IS FLOUR CRISIS SIMMERING?
SINDH SECRETARY FOR RAISE IN WHEAT SUPPORT PRICE
TARIQ AHMED SAEEDI (TARIQSAEEDI@HOTMAIL.COM)
Mar 10 - 16, 2008
While consumers are still reaping the proliferating repercussions of just gone flour crisis the consumer price of wheat flour is again taxing to takeoff in probable future owing to nerve-wracking surge in prices of core factors of productions such as diesel, oil, petrol, seeds, and pesticides that intensify demand of wheat support price rise by the farmers; likelihood that government would not achieve its procurement target in this season due to its unresolved conflict in price determination with the farmers; and hanging fate of unimplemented inter-provincial water sharing accord (Irsa) that has been undermining crop production. Giving his comments on wheat support price set by the government, Sindh Secretary Food, Naveed Kamran Baloch said federal government determines wheat support price for all the four provinces and the procurement target set only for the Sindh province in this season is around 0.7 MT. While talking to this scribe, Secretary Food opined, however given the high rise of input costs farmers must get favorable rate from the government for their wheat crop. Although he associated price setting authority with the central he clearly pinpointed that the price formula should be reviewed for the mutual benefits of both the farmers" community and the government. The government procurement price was fixed at Rs. 510 per 40 kilogram that is even if 20 percent more than last year's Rs. 425 is in disparity with the rate at which import is made.
It is an irony that economic management has fixed over Rs. 1300 per 40kg for importing wheat to meet supply shortfall while indigenous production is intentionally underestimated, resulting into extreme discouragement of home-grown production. Arguably, the price of wheat per 40kg hinges at US$400 in the international market and turbulently keeps on rise. And, this might be justified as price fixing of import commodity comparatively high, but the ratio of wheat import in local consumption is negligible. To have a rough idea, typically out of total 7 MT procurement target set by the government for the entire country in this season import is reportedly just 1.7 MT. On this account, terming soaring international price of wheat as a cause of rise in price for local consumption is a lame excuse. It is said that farmers would not sale out wheat at the current price to the government and thus government may not gain reserve storage to control shortage of supply in prospect. With persistent demand for months farmer community has been vying for Rs. 1000 per 40kg and wants government to subsidize the difference to control the price of wheat below the buying power of low income group. At ease government can generate additional revenue for increasing subsidy through undercutting incentives given impractically to various luxurious goods, which quiet aside would also jack up deficit in balance of payment. For instance, import bill of cellular phones that stood at US$82 million in 2002-03 surged rampantly to US$833 million in 2006-07. Does this extravaganza suit a country, fellows of which are still seeking after satisfaction of basic needs? And, should this expenditure have not been invested in real economic progress? There are many such items enjoying duty-free status. Obviously, it would not be difficult for the government to raise the subsidy for farmers. In a subsequent failure to amicable solution to the issue, private parties are left up as a last resort to wheat produce. If government does not possess the adequate stock in its warehouses to supply in the market the control of price gets out of its control and is relegated consequently to open market operation. It is usual that private sector may form the cartel position that mostly ignites uncertainty in relation to consumer price of wheat flour. In addition to this, unqualified official bid to the ready wheat crop would more likely to catalyze hoardings that again may create demand and supply shortfall.
The trade liberalization regime must not be exonerated for its making national economy highly dependent on international price structure. Pakistan renowned for producing bumper wheat crops on season to season basis and occupies the substantial comparative advantage in agriculture sector over main producers over the world. To this account, at least agriculture sector should have not been impressed upon foreign policy structures. Beside, local demand can readily be met by local production if the government puts a halt in illegal as well as legal export of wheat.
RISING COST OF INPUTS
While Pakistan has the comparative advantage of labor and cultivatable lands over others it is far behind in industrial manufacturing and value addition, which both are capable of absorbing high processing costs. Besides unimpressive result of increasing yield per hectare in case of wheat crop over the years the lacking in value addition makes it a raw exporting country and it needs to import important factors of productions such as fertilizer, chemical substances, pesticides, and most importantly engineering equipments because of minimal facilities of large scale manufacturing. Now, price rise has become an international phenomenon and due to the country's import dependency the effect would transparently be seen. Furthermore, government had been subsidizing the local oil sector since January 2007 and recently pulled back its subsidy that resulted into significant increase in petrol and diesel prices. The impact of this rise is again to sustain by many economic mainstays like agriculture sector. The price of international crude oil is already revolving around US$100 per barrel. Although water scarcity has been the major issue over the years at present it can produce synergetic effects. Since many years inter-provincial water sharing accord has not been implemented in the letter and spirit. The blame game, however, continues to undertake Punjab for being the biggest water consumer and hence for its proportional role in defying water sharing rules of the Irsa. In the wake of high cost of production, only 20 percent additional support price offer to farmers is equal to none. Other than input costs an impending danger related to water scarcity may also exacerbate the potentials in next crop, putting at great risk supply efficiency in future.