Problematic surplus wheat

Post Source: Dawn Economic and Business Review (12 July to 19 July, 2010)

By Afshan Subohi

Monday, 12 Jul, 2010

A three-member committee of senior officials has been assigned the task of drawing up a strategy to utilise surplus wheat in the light of proposals received from different stakeholders. Set up by the Economic Coordination Committee of the Cabinet, the body comprises federal secretaries for food, commerce and finance. Pakistan produced more wheat than it consumes this year. The carryover stocks from the last year added up to about five million tons of surplus. The government, the Federal Wheat Commissioner, Dr Shakeel told Dawn, procured offered wheat at the promised price, resulting in government having more wheat than its storage capacity.

“The government has yet to decide if it wanted to bring prices down to perk up demand of value added sector of wheat-based products ahead of Ramadan or find a suitable price and destination for wheat export to deal with abundance”, Dr Shakeel, the Wheat Commissioner told Dawn over telephone from Islamabad.

“Yes, the proposal to supply atta bags worth Rs1000 under Benazir Income Support Programme instead of cash to deserving Pakistanis is also on the table along with other options. It is up to the secretaries committee to put the strategy before the cabinet which would take a final decision in this regard”, Dr Shakeel explained, agreeing that the problem is both complex and critical.

Nazar Mohammad Gondal, the federal minister for food told Dawn from Islamabad that the government has decided in principle to allow export of wheat.

“The decision regarding the timing and modus operandi for export will soon be made public”, he said.

The elected government has been able to improve wheat output by offering farmers an attractive support price. On the strength of comfortable supply position, it has also succeeded in stabilising price of the staple food.

Atta (wheat flour), the byproduct used in making nan/roti (bread), is selling for Rs25 to 35 per Kg, depending on the quality and sale point. According to a rough estimate an average family consumes almost two kilogrammes of wheat flour a day and spends Rs1500-2000 on it in a month. The minimum wage has been pushed up to Rs7000 per month in May 2010 from Rs6000 earlier.

The government, however, failed to manage the higher wheat output this year by making the wheat economy more efficient and competitive. Informal interviews of stakeholders by Dawn confirmed that the PPP government did not act effectively to utilise the current period of comfort when the crop size touched about 24 million tons, to break out of the boom/bust production cycles for a roti (local bread)-eating nation.

The government was unable to generate additional domestic demand for the wheat based value added products or manage import orders to dispose off excess wheat stocks. Instead it procured more wheat than it could handle, dumping the procured crop at open spaces, risking damage and wastage of the valuable grain.

“Despite many viable solutions put forward by progressive growers’ bodies and others, the stranglehold of the vested interest was too strong to let new ideas to be experimented”, Mehmud Nawaz Shah of Sindh Abadgar Board, commented over telephone.

There were copmplaints of widespread corruption in the provincial food departments and Passco. There was no effective monitoring or audit of procured stocks stored at different locations all over the country. It was implied that there is continued pilferage of wheat from these places.

The high-placed officials outright dispelled such allegations. “It is very irresponsible to implicate individuals without solid evidence”, an officer in Islamabad responded. The PPP government raised the support price of wheat to Rs950 to encourage farmers to grow more wheat at the risk of a backlash from WTO that discourages direct government intervention in the market.

The policy paid off and the country reaped a bumper crop of 23.86 million tons despite low per acre yield. The WTO, however, served on Pakistan a notice on complaint of wheat producing nations.

“Wheat exporting countries have sent a consultation reference under WTO provision of (Agreement on Agriculture) that Pakistan provided extra subsidy to wheat producers in the form of higher wheat support price”, a source in the ministry of commerce confirmed.

To support growers and build on stocks the government procured 6.7 million tons of the current crop, according to data provided by Wheat Commissioner Office in Islamabad. The covered storage capacity maintained by the government is said to be four million tons. The capacity is just about enough to store the last year’s stock only and the crop procured during the current season has not been stocked at silos and storages.

The government officers in the food ministry and other departments admitted that storage facilities are sub-standard.

When contacted, Nazar Gondal said the government was aware of the situation and would announce some schemes to upgrade and build modern storages next month.

Some relevant people pointed to a nexus of widespread corruption in the food departments and the federal ministry. There were vague indications of the involvement of influential personalities in corruption in the wheat sector.

“The better performance of agriculture sector could not be used to energise the manufacturing sector because of the government apathy and inefficiency”, a progressive farmer from Multan commented.

The incidents of atta (wheat flour) riots, violence at utility stores, long lines at sale points and attacks on certain godowns (storage sites) in cities of Karachi, Lahore and Quetta two years back are still fresh in collective memory of the nation. The lack of policy or snags in its implementation, particularly to improve storage capacity of agriculture produce, continue to pose risk to the food security in a populous country of 170 million people. The sudden spike in commodity prices in 2007-08, induced countries like China and India, to focus on building up their buffer stocks of essential food commodities.

The dividends of better wheat crop could have been utilised had the government been equipped with a policy and streamlined institutions. “Sadly, half way through the season, the government seemed to be groping in the dark, yet to move beyond committees and commissions”, commented a disgusted economist.

There is a need to improve wheat economy by cutting on wastages, diverting excess supply to value added sector and improving competitiveness in the sector by streamlining supply chain.

Consumers and producers of agriculture commodities take turns to suffer in consecutive years.

“The fact is that the powerful trader-babu nexus finds ways to mint money in situations of both abundance and scarcity”, commented another commodity market watcher.

According to Agriculture Policy Institute’s Wheat Policy Analysis for 2009-10, Pakistan is the 8th largest wheat producer in terms of area and 6th in production but holds 49th position in terms of yield.


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