Economics at the School of Social Sciences and Humanities at NUST, Islamabad.
E-mail: [email protected].