Two months ago, the author wrote an article on the causes of impending wheat crisis in Pakistan. It was pointed out that Pakistan is the only country in the world which has imposed 15 percent GST on fertilizers and pesticides. This should have been removed to encourage wheat output in Rabi 2004.

All the warnings of shortage in wheat, which is staple food of all Pakistanis, were ignored and now the crisis has become a catastrophe. It needs to be highlighted that the catastrophe is not due to any natural calamity like drought or unexpected pest attack or water shortage but it is entirely due to horrible policy blunders.

The fact that it is catastrophe is confirmed by the press reports that the 10 kg bags of Atta has disappeared from some markets in Karachi and price per kg has increased by 50 per cent from Rs12 last year to Rs18 per kg in March 2004.

The price of a 'nan' has gone up from Rs2 to Rs2.50. It is further corroborated by a phone caller in the PTV programme on the subject on the morning of 10th March when he cursed the Food Secretary of Government of Sindh for telling blatant lies about atta situation in Karachi.

We are facing the worst atta shortage in the history of Pakistan, as there are reports of price hike and shortage of wheat all over the country.

The demand for wheat is inelastic i.e. if price increases by 10 percent', the demand for wheat will not decrease at -all and if it increases by fifty percent, the demand may not decrease even by five percent.

Consumers of wheat will cut on other items to eat the same number of Rotis as they were consuming before. Hence, when there is a shortage, the stockist can easily raise the prices and reap windfall profits at the cost of poor consumers.

In this situation government, intervention is necessary to avert shortage and price hike of this essential commodity especially for those one third Pakistanis who are living below the poverty line.

Even if our policy makers have no sensitivity for the poor consumers of the wheat, they should be consistent in their capitalistic approach for this commodity. The capitalistic approach requires that inputs should be cheaply and abundantly available without indirect taxes and the government should promote research and availability of certified seeds. This will result in abundant crop with low prices for all consumers. Our policy makers are not pursuing any of the three measures.

In the TV talk show referred to, the representative of the Kissan board pointed out that our yield which was 27 maunds per acre in Rabi 2000, when we harvested the record crop of 21 million tons, will not exceed 25 maunds in Rabi 2004 despite exceptionally good rains.

DAP fertilizer has an immediate impact on wheat yield. The ratio of price of nutrient ton of DAP to support price in India is about 65 whereas, in Pakistan it is 106. The Indian farmer has therefore 50 percent more incentive for using DAP than farmer in Pakistan.

India subsidizes DAP whereas, we charge GST on it. No wonder Indian yields are 25 to 30 percent higher. Whereas we collect only one billion rupees from GST on fertilizers and pesticides, the output loss is more than Rs ten billion to the economy. We should ignore theoretical advice from IMF and learn from practical experience of China, India and above all our own experience during last 56 years.

Capitalist economies like USA, EU and Japan all subsidize their agriculture heavily. However, the IMF economists preach indirect taxes on agriculture inputs in developing countries and only Pakistani policy makers accept their advice without taking into consideration the dire consequences of the advice on the growth of agriculture and severe repercussions on poor farmers who are excluded from using expensive fertilizer.

The daily subsidy on agriculture by developed countries is one billion dollars. We cannot follow their expensive subsidies but some subsidy on DAP which is entirely imported is justified, especially when there is a sudden upsurge in its international price.

The time-honoured policy is that the Government announces the support price taking into account all relevant factors and then procures about 25 per cent of the output to intervene in the market in the three months before the arrival of new crop when the private sector stocks depleted. This policy worked smoothly for more than half a century. However this year, the IMF taught our unwary policy makers that the Government should not bear the financial and storage cost of procured wheat and the private sector should be allowed to procure the entire crop.

It is obvious that towards the end of the annual wheat cycle before the fresh crop comes in, the private sector will raise the prices to recover their increasing financial and storage cost and to reap extraordinary profits in a situation of shortage of wheat whose demand is inelastic. This was the expected result of leaving the entire wheat sector in private hands and this is exactly what has happened this year.

The government of Sindh wanted to exclude flour mills from the procurement of wheat. The mills threatened to close their operation unless they were allowed to procure wheat directly.

The government of Sindh immediately yielded to their threat and allowed the mills to procure directly. The market price of fresh wheat in Sindh is above Rs40O per maund much above the government support price of Rs350 per maund. It is obvious that if the mills buy expensive wheat they will sell more expensive atta.

According to Federal Bureau of Statistics the sensitive price index (SPI), which measures inflation of 53 essential items, has risen by 6 per cent March 03 to March 04 for all groups and 8 per cent for low-income groups.

For FY 2002-03 the SPI increase was 3.5 per cent. Hence, the SPI has almost doubled. This is a very high rate of inflation for low income groups whose income and employment opportunities are stagnant.

The government realizing its mistake of low procurement decided to import half a million tons to intervene in the market if a shortage arises. But the import was completely messed up. Repeated tenders were called and the first shipment, which arrived, was found infested.

The timely unloading of good wheat should have brought down the prices of atta in Karachi. A group of Pakistani scientists, who are second to none in the world, reached this unanimous conclusion.

Australia with the swagger of a developed country protested. In the international trade in food items pre-shipment inspection is mandatory. There are many reputable international firms, the most reputable being SGS of Switzerland, whose inspections are universally accepted.

What is not clear from the press reports is whether there was any provision for international pre-shipment inspection in this contract; if not what is the reason for deviation for standard international practice.

By thoughtlessly following the IMF advice on GST on agriculture inputs abandoning time honoured procurement mechanism, leaving the entire wheat procurement to greedy and completely insensitive to the poor private sector and messing up the import of wheat, the economic policy makers have created the worst atta shortage in Pakistan's history especially at a time when we were blessed with outstanding winter rains.

The fact that the poor has no buffer for this suffering is self-evident but seems to be of no concern to our policy makers who refuse to make consistent policies either in the capitalist or socialist mode.

One hopes that we will learn from our mistakes as according to a renowned philosopher Santayana, "Those who do not learn from their mistakes are bound to repeat them".

The author is a former secretary, planning, government of Pakistan.