Falling wheat prices

Post Source: Dawn economic & business Review (17 to 23 May, 2010)

By Ahmad Fraz Khan

 

THE wheat market is in a tailspin. After stabilising a bit around Rs900 per 40kg, the prices have started sliding again. On Thursday, the rate dropped to Rs870 per 40kg even in Lahore city – a difference of Rs80 per 40kg. It is happening during mid-May – the peak procurement period. There is another danger lurking around the corner. The Punjab Food Department is sprinting towards its procurement target of four million tons. If this pace is maintained, the department might cross three million tons figure very soon.

Daily arrival at procurement centres is around 100,000 tons, and it could take the department only weeks to hit four million tons, that could leave the farmers at the mercy of the market.

The financial position of the department, unless strengthen by the federal government, does not allow it to go beyond four million tons, though it promised to raise the target to five million tons if need be. This is unlikely to happen. The wheat growers see the going getting tougher.

The department is changing tactics, and trying to spread its purchases, at least, till mid-June. It has started slowing down procurement by making the process time consuming. Currently, it is issuing gunny bags with a date for delivery of wheat ranging from seven to ten days. The Revenue Department officials are always at their best when it comes to making life difficult for farmers. Apart from extracting huge cost for issuing gunny bags, they are also delaying certification for bags. The Food Department is now trying to prolong procurement by slowing down purchase rather than increasing the target.

The strategy may check the wheat price going for a free fall by keeping the official window open and stopping middleman from exploiting growers beyond a point. The government should raise procurement by at least 500,000 tons, if not one million as promised, and arrange finances – an uphill task given the overall national financial crunch.

Another factor driving prices down is the absence of foreign buyers, especially the Afghans and the Central Asians. Prices in Pakistan are too high to attract them. Afghanistan this year has harvested a bumper wheat crop. The Food and Agriculture Organisation is also running two programmes there: one for direct provision of subsidised wheat and other for providing confectionary items. Wheat from Pakistan has thus lost lustre in Afghan market and beyond.

Slide in international price, which has come down to $230 per ton, against Pakistani price of $300 has added to the problem. Pakistan might not be able to clear its stocks for next year unless it prepares to pay heavy subsidy.

Currently, India has a surplus stock of over 40 million tons. Can Pakistan outbid the Indian sale in international market despite price disadvantage? It seems to be improbable. By the end of current procurement season, Punjab alone would be holding exportable surplus stocks of around 3.5 million tons.

Punjab also needs to realise that wheat prices should not only make sense for the farmers, but for the millers as well. Current high price and interest rate have kept the millers out of procurement by increasing their capital investment on purchase. The millers know that the government would subsidise wheat to keep flour prices down.

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One response to this post.

  1. Posted by Habib on September 11, 2010 at 10:19 pm

    This is Habib from Holland. As i read your article and it was quite informative but I need some essential information if you would like to send me at the above email: as shinwari_209@yahoo.com

    1)-FOB price of wheat received at Karachi Port (US $ / tonne)
    2)-CIFprice of wheat received at Karachi Port (US $ / tonne)

    I need the above information as soon as possible.
    With kind regards,
    Habib

    Reply

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