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Record wheat harvest, exports
By Sabihuddin Ghausi
This summer, farmers are reaping a record wheat harvest of 23
million tons plus which, when translated into hard cash at
the rate of officially fixed procurement price of Rs425 for
40 kg or Rs10.62 per kg is expected to inject more than
Rs230 billion in the rural economy.
 It
comes as a big opportunity for the government in an election
year but is also likely to prove a challenge for the
political leadership and bureaucrats to manage. How a
challenge comes from a situation of plenty, was well
articulated in the last annual report of State Bank of
Pakistan (SBP). ``Domestic wheat prices may rise despite an
anticipated bumper crop, if speculators seek to take
advantage of the rising international prices, the central
bank warned the government as far back as in December 2006
when farmers were looking hopefully at their fields after a
tiring plantation job in the autumn.
The SBP then urged the government to ensure that, ``the
benefit of higher prices should accrue to farmers and it
also pointed out that, ``an excessive rise due to
speculative activities can lead to a net welfare loss to the
economy.” The SBP’s advice was meant to caution the
government against the speculators by ensuring availability
of sufficient buffer stocks with the government agencies. It
forcefully urged the government to defer export of wheat,
until size of crop in known and buffer stocks are in place.
While the government has raised its wheat crop estimate from
earlier projection of 21.5-23 million tons, the commodity
traders predict a much more optimistic export outlook and
are convinced that in the final count, the crop would exceed
even 24 million tons. Their optimism is based on the
international media reports that the size of wheat crop in
Australia and few other countries is not up to the
expectations. Traders say their offices are being flooded
with wheat demand from India, Bangladesh, Sri Lanka,
Indonesia, Malaysia, UAE and many African countries.
Reports of a bumper wheat crop had already brought down
prices in the open market to Rs1,050 and Rs1,100 for a 100
kg bag in late March which is a shade above the officially
fixed procurement price of Rs 1,062. Procurement operations
were delayed because of rains while farmers were getting
restive. During last one week or so when Sindh government
was going ahead with its procurement and traders are said to
be buying wheat for export in the open market, the prices
gradually crept up to Rs1,150 a bag. A week ago the wheat
was being quoted at Rs1,120 for a 100 kg bag.
By April 19. officials in Sindh reported procurement of
212,000 tons. Punjab is about to begin its procurement from
today. But media reports say that a ship carrying a small
quantity of Pakistani wheat has already sailed off to India
on April 16. ``A Pakistani trader has contracted 25,000 tons
of wheat export to India, Bilal Sufi a senior leader of
millers in Lahore informed this correspondent on telephone.
``The best time for wheat export was in October-November
2006 when world grain prices were $280 a ton (about Rs16,800
a ton) and we carried plenty of stocks from the previous
crop, Bilal said adding that the demand for wheat is there
but prices are not attractive.
Traders in Karachi confirmed that about 250,000-300,000 lakh
tons of wheat has already been shipped or is in final stages
of shipment to African countries (Somalia, Kenya etc.),
Yemen, UAE, India and other countries and orders for
additional 300,000 tons are being booked or are in advance
stages of the negotiations. Pakistani wheat is considered to
be the best for its nutritional value, grain taste and other
qualities. Traders are getting $209-216 a ton on their
export orders.
Exporters are said to have booked orders for `unprocessed
wheat at $180-190 a ton. It means that wheat is being
exported at Rs12,960-12,540 a ton as against local official
price of Rs10,620. Traders meet all their incidental
expenses including interest rates on bank loans,
transportation and handling within this margin of Rs1,900-
2,300 on a ton and making some good money. The margin is the
difference between the purchase price and export price.
Market watchers are apprehensive of these hectic activities
of commodity traders in the domestic market. A local analyst
said the global food companies are the deadliest sharks in
international business making huge profits from distress
imports and exports particularly in the developing countries
like Pakistan where regulatory frameworks are virtually
absent and legal and administrative structure is too weak to
withstand the pressures of money.
These companies have a vast network of their business
representatives in almost all the developing countries and
enjoy good amount of influence on the political leadership
and bureaucrats. ``They know how to play and make good
profits when it is a situation of plenty or scarce, the
analyst said.
Pakistan lacks an effective and accurate system for
estimating a crop. In these days when even many developing
countries employ satellite technology to predict weather
changes and crop estimate, Pakistan depends on `patwaris of
the area to assess any particular crop. Samples are designed
on tehsil and district basis. But these samples designed for
such monitoring and subsequent information gathering also
remain mere a guess work.
There have been many instances in the past when initial
estimate of plenty ended up in scarcity and scarcity into
plenty. A glaring example was the Spring 1997 when Nawaz
Sharif was elected with a big majority and one of the first
his first decision was to increase official price of wheat
in the face of the general expectations of a bumper crop.
Whether that was a bumper wheat crop or not remains an
unanswered question till this day. However it proved to be
one of the worst years in the history Pakistan when wheat
flour prices went up to Rs24-25 a kg and there were
demonstration on the streets of Peshawar and other Northern
cities. Flour mills and wheat stocks were set on fire in
many places by the angry mob.
The anti climax came when the then Punjab Food minister
reported that he saw himself flour bags of Pakistan mills in
stores of Moscow and many Central Asian cities during his
visit that summer. Since the year 2002, the flour prices in
retail have never been stable. With the arrival of Ramzan
every year, the supply of wheat flour, sugar, pulses,
cooking oil and vegetable ghee becomes scrce and prices of
these commodities shoot up never to come down. .
Officials in Sindh government said that a high level meeting
with Prime Minister Shaukat Aziz in chair recently took
stock of the wheat situation. Sindh has been asked to
procure 0.7 million tons but it should procure 0.3 million
tons more to maintain a buffer stock of one million tons.
The PASSCO has been given the job to purchase 1.3 million
tons and Punjab government will procure 2.5-3 million tons.
However the lobby of rich farmers has been successful in
persuading the government to ignore the SBP’s warning and go
for immediate export so that wheat prices start moving up in
the market. The government has initially fixed an export
target of 0.8 million tons for private sector but there is
no benchmark export price to prevent a cut-throat
competition. As the indications are, the initial export
target of 0.8 million tons would be met in a week or 10
days. Traders are coming with demand to unfreeze this cap of
0.8 million tons export.
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Courtesy: The DAWN
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Pakissan.com;
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