Punjab’s wheat procurement drive

Post Source: DAWN-economic and business review

By Ahmad Fraz Khan

AGAINST all earlier fears, signs for a smooth drive for wheat procurement are emerging in Punjab, and emerging fast. The earlier fears stemmed from the size of the stock, massive loans and huge interest payments that Punjab had to make to maintain the stock with apprehension that it would find it financially and administratively hard to substantially add to it. These fears dissipated, thanks to high international wheat prices and sustained export which brought stock, loans and interest payments down to a manageable level.

Currently, the province, which at one point of time, was expected to start new procurement drive with a carry-over of four million tons, holds only 2.5 million tons. To its further relief, these 2.5 million tons belong to the federal government, which it has kept as a strategic reserve on behalf of the federation. Thus Punjab’s own stocks have been cleared.

Punjab, expected to begin procurement with a carry forward loan of Rs150 billion, has seen its loan dropping to Rs117 billion – a difference of Rs33 billion from earlier calculations. Even this Rs117 billion loan is the federal liability because it is the cost of strategic reserves. The federation would be making interest payments and other incidental charges (Punjab has already billed it Rs13 billion on this head alone) for these stocks.

The province stands cleared of wheat liabilities, though practically it would still be holding 2.5 million tons and spending money to keep the stock, but later recovering from the federal government.

Punjab has been able to clear its stocks after lobbying for export when wheat prices started rising in international market last August. The rise in prices was the result of drought in Russian which hit the crop and subsequently led to ban on its export. It created shortage in the world market, and price started rising. The next supply that comes from Australia was also delayed by torrential rains in that region. Thus the price, which had dipped to $190 per ton, started rising and crossed $300 mark, creating an international niche for high-priced Pakistani wheat.

Though reluctantly and belatedly, the federal government agreed to allow export of around one million tons, which was subsequently increased to three million tons – enabling Punjab to clear its stocks and retire bank loans.

Though its formal export figures are only 725,000 tons, smuggling to Afghanistan and Central Asian states eased its burden to a large extent. In total, the province was able to release additional 1.4 million tons as private sector moved in to cash in on high international prices. That is exactly where the province stands at the beginning of new procurement season that started last week.

This season, Punjab is expecting to reap around 18 million tons of wheat. By that calculation, the market would receive around six million tons tradable surplus. Out of this surplus, the Punjab Food Department plans to buy 3.5 million tons and the Pakistan Agriculture Services and Storage Corporation (Passco) another one million tons, leaving around 1.5 million tons for private sector.

However, these 1.5 million tons would assume a crucial role in keeping the price stable. Substantial purchases by the private sector make sense and official reliance on it is not without commercial justification. At present, international prices are hovering around $335 per ton. It makes Pakistani wheat a commercially attractive proposition, especially to states like Bangladesh and Egypt where quality standards are not so high. Most of the previous exports also went to both these markets.

The role of the Food Department, which would enter the market with a ready cash of Rs85 billion, should remain secondary, but crucial.

It should be secondary to private sector, but crucial in maintaining the price. It only needs to check that private sector does adopt a go slow policy and lead to a price crash. Should that happen, it must chime in quickly.

The private sector needs to behave responsibly. For the first time, international and domestic settings for it are financially attractive and it should prove that it can see beyond immediate financial gains, riding on undue profits and farmers’ misery. It must not lead to price crash with unfair tactics. Politicians should also see how the private sector behaves and maintains an eerie background presence; assuring farmers that they would move in if the need be, but first let the private sector play its role.


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