Reportedly, postharvest losses range from 10 to 20% for different crops in Pakistan. To achieve food security, containing such colossal losses should be the top priority of the Government of Pakistan (GoP). Analysts have the consensus that if such losses are contained, twin benefits can be achieved: 1) increasing income of farmers and 2) boosting exports from the country.
Pakistan is among the top producers of various staple food grains that include rice, wheat and maize. The country exports substantial quantity of its top quality Basmati and other varieties of rice. Lately, the country has been producing around 25 million tons wheat per annum and joined the club of wheat exporting countries. Boosting production of maize can help in containing import of edible oil, estimated over US$2 billion per annum.
Despite producing substantial quantities of staple food grains, farmers face hardship due to huge postharvest losses. The prime reason for high losses is lack of modern grain storage silos. Although, State Bank of Pakistan offers financing for the construction of warehouses on concessional rates, little success has been achieved. This can be best understood if on looks at the production and storage facilities of wheat.
As stated earlier, Pakistan produces 25 million tons wheat per annum valued around US$7.5 billion. As against this the country has less than 6 million tons storage capacity. The remaining quantity has to be kept either in unscientific warehouses or in open. As a result significant percentage of total production goes stale and rendered unfit for human consumption after the monsoon season or eaten up by rats etc. When one estimates loss of 10% (2.5 million tons), its value comes to US$750 million. If this quantity can be saved, Pakistan’s GDP and exports would boost significantly.
Farmers, particularly smaller ones suffer due to financial exclusion. As a large number of farmers usually borrow from informal financial system, they are forced to sell their produce at the earliest. One of the suggestions to save farmers from ‘distress selling’ is construction of grain storage silos, where they can store their produce, borrow from financial institutions by offering their produce as collateral and meet their immediate cash requirement. This can become ‘warehouse receipt financing system’ being propagated by State Bank of Pakistan.
Creation of an efficient warehouse receipt financing system can also pave way for ‘trading of warehouse receipts’. Under the proposed system the farmers will not be obliged to sell their produce physically but transfer ‘constructive’ ownership by selling the receipts. Following this system will save transfer of the produce from one warehouse to another warehouse. To make this a norm, creations of value chain is necessary. This will comprise of modern grain storage silos, collateral management companies, quality certification entities and logistic providers.
Pakistan Mercantile Exchange Limited (PMEX) has set a precedence by offering its electronic trading platform for red chilli. In this venture its value chain partners are Pakistan Agricultural Coalition (PAC), SGS Pakistan and Agility Pakistan. In this chain PAC provides on-farm technical services, SGS offers quality certification and Agility provides logistic facilities.
Capitalizing on PMEX’s red chilli experience, it is proposed that deliverable contract of wheat be listed and offered for trading at its electronic trading platform. The system will offer certified quality of wheat for sale, facilitate real time price discovery, guaranteed delivery of the produce and prompt payment to the sellers. This will yield two benefits: 1) facilitating disbursement of pre and postharvest loans by the financial institutions and 2) minimizing postharvest losses by offering modern storage facilities.
The added advantage will be linking of grain storage silos across the country with the PMEX trading system. It will not require movement of wheat from one city to another city, till the buyer (who wishes to take physical delivery) acquires ownership title. Under this system availability of wheat at different point of delivery will also facilitate the buyer to choose a point of delivery of his/her own choice. Presence of designated banks in the system will also free buyers/sellers from indulging in cash transactions. They will be able to transfer funds with the click of a key.
Since the government is responsible for ensuring ‘food security’, real time display of wheat quantities available at different locations will ensure better monitoring and surveillance of the movement of the produce. Since all the integral components are available, all the stakeholders, the government being the biggest, must join hands to list deliverable contracts of wheat at PMEX, facilitate its trading at an electric trading platform and free the farmers from the shekels of informal lenders.