As the Indians seek permission to export over a million tonnes of wheat to Afghanistan through Pakistan’s land route, the flour milling industry here is up in arms, threatening protests and warning of the adverse impact that it would have on its business.

It is exerting active pressure on federal ministries to pre-empt the move. The industry thinks that subsidised Indian wheat would drive it out of the Afghan market, which it takes more of an extension of its business for two reasons: proximity and high profits.

It is not only the general subsidy on farm inputs that makes the Indian wheat cheaper as compared to Pakistan, but the Indian government, if the Pakistani industry is to be believed, has also offered a specific $50 per tonne additional subsidy to exporters, thus driving the price further down.

Indian wheat would cost PKR2,900 per tonne in Afghanistan, against Pakistani commodity at Rs3,400 per tonne. This difference of Rs500 per tonne is bound to tilt the competitive edge in favour of the Indian wheat and Pakistan would lose its traditional market that consumes over half a million tonne of flour from Pakistan.

Transit trade facility for India, for business with Afghanistan, has a strategic dimension to it, rather than being purely a commercial activity. That is precisely the point where Pakistan needs to clarify its position

Cheaper Indian exports would hit the entire Pakistani milling industry business cycle; previous payments — flour to the Afghan market is supplied on credit — would get stuck as new orders dry up. Pakistan, has been following a liberal wheat import regime to meet domestic requirements. It has already imported over 350,000 tonnes and orders of over a million tons are on their way and would arrive in the next few months.

This is in addition to 3.75m tonnes stocks currently lying with Punjab, 1.9m tonnes with Pakistan Agriculture Services and Storage Corporation (Passco), 1.35m tonnes with Sindh and 1.4m tonnes with the private sector. Some these stocks would remained piled up if the Afghan market slips out of hands.

Socially and politically sensitive governments — federal and provincial — in Pakistan keep a vigilant eye and check on flour prices because they provide staple food to the majority of Pakistanis. It is not so for Afghanistan, where supply matters more than price. The industry and traders on both sides of the border thus make huge money.

The possible permission has also revived old fears of farmers. The Indian wheat carries Karnal Brunt (a kind of disease), that they think would spread in Pakistan if wheat is allowed to be traded through the country. Given the porous nature of Afghan transit trade and borders, they fear that the disease-carrying Indian wheat may be diverted to Pakistan and destroy its wheat base, which enjoys a good reputation in the world market.

Historically, the farmers have never objected to the export of flour to Afghanistan, but they have always been apprehensive about allowing Indian wheat through Pakistan. The industry has successfully rekindled their fears and enlisted required support to put pressure on the government. The government, on its part, is holding the ground so far. But for how long, it remains to be seen.

Transit trade facility for India, for business with Afghanistan, has a more strategic dimension to it, rather than being purely a commercial activity. That is precisely the point where Pakistan needs to clarify its position. All trade relations have their cost benefit ratio, and trade with Afghanistan or India, or both, is no exception to the rule.

Both India and Pakistan have large agrarian economies and are bound to compete and complement each other in different areas of trade, especially in regional countries like Afghanistan that have no developed agricultural base of their own.

Pakistan needs to have a comprehensive overall trade strategy, especially for the region it is located in and prepare its policy and production regime accordingly. With freight charges skyrocketing in the world, regional trade is a reality that no country can escape. It is time to get priorities and policies right, for the long term, rather than resort to ad-hoc decisions.

Published in Dawn, Economic & Business, October 27th, 2014