Research Analyst, PAGE
Sep 6 - 12, 2010
Wheat is Pakistan's most important agricultural crop, grown by about 80 per cent of all farmers, on close to 40 per cent of the total cultivated area. There are about 1,000 flour mills in Pakistan, which meet the consumption needs of about 40 per cent of the population, with the balance met by on farm consumption. The disbursement of government-owned wheat to the flour mills is managed in an effort to ensure that sufficient wheat is available throughout the country throughout the year.
The government has set this year's wheat procurement target at 7.5 MMT, which will cost the government about $2.2 billion.
Wheat production in marketing year (MY) 2010/11 (May/April) is forecast at 22.5 million metric tons (MMT), down about six per cent from last year's record production level of 24 MMT. The projected decline in production is attributed to lower rainfall and less availability of irrigation water. In spite of these factors, this year's crop is forecast to be the second largest harvest on record as farmers continued to plant wheat in response to the government's attractive procurement price. The government procurement price for wheat was set during MY 2009/10 at Rs.950 per 40 kg ($297/MT), and maintained at that level for the 2010 procurement season (April-June). Improved availability of fertilizer and certified seed coupled with adoption of improved agricultural practices (including laser land leveling) helped to support yields. Area harvested is almost at par with last year and is estimated at nine million hectares.
Wheat flour or atta is the staple food for most Pakistanis, supplying 72 per cent of caloric energy in the average diet. Per capita wheat consumption is estimated at around 124kg/year which is among the highest in the world. With a population of 170 million people, and a population growth rate of 1.5 per cent per annum, Pakistan needs an additional 300,000 MT of wheat each year in order to maintain per capita consumption at its current level. Pakistan's wheat consumption is increasing at a slower rate than population growth.
Consumer preference is shifting from traditional flat bread to western-style, loaf bread, particularly in urban areas where western bread is viewed as a convenient breakfast food. Traditional home-ground flour is also losing favor to commercially milled flour.
Government has slapped a ban on import and export of wheat. In view of limited storage capacity and in anticipation of the government's announced procurement target of 7.5 MMT of wheat, there is mounting pressure to lift the ban on wheat exports. The All Pakistan Flour Mills Association (APFMA) has urged the government to allow the export of wheat products and has proposed a subsidy of $50 per ton to facilitate the export of wheat to Afghanistan. The association argues that the proposed subsidy is less than what the government would have to pay for continued storage. The Punjab province has also requested the federal government to allow wheat exports through the private sector to clear stocks and "stabilise" the market in advance of the 2010 wheat procurement campaign. It has also been proposed that following the end of the procurement season (June) and after assessing the country's wheat needs the government should auction off surplus stocks. It should be noted, however, that significant exports of wheat would render Pakistan's wheat supply situation increasingly tight. Consequently, MY2010/11 wheat exports are forecast at 300,000 MT, consisting largely of informal trade with Afghanistan. Under the current scenario, Pakistan is not expected to import wheat in the coming marketing year. However, this situation could change depending on the actual size of this year's crop.
HISTORICAL FLOUR PRICES
YEARS PRICES 1947-51 20 Paisa 1951-53 25 Paisa 1958-69 50 Paisa 1972-77 Rs1 1977-88 Rs2.5 1988-90 Rs3.25 1990-93 Rs4 1993-96 Rs6.60 1997-99 Rs8 1999-2008 Rs17 2008 till date 29.88
Pakistan maintains a largely government controlled wheat marketing system. Wheat prices and the movement of wheat are controlled at the provincial and district levels. The federal government controls the market through a minimum guaranteed support price and an issue price for wheat sold to flour mills. Through provincial food departments, the government procures wheat from farmers at the support price and then releases wheat to the provinces for sale to the flourmills at the government fixed issue price. The system aims to protect farmers from price fluctuations and ensure a minimum return to farmers in view of post harvest gluts, fragmented commodity markets, and poor storage capacity on the farm. Such a system however comes at a price as this year consumers are compelled to pay some of the highest prices in the world for their wheat despite a record wheat harvest.
Due to last year's record harvest, Pakistan's wheat supply situation remained relatively adequate throughout MY2009/10. The 2010 wheat procurement price ($297) is 30 per cent higher than the average landed price of red wheat from black sea sources. The government ban on private sector wheat imports prevents access to lower priced wheat imports, and is contributing to Pakistan's rising food inflation. Pakistani consumers are paying some of the world's highest wheat prices despite good harvests and lower international prices. Since 2008 the price of wheat flour in Pakistan has increased by 50 per cent. According to trade circles, a free-market wheat policy would substantially lower the price of wheat/flour available to Pakistan consumers, mitigate the risk of food inflation, and allow private sector economic activity in international market.