Energy Crisis and Profitability of Listed Food Producers1 in Pakistan

Abstract

This paper applies Panel GMM EGLS Method to a panel of 15 out of 18
listed food producers in Pakistan for the period 2001-10 and attempts to
explore the impact of energy crisis combined with energy price escalation on
profitability of listed food producers in Pakistan.
Composite energy price index and all firm-specific explanatory variables
including lagged profitability, firms’ growth, working capital management,
efficiency, change in firm size, have positive and statistically significant
impact on firms’ profitability; the impact of corporate gearing is negative
while GDP and rate of inflation are insignificant at the conventional level.
Positive coefficients with change in inflation rate and energy price index
signify and confirm that adverse supply shocks combined with restricted
firms’ output raise food prices and producers’ surplus (profit). Our results
indicate that producers pass on more than energy price escalation to
consumers; one percent increase in energy price index escalates profitability
of listed food producers by 2.25 percent. Producers gain at the cost of
consumers’ sufferings.