In the first week of this month, the government took two important measures to provide much-awaited relief to wheat growers from the rising costs of farm inputs.

Finance Minister Ishaq Dar, who had rejected the farmers’ plea for an increase in wheat support price in March this year, suddenly announced a raise in the support price for the year 2014-15 from Rs1,200 to Rs1,300 per 40kg. He took the decision, an official statement said, in his capacity as chairman of the Economic Coordination Committee of the cabinet (ECC). But he did so without convening a formal meeting of the committee, showing need for urgency.

It is the first increase in wheat support price by the incumbent government. In its five-year tenure, the PPP government had increased support price nearly three folds, raising it up from Rs425 per 40 kg in 2008 to Rs1,200 kg in 2012.

The second measure is the levy of a 20pc regulatory duty on import of wheat to, what the finance ministry spokesman says, promote local crops and discourage wheat imports. The duty applies to wheat imports for the current crop season. But the ministry of commerce was quick to slate the duty, arguing it would increase the price of flour in the domestic market and would not, as claimed, promote local crops as an estimated half of the season is already over and the wheat stock is now either with brokers or flour mill owners.

Often the support price triggers an instant raise in the cost of farm inputs such as fertiliser, pesticides and seeds, which makes wheat production costlier; thus it is not of much benefit to the growers

However, in its comments to the ECC, the Federal Board of Revenue (FBR) favoured such a duty to prevent import of contaminated wheat that has been coming into the country.

But import of an agricultural commodity considered substandard does not make a case for regulatory duty. This is a failure of the department of plant quarantine which is required to act at the import stage. While the imports have not been banned, a summary of food security ministry says Pakistan has a very good crop of wheat this year and it is estimated that the total production would be around 25.3m tonnes.

Regarding need for subsidy to wheat farmers, some analysts are of the opinion that the rationale for such a support price has now lost its ground. According to a PIDE study, the support price is based on an assessment of some individuals who may err on either side — fix it too high or too low relative to the market price.

Often, it triggers an instant raise in the cost of inputs such as fertiliser, pesticides, seeds which make wheat production costlier; thus it is not of much benefit to the growers. The only beneficiaries may be farm input producer and importers, large farmers, middlemen and wheat millers.

The increase of Rs100 has also been criticised by farmers for being too little. The increase has come after two years and inflation during this period has been 10pc every year. However, it is interesting to note that the NA standing committee on food security was continuing to discuss the possible wheat support price for 2014-15 even after the government had fixed it at Rs1300 per kg.

Traders started importing wheat from August following a drop in world prices. The import soared substantially in the first quarter of the current fiscal year. According to Pakistan Bureau of Statistics (PBS), total import bill of wheat in July-September period rose to Rs7.631bn from 274,832 tonnes compared to Rs4.29bn from 138,751 tonnes a year earlier.The imports were made from Russia, Ukraine and Moldova and were reported to be low quality.

The government has confiscated about 70 containers of substandard wheat imported from Ukraine and asked the FBR to carry out a detailed probe. Taking a serious note of the import of substandard wheat, the National Assembly Standing Committee on National Food Security directed the concerned authorities that the confiscated wheat should not be supplied to flour mills and instead be used for the purpose of poultry feed.

But some millers, according to reports, being undeterred, are producing flour varieties by blending both imported and local wheat. Some millers had planned to import over 700,000 tonnes initially in view of falling wheat prices in world markets, besides bridging demand and supply gap in local markets to keep flour prices stable.

Wheat cultivation is no more a profit earning activity for small farmers who own about two acres or less. These farmers typically sell about half of their produce and store remaining crop for consuming at home.

Published in Dawn, Economic & Business, November 17th, 2014