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Time to reduce Pakistan’s rising wheat rate

Millers claim that wheat is Rs400 costly in Pakistan than the world market. The wheat price has registered a sharp increase of more than 300 percent in last ten years from Rs400 per 40kg to Rs1300 per 40kg, registering a climb of over Rs2,250/40kg. The wheat rate in Pakistan is highest in the world as staple food is available at Rs900 per 40 kg in the world market. It is more than Rs400 costly as compared to the world market. Even in India the wheat support has been announced at Rs950 per quintal.

One of the major reasons for the food-inflation remains the government’s decision to increase the wheat support price by more than 300 percent in last 10 years. This high rate largely benefited big landowners, but proved fatal for the majority of people, particularly belonging to the poor and fixed income earners. The huge rise in wheat support price has increased flour price. The hike in price has worked as growth to hoarding, making flour market even more turbulent.

Economists have questioned the past government move of pushing the wheat support price to Rs1200 per 40 kilogram from 425 rupees in the early 2008. During last 5 years atta (flour) rate has been increased by almost Rs500 and wheat’s rate by Rs800 per 40kg which is a huge burden on unfortunate Pakistanis. This has given to the miseries of people, government, industry and farmers themselves.

A 10 percent increase in the support price of wheat increases the general price level by three percent. More than 300 percent increase in the support price of wheat has pushed food prices up by 50 percent. The support price mechanism remains beneficial only for big landowners.

Pakistan Flour Mills Association has also expressed deep concern over rising prices of wheat only in Pakistan, damaging the flour milling industry severely. In 2006 wheat price in Pakistan was Rs 415 per 40 kg and at that time international price was equal to Rs500 per 40 kg. Over a period of 10 years in 2016 the wheat price in Pakistan was Rs1300/per 40 kg.

International market has gone down to almost half but the Pakistani wheat price is constantly increasing, rendering the flour mills in a miserable condition, causing closure of about 700 flour mills in the country. It is very sad that the government has taken decision to raise support price without taking the industry and general public on board who are the prime stakeholders.

Generalized subsidy to milling industry

The government should give a generalized subsidy to milling industry by reducing sale rate of wheat enabling consumers to get cheaper flour and making industry competitive. If the government wanted to support farmers it should provide farmers agriculture inputs, including fertilizer, pesticides and diesel, at subsidized rates.

Pakistan had the highest wheat price in the world, despite the fact that the country had surplus wheat stocks. Due to hike in support price wheat products are not going outside the country rendering foreign exchange loss to the exchequer and closure of 70 percent industry.

The Government of Pakistan procured 6.3 million tons of wheat from its recently concluded harvest. This is significantly lower than the 7.05-million-ton target announced prior to the harvest.

Pakistan is still the largest procurement in at least five years, according to a June 30 Global Agricultural Information Network report published by the Foreign Agricultural Service (FAS) of the US Department of Agriculture (USDA). USDA indicated that producers who receive the procurement price of $310 per ton are among the better compensated wheat growers in the world.

With the opening government stocks of 4.5 million tons on May 1, the Government of Pakistan now has 10.8 million tons of wheat at the start of the local marketing year.

 

“The Government of Pakistan protects producers from imports with a tariff of 60 percent on imports, still well below the World Trade Organization bound rate of 150 percent, which is the tariff ceiling for wheat imports,” the USDA said. The government only procures about a quarter of the crop. The high government procurement prices help to support the pricing of the wheat that is marketed commercially.

Wheat accounts for about 75 percent of the calories that Pakistanis consume, but higher prices appear to be having some moderating effect on wheat consumption. The Government of Pakistan spent approximately $1.9 billion for wheat procurement this year, the USDA noted.

Much of the payments were financed through loans that will be paid back when the wheat is sold to the private sector. Some wheat stocks are used to feed communities that have been displaced from their homes due to conflict. Some is sold as flour at reduced rates to consumers via low-priced, government-run utility stores.

Pakistan has established wheat export subsidies in recent years, the USDA said it is too early to predict whether the government will look to move some of its stocks onto the international market via subsidies.

Afghanistan a most reliable market

Pakistan’s most reliable market is Afghanistan, where wheat flour is exported via close relationships between traders on either side of the border. Recent closings of a number of border crossings and the high price of wheat in Pakistan appear to be stopping the flow of flour into Afghanistan.

Wheat equivalent exports to Afghanistan are estimated at 400,000 tons and total exports are estimated at 600,000 tons. Pakistan’s wheat stocks have risen to a record nine million plus tons. Flour millers’ data, substantial wheat stocks have accumulated due to carryover stocks of previous years. Wheat consumption in Pakistan stands at 23 million tons per annum.

Pakistan has been enjoying bumper wheat crop. It is between 25-26 million tons for the last two years. This huge stock now appears to be a liability keeping in view consumption and not feasible export potential.

The Punjab food department holds 6 million tons of the commodity, followed by 1.7 million tons by Sindh, 1.4 million tons by Pakistan Supply and Storage Corporation (Passco) and 200,000-300,000 tons by Khyber Pakhtunkhwa and Balochistan food departments. The wheat stocks are at a record high but it is well for consumers and exports.

Pakistan cannot take benefit from the huge stocks due to high support price of Rs1, 300 per maund (equivalent to over $300 per ton) while global prices hovers between $150-170 per ton.

Consumers are paying more for different flour varieties due to higher support price while millers also adjust flour price depending on the open market rate of wheat.

The market is with reports of another good crop by March/April next year. Good weather has so far proved beneficial for impressive wheat harvest in the last two years and per acre yield has also increased.

Out of the 9 million tons wheat stocks, the provincial governments are likely to issue 3-3.5 million tons of the commodity to flour mills. Surplus wheat production has become a constant problem, resulting in losses to the tune of billions of rupees. The government should frame a new wheat export policy and try to reduce the area under cultivation for wheat.

The surplus wheat stocks with provinces and the federal government have reached a record high of nine million tons of which half is lying in the open on the mercy of the weather. All efforts to export wheat have remained counter-productive despite subsidy as the international prices are almost half of the local prices.

The rebate claims of the exporters are still pending, which will make it difficult for the business community to export more. Pakistan government exported tomatoes and failed to import onions despite below par local production. Both these mistakes have also caused billions to the public and the government.

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