The government had announced Rs. 3900/- per maund in wheat support price in Punjab and Rs. 4000/- per maund in Sindh.
Punjab has bought 83 percent or 3.5 million tonnes of its revised procurement target of 4.2 million tonnes and Sindh has only been able to procure half of its 1.4 million tonnes aim. But open market prices have already started to fall below the support price.
Pakistan witnessed a severe wheat shortage and flour crisis between December and March even though the government had initiated imports since July and imported more than 2.6 million tonnes which regardless of their inferior quality, made their way into our food supply.
When wheat harvesting season came, the government support prices were welcomed by the farming community but the momentary lack of supply in the market shot the prices to Rs. 4300/- and farmers hoarded their key produce out of the motivation of financial gain, but the price has dropped to Rs. 3800/- per maund in some regions with predictions of more decline.
For starters, the country had an unexpectedly bumper wheat crop despite floods and last-minute rains, and secondly, the open market is comparing the prices with the international market where this critical commodity is being traded at Rs. 65/kg which would make it cheaper to import at around Rs. 90 per kg (shipping included) than buy from the domestic market at Rs. 100 or more.
Our national demand is computed keeping in mind the millions of tonnes of wheat that is smuggled to Afghanistan annually but with international prices lower than our domestic market, Afghans might like to buy from their Russian friends through Central Asian land routes than from Pakistan which would create further excess in the market, especially if a barter trade agreement is struck between Russia and Afghanistan.
“The government must ensure its support price compliance at all costs as there is no other way to protect the farmers”, stated Abedullah Anjum, Chief of Research at the Pakistan Institute of Development Economics (PIDE). He added that the private sector would have brought a lot of wheat if allowed as prices are destined to go up in the later part of the year.
He pointed out that the private sector is afraid to pay Rs. 100-125 or more per kg at this time because if they do that now and the government later opens the import, they will be on the losing end of the profit game as it will cost them added handling, storage, and interest, but they will most likely be forced to sell at the same price as imported wheat.
Pakistan Flour Mills Association (PFMA) demanded past week to allow the import of 0.5-1 million tonnes of wheat as its flour will cost Rs. 110 per kg at retail compared to the present Rs. 150-175 per kg for locally produced flour and no doubt the government would like to cushion the populace against mounting inflation.
The government has a history of importing lower-quality wheat without any due diligence and allowing mills to mix it with the local wheat instead of buying more from the domestic market. For one reason, there are no ‘underline benefits’ in that activity but when prices are low it is only a matter of time before officials and the private sector comes on the same page.
The government has failed to upgrade the handling and storage system, enact targeted farming subsidies on which international lenders would sign off, and ensure compliance with its announced support price in the market.
The farmers’ lack of market understanding also has been a major contributor to their demise because when the market was offering Rs. 4200-4300 per maund they refused to sell anticipating a further rise in prices which might happen later in the year, but their majority cannot sit on these stocks that long.
Farmers should learn by now that the people who are playing the game of hoarding exist higher in the food chain and can sustain these temporary shocks unlike those who have weddings and other expenses lined up the whole year.
On the other, the government had Rs. 456 billion in commodity circular debt as of March 2023 which is expected to touch Rs. 950 billion by the end of the current fiscal year.
If the government is interested in intervening in the market at such an expense, it should not be cosmic and at least ensure that farmers are benefiting from these operations, otherwise the money should be directed towards targeted input subsidies as that can better protect the farmers against inflation in seed, machinery, fertilizer, electricity, and fuel tariffs.
Source: Pro Pakistani