With the federal government delaying deciding on the export of wheat and its products by almost four months, millers fear that the Punjab food department may carry-over around two million tonnes into the next season.

Even the decision process to subsidise export took almost a month, made slower, being split into parts: first the subsidy amount was kept at $50 per bag and export restricted to wheat alone. Under the millers’ additional pressure, the subsidy amount was raised to $90 per bag while curb on wheat export stayed. Later, flour was added to the list of exports. The process, which officially started at January 20, was finalised by mid-February.

Had the decision been taken in November, when international wheat market was well over $400 per tonne, Pakistani wheat, with a huge subsidy of $90 per bag, could have found buyers. But with the market now down to $270 per tonne, exporters will have to struggle very hard to locate markets and buyers. They fear that with such a huge subsidy, and no foreign buyers and next crop due within next eight weeks, the Punjab Food Department might be purchasing back the same wheat it is selling now for export.

With current stocks of over 2.7m tonnes and the next crop due four weeks away in Sindh and two months in Punjab, the surplus wheat would pose multiple problems

With such a huge profit margin, if subsidised wheat is sold in the domestic market in such a short storage time span, the fear is the major chunk of subsidised wheat meant for export would be retained within the Pakistan-Afghan border areas, if not in cities of its origin, and travel back to the stocks of the Punjab food department in April when official procurement starts. The incentive for rigging the process and documents is too huge to be resisted by lesser mortals eying windfalls.

The Food Department is also worried that it would be carrying over 2m tonnes (read over 90pc of its indoor storage capacity) of wheat when next crop arrives. The entire purchase from the next crop may thus have to be stacked outdoor, with huge fears of losses. The departmental fears are also related to its still slow wheat releases. Normally, the department hits 20,000 tonnes of average of daily releases in first week of January, when private market dries up and entire milling pressures builds on it. This year, even towards the end of February, its daily releases are reeling between 16,000 to 17,000 tonnes.

Despite the millers and exporters knowing for the last one month or so that export subsidy is on the cards, their orders for export purchase are still to gain any momentum. For the Punjab food department, it is still business as usual; low normal releases and no substantial export orders. With current stocks of over 2.7m tonnes and the next crop due four weeks away in Sindh and two months in Punjab, the surplus wheat would pose multiple problems.

Early clues suggest Pakistan would be harvesting a substantial, if not bumper, wheat crop this season. The widespread February rains have supplemented water requirements of the crop. They have come after floods last year, which rejuvenate land and normally result in better yield. The only hope for the food department is April rains delaying the harvesting, as they have done for the last three years, providing it two weeks to lessen its stocks.

The department also knows that there would be very few buyers in the market if the price trend of the last year holds. Throughout the last season, the wheat price had been on the lower side in the open market. That is why the departmental releases started late and have yet to touch peak average.

Published in Dawn, Economic & Business, February 23rd, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play