Government has finally decided to import 1 million tonnes of wheat and the Trading Corporation of Pakistan (TCP) has accordingly issued first instillment of the tender for 500,000 tonnes.
The price at which imports are likely to be made would be $200 per tonne which translates into Rs12/kg. According to Agriculture Prices and Policy Commission (APPCOM), the monthly FOB price during 2003-04, ranged between $133 and $163, but is currently closer to $200.
In our anxiety to force India to address the core issue of Kashmir we have decided to exclude it as a source of import, Safta, Saarc and the regional trade rhetoric notwithstanding. The fuss about quality (red brown heart vs. soft and white) is a thin smoke screen to hide political motives of our failed foreign policy.
This would have involved much less freight as against about $30 per tonne required to import wheat from the US or Australia. But in our eagerness to pursue our fixation with a doomed foreign policy we tend to force our unrepresented taxpayers to pay a heavier price. We will eat grass syndrome.
Under its price support policy, the government claims to be doing a great favour to the grower by promising to buy from him at Rs9/kg-Rs350/40 kgs. Thus the government has chosen to pay Rs3 more to an exporter abroad rather than allow our grower the benefit of a higher price that he can fetch in the market, if barriers to free trade are not erected.
It has placed all sorts of impediments in grower's way from realizing the full potential of the market price by restricting the movement of wheat between provinces as well as between districts.
This has caused about two million tonnes of wheat to be withheld by the grower from the market until such time the government pays attention to something else. This the department of food calls hoarding, and hence a crusade against the hoarders with full might of law. Heavy-handed policy of the government of Punjab has hurt the grower badly. Sindh grower was fortunately spared such malignant approach.
The APPCOM has conducted a sample survey for the current crop of wheat (2003-04) in Punjab and Sindh. The survey covered 27 districts in Punjab and 10 in Sindh. In all 868 farmers were randomly selected for interview from 80 villages in Punjab and 384 from 35 villages in Sindh.
According to this survey conducted in May - June 2004, only 51 per cent of the produce has been marketed in Punjab and 28 per cent in Sindh. 36 per cent of the farmers in the two provinces have not sold their produce. Only 29 per cent have sold more than 50 per cent of their produce whereas 35 per cent sold less than 50 per cent.
The results of the survey, however, indicate that in Punjab, 60 per cent sales were made at village level, 36 per cent at market level and only 4 per cent at procurement centres. In Sindh, 49 per cent was sold at village level, 42 per cent at market level and only 9 per cent at the procurement centres. Only the big farms made use of the procurement centres.
At procurement centre, at least on paper every body received an equal treatment. But this hides one important factor of discrimination practised by procurement officials against small farms.
Thus the procurement policy of the government did not have the desired effect on the grower as its misguided, muddied and misplaced policy of adopting coercive measures to disrupt development of private trade in wheat proved counter prodictive.
The size of the farm, i.e. small farmer relied more on village outlets outside the government framework and smaller farms received less price both at village level and market level.
Average price received by growers according to the survey was Rs353 at village level and Rs356 at the market. Sindh growers received slightly better price both at village and market level as compared to Punjab.
According to the same survey, 22.2 per cent (Punjab) and 14.2 per cent (Sindh) received less than Rs350/40 kgs. Those that received Rs350 to 360 were 58 per cent in Punjab and 58.4 per cent in Sindh, just about the same. 19.8 per cent (Punjab) and 24.7 per cent Sindh received more than Rs361.
How much does the support price serve the claimed objective is far from clear. The sum paid for sustaining the irrational policy of procurement storage and issue to the flour mills does not help matters.
Another interesting aspect of the survey is that Punjab seems to be doing better in productivity. Average yield was 28.6 maunds (Punjab) and 24.4 maunds (Sindh). Feudalism is less pronounced in Punjab.
The yield increased with farm size but declined when the farm size exceeded 50 acres in Punjab and 25 acres in Sindh. This shows that bigger farms are more inefficient than the feudals would like everyone to believe.
So much about the survey, which should provide some food for thought to food officials who are responsible for the policy. This year the area under wheat crop increased by 1.8 per cent, with 2 per cent increase in Punjab, 1.7 per cent in Sindh and 3.2 per cent in NWFP.
