PAKISTAN is re-entering the wheat export market after being an importer for a long period with a view to clearing the piled-up stock before the arrival of the new crop in the market, sometime in March. But its Achilles’ heel remains the declining price of the commodity in the international market.

At Chicago Board of Trade, wheat price remains subdued mostly because of slowing demand for the US wheat. Egypt´s purchase of 180,000 tonnes of wheat from France early this month showed how uncompetitive the US supplies have become on the world market. The wheat futures for March were being booked at an 11pc less price in recent weeks.

The current global rates of wheat are $275-300 per tonne. However, after adding freight and other charges the cost of exporting wheat comes to $345 (FOB) per tonne. That is why Pakistani traders are insisting to sell their stock at $300-345 a tonne to make the sale profitable. But they are finding it difficult to get a buyer at this price, the only exception being Sri Lanka where Pakistan’s wheat receives low import duties as a special favour. But Russia’s declining presence in the export market offers an opportunity to Pakistani exporters.

The clearing of the glut is not an easy task. The glut emerged when the federal government allowed cheaper imports from Russia and Ukraine to overcome shortages caused by a disappointing harvest that pushed up local prices. But there did exist substantial domestic produce in the storages.

According to Pakistan Bureau of Statistics data, Pakistan imported 727,687 tonnes of wheat worth $182.4m in July-Nov 2014 compared to 366,015 tonnes ($104m) in the same period of 2013. The Sindh chief minister has been critical of the federal government’s decision to allow import of wheat without taking the Sindh government into confidence, particularly when the province along with Punjab already had a sizable stock of locally produced wheat.

The importers made large wheat purchases at a rate of Rs2,600-Rs2,800 per 40kg bag, while the food department was providing locally produced commodity at Rs3,450 per 40kg bag to millers. This difference contributed to a glut of the commodity in the market. The rationale for allowing more imports than necessary remains a mystery. After realising what has happened, a regulatory duty of 20pc was imposed on imports in November by the government to stall the flood of cheap wheat and protect the local farmer. However, some deals were later cancelled

Now the federal government will have to pay a price for its flawed policies to restore balance in the local wheat market.The provinces have asked the federal government to provide a subsidy of $50 per tonne to the exporters to enable them cover the loss they will incur owing to low prices in the global market. Overall, the subsidy comes up to Rs15bn as the surplus stock to be exported is more than 3m tonnes. A similar suggestion has also been made by the food security ministry.

At present, Punjab has a surplus of 2m tonnes, Sindh has 0.6m tonnes and the remaining stock is with the Pakistan Agricultural Storage and Services Corporation (Passco). The ministry of food security has informed Islamabad that if the glut was not cleared before the arrival of fresh crop, the market is likely to crash leading to country-wide protests by the farmers who will find few buyers of their produce. It is obvious that if the old stock is available in stores, at a lower price, few will be interested in lifting the new crop at a higher price. It will amount to denying the farmers a fair price for their crop.

Since unsold stocks of 200,000-250,000 tonnes of cheaper imported wheat are still available in the market, flour mills owners prefer to buy this wheat so as to blend it with locally produced wheat. The millers have lifted only 25,000 tonnes so far from the Sindh food department which still has a stock of more than one million tons. Sindh has procured 1.3 million tonnes of wheat from the growers.

According to State Bank of Pakistan Annual Report 2013-2014, wheat production of 25.3m tonnes in FY14 was marginally higher than the 25.0m tonnes target and the previous peak of 25.2m tonnes realised in FY11.

Published in Dawn, Economic & Business, January 26th , 2015

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