Dip in wheat prices

Post Source: Dawn Economic & Business Review

By Ahmad Fraz Khan

WHEAT harvesting is gaining momentum in Punjab, espec- ially in the southern part. According to official estimates, nearly 40 per cent of harvesting in these areas has been completed. But thrashing has not gone beyond 10 per cent. But wheat price in the market has started falling. According to farmers, the price ranges between Rs790 and Rs830 per 40kg in the southern area. The officials, however, put the price slightly higher. But they do concede that it was below the official procurement price of Rs950 per 40kg.

The price is crashing because the only buyer in the market at the moment is the miller. The Punjab Food Department and the Pakistan Agriculture Service and Storage Corporation (Passco) have delayed their procurement drive to the end of April on the pretext that weather has delayed crop maturity and its harvest by 10-15 days.

No one really understands the logic behind their decision. They had made all preparations – purchase of gunny bags, setting up of procurement centres, moving their staff to such centres and launching media campaign to inform the growers that they were in the field to procure wheat and help stabilise its support price. Obviously, the move must have cost the two bodies a bit extra to demobilise their staff which they had moved to the centres.

What was the harm in starting the drive on time even if the crop arrival was negligible? By doing so, they could have assured the farmers and other players that they were there to procure wheat and ensure its support price. By opting to pull out, they have not only pushed the market down but also left the farmers vulnerable to millers manoeuvring.

Now, by all practical purposes, both the organisations would start procurement in the first week of May because end of April is a weekend and the month starts with May Day.

Thus, by the time their staff settles down, wheat harvesting would have gained enormous momentum and they would start the drive with a glut, which they, in no way, would be able to handle because of the cumbersome and time consuming process.

Growers fear that the price crash would continue throughout the procurement drive as official calculations about the crop size are grossly underestimated. They are being made to suite the procurement plans, rather than suite the crop size.

The Punjab Crop Reporting Wing maintains the crop size at 18.165 million tons, which is around the same size as that of last year (17.90 million). Whereas farmers insist that the crop size this year would be much higher, may be around 20 million tons. They count many factors that might have boosted the size of the crop on average from three to five maunds per acre this year.

According to farmers, if the yield goes up by one maund over last year`s production, Punjab would have 18.56 million tons of wheat. If it goes up by two maunds, the end yield would be 19.22 million tons, and if it goes up by three maunds, which is more likely, the crop size would grow to 19.88 million tons.

If the last scenario turns out to be true, there would be a huge glut in the market. Out of 19.88 million tons, the food requirement is around 10 million tons. Another 800,000 tons are needed for seed purposes and about 500,000 tons for miscellaneous purposes.

The Passco would purchase 1.3 million tons and the Punjab Food Department 3.5 million tons. It takes care of around 16 million tons, leaving a tradable surplus of around four million tons in the market. Historically, the millers and traders never purchase more than 1.5 million tons. Even if they buy 1.5 million tons, there would still be a massive 2.2 million tons in the market. That is precisely the point where the farmers` fears lie and they have been pressing for higher official targets.

Instead of raising procurement targets, all official efforts are riveted on downsizing the crop size estimates this year. No grower or farmers` body agrees with the estimates of the Crop Reporting Wing, but the entire official planning is based on them. The official logic is that out of 18 million tons, around six million tons would become tradable surplus, out of which Passco and the Food Department would purchase 4.8 million tons and private buyers another 1.5 million tons and the entire crop would be taken care of. Which scenario turns out to be true, only time would tell.

But if the farmers are proven right, the political and social cost for the government would be massive. It needs to cover its flanks and have a second defence line ready if the crop size exceeds its projection.


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