The crop size is estimated at 19.8 million tonnes against 19.18 million tonnes last year - a slight increase but little less than the increase in area would justify. The APPCOM has calculated the nation's consumption requirement at 18.75 million tonnes including two million tonnes for seed, feed and wastage.
With 0.157 million tonnes carried over from previous stocks the total availability works out to 18.91 million tonnes. Thus there appears to be enough domestic wheat to cater for the population. The shortage is artificial and appears to have been reinforced by administrative measures particularly those taken in Punjab.
Misplaced enthusiasm to adopt coercive measures to fulfil artificially high procurement targets has caused irreparable damage to the grower and to his confidence. Otherwise imports won't be necessary.
Another facet of unsupportable support policy is the method of arriving at the figure. Support price is an arbitrary figure based on an incremental approach of the APPCOM to sustain the myth that grower's interest is dear to its heart.
The figure is arbitrary because any number of score of inputs that supposedly go into determining the input price of the crop could be increased or decreased at will depending on the outcome they want.
Secondly, support price is a misnomer because when the market price is high, adoption of coercive measures to fulfil the irrational and unreasonable target of procurement and placement of ban on free movement of wheat, forcing the grower to lose his price advantage by having to sell it to the procurement centres prove self defeating.
Only when there is a bumper crop that happened only in 2000, would the bottom price fixed by the government help the grower. But again that year there was so much competition among the growers to sell that only the influential or the moneyed growers succeeded in disposing of their produce. Transaction costs cannot be calculated but can only be surmised.
Bureaucracy is a prisoner of its mindset. When there is a shortage of wheat all around instead of releasing stocks, it withholds them thereby reinforcing the negative trend.
This is what Sindh is presently doing when flour prices are hovering around Rs16/kg. Punjab is the most to blame for having banned the movement of wheat to other three provinces as if they are Wana or Afghanistan. What bigger joke could be played on a Federation?
The shadow prime minister saw the fallacy of Punjab's argument and decided to allow free movement of wheat. But the bureaucracy took its time in implementing that decision on the facetious ground that the decision had not been received in writing, although it was all over the media.
That reportedly has now happened and hopefully the market forces will help ease the situation after the Punjab bureaucracy relents. Impending imports will also dampen the flour prices in the market.
What goes in the mind of perfectly sensible bureaucrats advising their chief minister may appear to be an enigma but on closer scrutiny it is based on their Talmudic understanding of economics and almost divine faith in their own capability to fix any thing.
They argue that Punjab would implicitly be paying subsidy to the consumers of the other three provinces if it allowed its wheat to be sold there either in the private sector or at the official issue price, which is a little higher than support price but as of now lower than the market price.
It is also argued that in case the wheat is allowed to move freely, Punjab consumers will be paying a higher price because of the shortage such a policy would cause.
Then there is the fear of famine haunting the rulers, irrespective of the fact whether they are military or non-military. Food famines are a thing of the past, at least in the subcontinent. It is possible to buy wheat in an emergency from high seas by diverting ships.
Normal procedure should involve about a month. A huge subsidy of about Rs12 billion per annum is involved in the present imports. Imports in the public sector also involve huge financial outlay and could have been avoided by simply allowing it in the private sector, if at all.
The prices would have stabilized at a lower level. One obviously cannot fight a mindset. This policy costs a cool Rs.15b approximately. What is to be done? There is a legitimate matter of helping the grower.
Punjab and to some extent Sindh should fix a reasonable quota of 1.5 million tonnes and 1 million tonnes at the most for food security and float tenders for procurement thereby ensuring the farmer a fair price that is market driven rather than capriciously determined by the fossilized bureaucrats of the APPCOM.
The present decision to import is not based on some mathematical calculations. It has been taken by the Economic Committee of the Cabinet (ECC) There decisions are made not on the basis of deep thought or careful consideration, but on a summary floated by the Ministry, which follows the instincts of its bureaucrats with marginal input from the Minister in charge.
A decision is taken on the basis of the climate. Very few people sitting on the ECC participate in the discussion, the question being of not much concern to their own turf. It is a dialogue between the food ministry and the Finance Minister who chairs the meeting.
Others wait eagerly for the next item. The decision may appear to be collective but is only a cover if anything goes wrong. Governments are careful to cover their tracks.
