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An unending wheat crisis
By Dr Akhtar Hassan Khan
Pakistan's economy during July 03 to June 04 (FY 04) grew at a
very healthy rate of 6.4 per cent. Whereas, large-scale
manufacturing grew by 18 per cent but agricultural output
grew by 2.5 per cent only.
 As the livelihood of two-third Pakistanis is directly or
indirectly linked with agricultural output and population
growing at 2 per cent, there was almost no comfort for rural
population from this commendable GDP growth rate.
The low rate of increase in agricultural output cannot be
attributed to weather alone an agricultural output in India
with similar weather conditions grew by 8 per cent. The
primary reason for this tardy agricultural growth is bad
policies and management. The yields per acre in Indian
Punjab are about 60 per cent higher than in Pakistani
Punjab. India is pursuing a better set of policies leading
to higher output and greater prosperity for its rural
population.
The President of the Farmer's Association has stated that
there is an agricultural crisis in the country created by
the ill-conceived policies dictated by multilateral
institutions like the IMF, the World Bank and the Asian
Development Bank. The case in point is the wheat crisis. In
the FY 99-00, wheat output, after four years is only 19.5
million tons and we may have to import 1.2 million tons. The
government has totally mishandled the wheat policy.
Wheat is a staple food for almost all Pakistanis with a high
weightage in the Sensitive and Consumer Price Indices. The
demand for wheat is price inelastic. Even if the price goes
up by 20 per cent, the demand will decrease marginally as
the consumers will cut other items in order to satisfy their
dietary needs for this staple commodity.
The price of wheat is also the bellwether for the general
price line. If the price of wheat goes up, the price of
other commodities like tomatoes and potatoes also goes up
almost in sympathy. Students of Pakistan's economy have
always emphasized the role of wheat in price fluctuations.
If the price of wheat is stabilized, the general price level
is not likely to increase much.
Wheat like many other agricultural commodities is harvested
only once in April-May but is consumed at a uniform rate
throughout the year, as people do not consume more wheat
after harvest and less towards the beginning of the next.
There is a storage and financial cost for procurement and
retention of wheat stocks throughout the year. The
government of Pakistan was bearing this cost historically.
However, two years ago the government was persuaded by
multilateral institutions to privatize procurement and
storage with disastrous consequences The IMF also prevailed
upon the government to extend 15 per cent GST on fertilizers
and pesticides whereas there is no country in the world,
which charges GST on agricultural inputs.
Agriculture in India and more so in the EU and the US is
heavily subsidized. Although it is correct that Pakistan
cannot bear the burden of large agricultural subsidy but
there is no merit in discouraging the use of fertilizer and
pesticides by charging a high rate of the GST.
The price of wheat has increased by almost 30 per cent from
July 03 per cent from July 03 to October 04 and the price of
wheat flour by almost 27 per cent. This has obviously
resulted in the CPI increase of more than 9 per cent and the
SPI increase of more than 14 per cent. The havoc with such
high rate of inflation plays with fixed income group needs
no elaboration.
The government might be insensitive to the price of wheat
but it has to bear the cost of wheat import. The government
has contracted to import one million tons so far and the
import could go as high as two million tons. The average C&F
cost of one million tons is $208 per ton or about Rs12,500.
With incidental cost of Rs500 the imported wheat will cost
about Rs13,000 per ton. The government is at present
supplying to the flour mills at the rate of Rs.9500 per ton.
Therefore, the government will have to bear a subsidy of
Rs3.5 billion for distributing one million tons of imported
wheat.
The government has also increased procurement price of wheat
for Rabi 05 by Rs50 from Rs350 per 40kg. Last year it had
also increased the procurement price by Rs50. Hence, during
last two years the procurement price of wheat has increase
more. The interesting thing to note is that whereas last
year the procurement price was increased by 16 per cent, the
wheat output increased by only two per cent from 19.2 to
19.5 million tons, much less than the output of 21 million
tons in FY 99-00.
Moreover, despite marginal increase in area under wheat
cultivation the yield per hectare remained the same at 2.39
tons.
The fault with the government's agricultural policy in
general and wheat policy in particular is that there is no
emphasis on increasing yield per acre by increasing the
cheap availability of inputs like fertilizer, pesticides,
certified seeds, tractors, water and diesel and electricity
for tube wells.
The government needs to revamp its agricultural policy by
facilitating the greater use of yield increase inputs and
remove serious policy blunders like imposing GST on
agricultural inputs and playing with the time-old policy of
procurement and storage by the government. This year the
government had the target of procuring 5.7 million tons and
could only procure 4.5 million tons despite undesirable
heavy-handed methods of raiding private stores.
The private sector, which had made a killing last year,
could not be sidelined although the State Bank raised the
margin to 50 cent. Probably raising it to 80 or more would
have made the difference allowing the government to meet its
procurement target.
It also needs to be noted that about 50 per cent of wheat
output is marketed mostly by bigger landlords. The small
farmers mostly produce for their own consumption and seed
for the next crop. Higher procurement price mostly benefits
the big farmers.
This year when the rate of inflation in almost
double-digits, is highest since 1995-96, it was extremely
inadvisable to raise the procurement price by Rs50
especially when a higher percentage raised last year did not
lead to any significant rise in output.
The strategy of facilitating agricultural inputs and further
subsidizing when necessary leads to increase of output by
small and big farmers, and the resultant widespread spike in
production also leads to stable prices for urban consumers.
The overall target should be to increase the yield per acre.
This will benefit consumers as well as the producers.
Courtesy:
The DAWN
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Pakissan.com;
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