June 23, 2008	Monday	Jamadi-us-Sani 18, 1429

KARACHI, June 22: Warning of a substantial increase in the prices of wheat in the coming few months if the government failed to check market manipulation by farmers, millers and traders, experts have suggested that the present wheat crisis can only be managed by allowing import of wheat in sufficient quantities, preferably through the private sector, and regulating the market with the help of strict administrative measures.

Talking to Dawn, experts belonging to the food department, its allied facilities and the trading sector suggested that the present crisis caused by lesser production and market manipulation could be effectively controlled if the government allowed the private sector to import wheat by providing a subsidy to importers.

This measure would not only help the government control the unethical players, who buy subsidised wheat from the government and then sell or smuggle it out at higher rates, but the government would also be able to save tremendously on costs incurred on buying, offloading, transportation, storage and distribution.

They said that though the government had already withdrawn the 10 per cent duty on imports to encourage interested importers, import by the private sector would not provide any relief to consumers due to the present higher international prices and importers would not be able to sell flour at a rate less than Rs30 per kilogram.

However, they argued, if a subsidy of 25 per cent is provided at the present international price, flour could be sold at about Rs24 per kg. The government price on imported wheat calculated on the recent prices in a Trading Corporation of Pakistan (TCP) tender after being released to the millers shall come to Rs35 per kg. Thus, the government will have to provide a subsidy of about 44 per cent if the issue price to mills remained Rs15,625 per ton. In the last tender, the government purchased wheat at a price ranging between $475 and $650 a ton and thus an indirect subsidy exceeding 60 per cent of the issue price was provided. But even then it failed to control prices.

Learning from experience

Citing the experience of 2005-06, the experts said that the wheat prices at that time had gone up to Rs15,000 per ton against the issue price of Rs11,260 per ton. But when the private sector was allowed to import, the prices came down to Rs10,000 per ton, even less than the government issue price. A total of 860,000 tons of wheat at reasonable prices was imported that even convinced buyers not to lift public sector wheat. However, at that time the international market was at lower levels and importers did not require any subsidy.

Giving the reasons as to how the import of wheat by the private sector would reduce prices, they said that the private companies looked for cheap sources of supply and did not hold the stock for long in order to minimise expenditures. They also tried to prevent expenditures on storage charges, bank mark-up and other costs while the continuous arrival of ships created market competition among importers and they tried to sell wheat on an emergency basis.

’’The distribution system of private importers is very fast as they dispatch the stock to mills on an immediate basis. Private importers generally deliver the goods eight days from the time of the berthing of a ship,” a government official said, adding that the government would also not be using its capital for import and the cost would be met by private firms.

”The private sector also does not have the concept of ‘incidentals.’ This will result in a saving of about Rs5,000 million on the import of 2.5 million tons at the minimum rate of Rs2,000 per ton that is used for transportation, storage, bagging and distribution.”

Explaining the drawbacks of importing wheat through the public sector, the traders said the public sector normally held the stock without planning and the government had to bear storage charges, transportation, bagging, mark-up costs etc. Besides, there was no competition in the public sector to reduce the price while the distribution system was pathetically slow and defective.

”The government will have to use its capital for the import of wheat which takes at least 30 to 40 days to finally deliver it to flour mills. Along with the import price, about Rs5,000 million at Rs2,000 per ton shall be required to meet the ‘incidentals’ for the import of 2.5 million tons.”

These were the major reasons, the official said, behind the increase in wheat prices despite the import of 1.7 million tons of wheat by the TCP.

”Last year, the wheat issue price was Rs12,150 per ton, and in the local market before import it was Rs14,000. But after the import decision and arrival of wheat in Pakistan, the price went up to Rs2,000 per ton, although the price should have come down as a result of imports and fresh procurement by public sector agencies.”

Traders’ view

The traders said that since the duty on import of wheat had already been withdrawn, importers should be given a reasonable subsidy on the C&F price till the international prices of wheat came down. Thereafter, the subsidy might be reduced and gradually removed if required. However, traders said there should be no intervention from the government by issuing their stocks at subsidised rates at least during the first five to six months of procurement, to provide them with a level playing field. During this period, the local stocks should not be issued for milling to maintain the buffer stocks. Alternatively, the government should enhance the issue price to Rs800 per 40kg to make the market competitive.

However, increasing the flour price permanently by providing a baseline price may be detrimental for the poor, especially those who meet 50 per cent of their protein and energy requirements from this vital commodity as their staple food. The economists are of the opinion that even the announcement of subsidy to the private sector will bring a positive impact on the market and holders will try to sell off their crops in anticipation of the subsequent market price reduction.