09 Apr, 2010
LAHORE: The precarious financial position of the Punjab government may hit its wheat procurement drive as its food department, carrying a stock of three million tons and a loan of Rs96 billion, is struggling to arrange money at a time when the commodity has already arrived in the market.
The department’s hopes mainly rest with the federal government for a bailout as the latter had promised to purchase 2.5 million tons of wheat (worth Rs70 billion) for strategic reserves.
The federal government could not, however, pay the amount because of a crunch of its own. Instead, it offered to transfer the food department’s loan to its books. But the State Bank refused to transfer the loan.
The bank said that it would only release fresh loans corresponding to the previous loans received.
The department got a loan of Rs18 billion from small banks on Tuesday, with a promise of Rs16 billion in a few days, but the amount will not solve its problems.
The department has developed two scenarios: one for four million tons and the other for five million tons. It needs Rs95 billion to Rs119 billion to meet the targets.
The department claims that large banks have promised another Rs48 billion. But can the banking sector shell out over Rs200 billion for one commodity?
Even if the banking sector is somehow able to advance another Rs48 billion, it will not be sufficient for the season, especially if the crop size exceeds official estimates, as happened last year.
The Sindh crop, which is reported to be better, has already driven the price down.
Punjab has lost only a portion of the crop in the barani (rain-fed) areas, while the rest of the province has a better crop, rejuvenated by the February rains.
It will be a nightmarish scenario for the Punjab food department if goes beyond five million tons to fulfil a politically charged slogan of purchasing the proverbial last grain. Even if the department purchases four to five million tons, it will have a record stock of seven to eight million tons. Saving such a massive stock will be next to impossible, given the poor infrastructure and human resources.
“All these issues are dogging the department and giving sleepless nights to its officials,” sources said.
An even bigger problem for the department will arise if the chief minister decides, as he did last year, to turn the campaign into an event for political mileage and starts supervising the campaign, creating a media hype.
If the department has to restrict itself to four million tons, it will have to go slow on purchases by putting different restrictions. The fear is that the price may crash.
The millers are hoping for such a situation and keeping their warehouses empty.
“All these questions are creating uncertainty in the department and farmers about the procurement drive,” the sources said.