Wheat price crash

Post Source: Dawn Economic and Business Review (April 26 to May 02)

By Ahmad Fraz Khan

With the crash in wheat prices, the growers in Punjab are in trouble. In southern and central part of the province, where almost 40 to 45 per cent of harvesting and over 20 per cent of thrashing has been completed, wheat price is down at Rs750 per 40kg — Rs200 lower than the official procurement rate. The farmers have estimated the loss so far at a staggering Rs6 billion. It is feared that the situation may worsen as more wheat arrives in next two to three weeks.

At the heart of current wheat crisis is the provincial financial crunch, which has severely reduced provincial options. Though it is squarely to blame itself for the situation, the farmers are sharing the cost of its follies. During the last one year, Punjab, carrying huge stocks, spent the entire food subsidy on wheat stocks.

Instead of cash subsidies, it turned to be in kind; issuing low priced wheat for two huge schemes – Ramazan package and low priced bread (sasti roti). In both schemes, the food department issued subsidised wheat to millers and never got subsidy money from the provincial government. Neither it got the money to service its massive loan (Rs149 billion which was borrowed to complete enormous procurement drive of around six million tons) that was a hefty Rs1.2 billion per month.

Things became worse for the food department when the Punjab government failed to get permission for export of surplus wheat and is still carrying a Rs96 billion bank loan against three million tons of carry over stocks.

The Punjab government had been running from pillar to post to get money for procurement but has not got it, at least so far. The vague promises have not only robbed it of confidence to launch a full fledged procurement drive but also increased speculative pressure on wheat prices.

Knowing well that it does not have money to absorb wheat arrival once it gains momentum, the entire provincial set up is busy giving excuses to deflect the blame. As more and more decibels are added to farmers’ protests against price crash, the food department has been telling every one that “crop size has not been the same because of persistent drought and unusually hot March.” It has conveniently forgotten that drought was virtually broken during February and hot March only helped crop mature early.

As the campaign neared, the department shifted the stance and is now tell everyone that harvesting still has not gained momentum and wheat arrival is still slow. It has not lent ears to farmers’ cries. The official attitude is dictated by lack of money.

The Punjab government knew that its role is always crucial in setting the price on higher side as it traditionally entered the market with ready cash of billions of rupees. This time, its absence has led to price crash.

Wheat price in the province is between Rs750 and Rs800. It implies that there are buyers in the market, who are ready to purchase the crop at substantially less price. It also means that commodity has started arriving in the market in enough quantity that is more than what the food department or other official agencies were absorbing.

According to the farmers, the middlemen and the millers are actively buying wheat at the crashed price. They are benefiting from the official policy, which has made the selling of wheat to official agencies a tedious and time-consuming job. All departments, known for their corruption – like the revenue department – are involved in the issuance of gunny bags making the process painful for farmers. The provincial government is helping these departments in slowing down the process.

Had the official claims about size of the crop been true, the price crash would not have been as severe as it is. It is lower by 20 to 25 per cent in different parts of the province, according to the media and individual reports. The Punjab government, surviving on a huge over-draft from the State Bank of Pakistan, has also received a tinker from the central bank for its deteriorating fiscal health and cannot spare cash. How would it deal with the crisis is anybody’s guess?

The federal government must chime in with some help, if it does not want to gloat on the political cost that blundering PML-N government in Punjab would pay. It needs to take bigger view of the picture. Though it has financial problems of its own, it must realise that it has contributed to provincial problems and price crash. It asked the Punjab government to keep 2.5 million tons as strategic reserves and promised to pay Rs60 billion as cost of reserves. But it has made no payment so far.

The federal government also refused permission for export of surplus wheat stocks right till the last momentum and forced Punjab to keep holding those stocks at huge financial and incidental costs. It is time that it somehow helps Punjab arrange money in order to pull the provincial government out of the fiscal mess, and shore up sagging wheat price.


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