Wheat mishandling

Wheat continues to be a commodity that has been subjected to gross mishandling during the tenure of the various governments. To put it in a nutshell, a wheat surplus one year was followed, inexplicably, by a high wheat support price which, in turn, led to a higher area under wheat cultivation and therefore higher output as well as a higher local cost of production relative to the international price making it untenable for exporters to market the surplus commodity at the international price. And, also an increase in support price contributes to inflation.

In an effort to rid the country of stocks, argued to be necessary to free the extremely limited godown storage space, the Economic Co-ordination Committee (ECC) of the Cabinet on 23rd March 2015 approved extending rebate of 55 dollars to export of 0.8 million tons of wheat from Punjab and 45 dollars to the export of 0.40 million tons of wheat from the federal kitty. In addition, the Punjab government decided to chip in 3500 rupees per ton and the Sindh government 4500 rupees per ton as additional rebate. The impact of the gross amount of wheat subsidy on the national deficit and on the capacity of the two provincial governments to meet social sector development requirements is considerable and needless to add the fact that Pakistan is on an International Monetary Fund programme wherein it has committed to reducing subsidies instead of increasing them the ECC approval would be hard if not impossible to defend from a macroeconomic perspective.

In addition, the ECC decided that the subsidy or rebate was to be paid only to private sector exporters which again is inexplicable given that the grant of subsidy should have been limited to government stocks alone rather than to private sector exporters. To add to the confusion, Punjab Chief Minister Shahbaz Sharif then requested the Federal Finance Minister Ishaq Dar to grant anticipatory approval to wheat export to Tajikistan on government-to-government basis (as he had received a request from the Tajik ambassador) because of the urgency of the matter and Ishaq Dar granted the approval. However, here the Special Assistant to the Finance Minister insisted on completing the procedural requirements and instructed the Ministry of National Food Security and Research to submit a summary to that effect for a formal approval. On 23rd April, a formal approval was granted though it is unclear whether Tajikistan is still interested in procuring our surplus wheat.

And to further muddy the waters of poor management in the wheat sector the government also imported wheat when it had a surplus and the quality of the wheat imported is reported to be substandard. In December 2014, the Sindh government at a press conference revealed that it had imported 750,000 tons of wheat with the permission of the federal government which caused it a financial loss and urged the federal government to arrange a subsidy of 50 dollars per ton for import of 500,000 tons of wheat. Sindh Secretary Food Department Saeed Awan noted that action would be taken against those who imported substandard wheat though he did not comment on why the Sindh government sought permission from the centre to import wheat and why the ECC allowed it to import wheat when there was clearly a surplus of the commodity in the country. This indicates poor co-ordination between the centre and the wheat growing provinces.

Wheat was an export item during the tenure of the PPP-led coalition government and after exports plummeted to 61 million rupees in 2009-10 the then government, through support price increase, increased its exports to 49.7 billion rupees in 2010-11, 11.1 billion rupees in 2011-12 and 6 billion rupees in 2012-13. This did not imply that there were no unmilled wheat imports during the tenure of the former government but the total imported commodity peaked in 2011-12 at 661,000 dollars only. In fiscal year 2014, wheat imports reached a decade high of 101.2 million dollars while July-March 2014 total wheat imports were estimated at 100.6 million dollars and for the comparable period for the ongoing fiscal year the amount is considerably higher – 167.4 million dollars.

To conclude, there is a need for the federal and provincial governments to take decisions based on more informed data and to ensure that they are rational/logical and in the long-term interests of the general public as wheat is a staple for us through ensuring that taxes and support prices do not push the domestic price, of wheat, to a level higher than its international price.

SBP has been urging the government to get out of this business. Plans were made for the Commodity Exchange to establish storage with private sector participation, where farmers could sell their wheat stocks and get a receipt which could be discounted at banks. Private sectors’ hesitation to step forward is on account of governmental participation in the wheat trade. And, a populist decision by the government could hurt them. The government’s role should be limited to emergency stocking only. We also fail to understand why the federal and provincial governments insist on pulling this weight when the incidence of corruption is quite high. Support price comes into play when this international price is less than the government’s procurement/support price. Successive governments have failed to streamline the supply chain of the vital commodity thus far.