|
Erratic wheat policy
By Sabihuddin Ghausi
In a knee jerk response, the government abruptly suspended
wheat export on Wednesday while acknowledging that the open
market price of the grain has shot up by seven per cent in
spite of a record bumper crop of 23 million tons plus being
harvested this season.
 Shipment
of about 30,000 tons of wheat worth more than $6 million is
said to have been stopped at the Karachi and Bin Qasim ports
immediately after the government decision. By the time, the
Economic Coordination Committee (ECC) of the Cabinet headed
by Prime Minister Shaukat Aziz decided to suspend export,
about 0.4 million tons worth about $80 million is reported
to have already been shipped. Besides, there are letters of
credits for export of about one million tons of wheat.
In the initial days of the harvest, the profit margin on
wheat export was said to be more than Rs3,000 a ton which
has slipped down to Rs1,500 per ton because of the gradual
rise in prices in the domestic market and also in
transportation cost in Karachi after announcement of May 12
rallies in Karachi About 16--18 well connected exporters
from Karachi and Lahore and a few from Islamabad are said to
have so far made about Rs1 billion in wheat export, for
which the low income consumers are paying a high price.
There is now a gap of 0.6 million tons between the booked
orders and the shipment made. The exporters were on a buying
spree in Sindh and Punjab till last Tuesday to line up wheat
for shipment. Now, the exporters lobby has started working
overtime in Islamabad to allow them ship the 0.6 million
tons of wheat for which they booked orders. A quick decision
to scrap these export orders of remaining 0.6 million tons
of wheat, the shopkeepers say can have a good effect on
local supplies.
An overwhelming majority of small farmers in Sindh and
Punjab has already sold away its wheat to the local grain
brokers. Bought by these brokers, the wheat is stocked in
ginneries, rice husking factories and even in buildings
constructed for schools and dispensaries in villages. As the
price of wheat in the domestic market went up by Rs80-100 on
a 100 kg bag, the government agencies are encountering
difficulties in procuring wheat stocks..
The government's target is to build up a strategic reserve
of five millions tons plus. Normally, the government
releases wheat to flour mills from its stocks from August or
September to cover what is called a ``lean period'' from
October to March. It is believed that from April to August,
the market gets adequate supply of wheat from the farmers
and flour mills get their requirement from the open market.
But this season, there is a visible market distortion or
what one can be termed ` manipulation’, the price of wheat
flour for a consumer in Karachi went up from Rs13 for a low
quality flour and Rs16 a kg for a relatively better quality
flour to Rs14 and Rs17 a kg respectively. Reports coming
from NWFP reveal that wheat flour prices in small and big
towns have started creeping up. Balochistan also showed the
same trend and Punjab has just started showing a rising
trend.
Tandoors, hotels and restaurants started shrinking the size
of baked breads and there were reports of a possible price
hike next month before the budget. Obviously, the low income
groups have been hit badly by this unexpected price hike
when elections are scheduled to be held. If World Bank is to
be believed, 94 per cent population earns less than two
dollars (Rs120) a day which comes to less than Rs4,000 a
month. A family of five spends more than 55 per cent of its
earning on food bill. A 7-10 per cent rise in flour price
has upset the family budget. Three more factors-- other than
export-driven push--are being mentioned as causes for price
rise of wheat flour for consumers in Karachi. The first is
freight of the trucks. Transportation from upcountry to
Karachi remains disturbed since early May. Finally an
announcement was made to put off a local three-day transport
strike till next month. ``Freight for a 100 kilogram bag
from Lodhran in Punjab increased from Rs65 to Rs90'', a
local trader said.
Another reason for the transport freight hike was that
fertiliser import has not commenced this season so far.
Normally, imported fertiliser is transported to upcountry
from Karachi from May onward. The trucks that bring export
cargo or wheat from upcountry carry fertiliser on their
return journey. The journey of an empty truck escalates
freight cost. A ship carrying fertiliser is about to reach
Karachi sometimes next month. Till then a majority of the
trucks will continue to come loaded with wheat and export
cargo and return empty.
A rise in rice prices has also caused a price push in wheat.
Traders say that broken rice is now being sold at Rs20 and
Rs22 a kg. Broken rice is used in poultry feed. Wheat is
being sold as poultry feed because it still costs less.
Officials in Sindh food department said that government
godowns in Karachi have less than 1,000 tons of wheat stock.
It may take another few days before wheat starts coming to
Karachi which is the biggest consuming centre of the
country. Karachi’s consumption is more than a lakh tons of
wheat in a month. Out of 78 flour mills in Karachi, more
than 20 have closed their operations because they ran out of
stocks. A few mills reported wheat has started trickling in.
But the prices of wheat flour is still high, There are at
present no visible flour shortages but wheat transportation
uncertainty is causing a price push at the retail level. A
”reconciliation” move by the Sindh Governor to meet
opposition leaders have been well received by the market.
The wholesale and retail business in Karachi look relatively
relaxed.
A shopkeeper in Soldier Bazar sees improvement in wheat
flour supply and prices once the government takes a final
decision on the 0.6 millions of wheat for which export
orders were booked. If these orders are cancelled, wheat
will start coming out from private stocks into the market.
Inconsistency in wheat trading policy has been a distinct
feature for the last several years but it has become more
pronounced in last four years. In late December, the
government announced to clear its carryover wheat inventory
of about 3.5 million tons by allowing half a million tons
export. It found that inventory cost (bank interest, storage
charges and transportation cost) has rendered the wheat
somewhat uncompetitive in the international market. But the
government in its wisdom quietly increased the export
quantity from 0,5 million tons to 0.8 million tons. And when
the harvest started and there were reports of a bumper
crop-23 million tons plus-the government allowed half a
million tons export from the new crop also so that it could
be marketed without any inventory cost.
Without any regulatory authority and with weak governance,
the market abuse is rampant.. No sooner, wheat export was
initiated, , hoarders, profiteers and speculators entered
the market to mint money. The State Bank of Pakistan's
annual report issued on December 2, 2006, about three months
before the wheat harvest, had warned of speculators taking
over the control of market, if wheat export was allowed
before the build up of strategic reserve and assessment of
the crop. This is what happened.
Within a month of the commencement of harvest of what was
declared to be a record bumper crop, the wheat prices in the
open market and prices of wheat flour for consumers started
moving up.
Late last week, the market in Karachi was abuzz with rumours
that prices of wheat in open market will touch Rs1,300 for a
100 kg bag. The prices of wheat flour will be Rs20 a kg for
a consumer. Hotels, restaurants and tandoors are all set to
increase the price of baked bread up to Rs6 or Rs7.
Till Tuesday last, the senior bureaucrats in Islamabad Food
ministry were defending wheat export policy. None of them
was ready to accept that wheat export has pushed up the
prices of wheat flour in the local market. They were all
convinced that wheat flour price hike is a passing phase and
market will behave normally after the effects of May 12 will
be over.
“Why should not there be a permanent Wheat Board”?
Responding to this question, a senior official in the
federal food ministry disclosed that such a board is now
being constituted. But the composition of the board and its
mandate are yet to be decided.
Courtesy: The DAWN
|
Pakissan.com;
|
