INPUT COST HIKE MAY ADD TO FOOD INFLATION

AGRICULTURE IS POISED TO CONTRIBUTE SIGNIFICANTLY IN EXPORTS AND GDP.

AMANULLAH BASHAR
(feedback@pgeconomist.com)
July 18 - 24, 20
11

Agriculture, the mainstay of the economy, seems to have come out of the depression caused by flood devastations as the bumper cash crops of wheat and rice are poised to contribute significantly in exports and the GDP growth in the current fiscal 2012.

The wheat crop production is estimated at 24 million tons while the rice crop production is expected to cross a record level of 6.5 million tons. The rise in production will lead to increase in rice exports and make the country self-sufficient in wheat production.

Since the rice has also a carryover stock of over 1.5 million tons, the traders are expecting an export volume of over 4.5 million tons of rice this year. If the expectation comes true, the rice would come up on second position as the highest foreign exchange earner after cotton and textiles.

It is heartening to see that despite all sociopolitical and economic odds, the agriculture sector has posted a strong recovery in early financial year 2011.

As earlier said the current year is even more promising as the cash crop of rice is likely to register a record production of around 6.5 million tons.

It will be interesting to note that during 2011 the farmers preferred to go for minor crops like vegetable and pulses rather than the established major crops in view of the land erosion caused by the floodwaters.

The floodwaters threatening to the sensitive crops like cotton, wheat etc. proved a blessing in disguise for sugarcane production as the floodwater helped enhance sugarcane production both in Punjab and Sindh where the production estimates for sugarcane were up to 53.7 million tons as compared to 49.4 million tons in November 2010.

Meanwhile, a record wheat crop of 24.2 million tons produced in previous financial year was slightly lower than the target of 25 millions tons. A surge in wheat output is attributed to improved water availability, supportive weather conditions, increased area under cultivation along with better yields in barani areas in Punjab and Sindh and of course provision of free-of-cost seeds in the flood affected areas.

Despite strong performance in sugarcane, wheat and now the rice production this year, the rising input cost especially high priced diesel and fertilizer may affect farmers income on one hand and add to food inflation on the other as the farmers would naturally pass the additional cost to the consumers.

INPUT COST HIKE

It would not be out of place to mention urea prices have increased once again in a broadly anticipated move, as Engro has moved to increase domestic urea prices. Another factor for increase in urea price was shortfall in production due to suspension of gas supply to its 1.30 million ton expansion plant late last week. The suspension of gas was for the first time since the unit had announced commercial operation in end June this year. It may be noted that Engro has notified an increase in urea prices to Rs145/bag including sales tax.

RICE EXPORTS

Pakistan is likely to export up to 4.5 million tons of rice in the fiscal year 2012 on an expected bumper crop of around 6.5 million tons.

The world's fifth largest exporter of rice, Pakistan's rice exports dropped to about 3.7 million tons in the fiscal year to June 2011, from 4.6 million in the year before, after it was lashed by devastating floods in summer 2010.

Harvesting of non-basmati rice begins in late September and basmati a month later. The country also has a carryover stock of more than one million ton, according to traders while the annual domestic consumption is about 2.3 million tons.

However, it is painful to note that despite plenty of rice grain available within the country the government has not been able to manage food prices at an affordable level keeping in view the average income of the majority of the population.

Pakistani rice will enter a market already well-supplied by Vietnam. India has lifted a export ban in place since 2008 and Thailand is expected to export more than 10 million tons of rice this year.

Active rice exporters in the country are however attaching hopes for decent prices for this year on expectations of Thailand, the world's largest rice exporter, boosting its prices.

It may be noted that Thailand has increased prices and chances are that with the new government there, prices will go up further. Thai prices have started rising in recent weeks with the new government in Bangkok, which promised higher prices to farmers.

The prices of Vietnam's five per cent broken rice stood at $505-$510 a ton last week, which was up from $495 last week but is still well below the same grade of Thai rice, offered at $530. Hence, in the prevailing conditions at the international market, Pakistani traders see enough market for their grains. Pakistani basmati goes mainly to the Middle East, Europe, and the United States. Non-basmati is sold all over the world. It may be recalled that Pakistan sold about 2.6 million tons of non-basmati rice and 1.1 million ton of basmati during 2010-11.

PERFORMANCE OF MAJOR CROPS

. FY09 FY10P FY11T FY11E YOY GROWTH FY11
AREA UNDER CULTIVATION ('000 HECTARES)
Cotton 2,850 3,106 3,200 2,693 -13.3
Sugarcane 1,029 943 1,070 998 5.8
Rice 2,963 2,883 2,708 2,335 -19.0
Wheat 9,046 9,105 9,045 8895 -2.3
PRODUCTION ('000 TONS; COTTON IN '000 BALES OF 170.09 KG EACH
Cotton 12,060 12,914 14,010 11,700 -9.4
Sugarcane 50,045 49,373 53,665 53,738 8.8
Rice 6,954 6,883 6,048 4,713 -31.5
Wheat 24,032 23,917 25,000 24213.5 1.2
YIELD (KG/HECTARE)
Cotton 720 707 745 739 4.5
Sugarcane 48,635 52,357 51,000 53856 2.9
Rice 2,347 2,387 2,228 2018 -15.5
Wheat 2,657 2,627 2,764 2722 3.6
P: Provisional, T: Target, E: Estimates
Source: Ministry of Food & Agriculture estimates released on May 09, 2011


MAJOR FOOD IMPORTS (JUL - APR)
VALUE: MILLION US$ GROWTH: PERCENT

. . VALUE CHG IN % CHG FY11 OVER FY10
. . FY10 FY11 VALUE QUANTITY VALUE UNIT VALUE
Food group . 2,784.7 4,314.1 1,529.5 . . .
Of which
Palm oil MT 1,040.9 1,599.5 558.6 16.1 53.7 32.3
Pulses MT 209.5 342.6 133.1 48.9 63.6 9.9
Tea MT 227.8 288.4 60.6 31.7 26.6 -3.9
Sugar MT 187.8 681.8 494.0 206.9 263.1 18.3
Wheat un-milled MT 35.4 5.2 -30.3 -89.4 -85.4 37.7