LAHORE: With the Punjab Food Department terminating gunny bags distribution in last division (Rawalpindi) and concluding its procurement drive, fears for further wheat price crash have grown among the farmers and market.

Though the department thinks that price may not dip as much as farmers fear because trading would slow down in the next week due to arrival of Ramazan and the provincial government opening flood gates of its stock under the Ramazan package, they do concede some drop in price.

“The problem with the crop is that it is not traded above Rs1,200 per maund anywhere in the Punjab,” says Naeem Sukhera – a farmer and wheat trader from Sahiwal. Any drop in this figure will hurt the farmers heavily, because the market is already 10 per cent lower than the official trading line. Even, for argument sake, if one calculates drop by four to five per cent (chances and extent of crash could be much higher though), the cumulative drop would be 15 per cent – huge by any stretch of financial and psychological imagination.

“It would have cost, both for the farmers, who are already on the roads and protesting, and the government, which is in the process of claiming political mileage of placatory package and soothing raw nerves of the farmers,” he said.


Trade may slow due to Ramazan releases


According to official figures, by Friday the food department had distributed 98.5pc (for 3.95 million ton) gunny bags and terminated the distribution. It had also procured 94pc (3.8 million ton) of wheat. During the next 48 hours, the department would wait for the gunny bags to return, which it had already distributed, before finally calling it a day.

“The department would be carrying total stocks of 6.2 million ton (third biggest in its history) when it officially terminates wheat recovery, even for bags it had distributed by Tuesday evening,” says an official.

About the 30-day procurement, he said the biggest challenge was ensuring price at a certain level. With the private sector totally inactive and only official agencies struggling with huge crop, price maintainability was a challenging task. The agencies succeeded, but only up to a point – the market price ranged between Rs1,150 and Rs1,250 per maund, which was not ideal but was not as bad as feared before the commencement of the drive. For future procurement, he advised the Punjab government to find ways for engaging the private sector in wheat trade otherwise risk of price crash would always be lurking over the drive and tax nerves of the department, government and farmers alike.

The private sector was never meant to be part of the procurement for commercial reasons, says Majid Abdullah – a miller from the city. The millers knew that the department would be carrying huge stocks and would be compelled to keep releases liberal. Healthy crop would also keep supplies going on till official releases start. In such scenario, why invest heavily in procurement when commodity can come easily and cheaply from other sources. The millers might now jump in when, and if, price crashes further – creating substantial margin for the millers and private sector. With both agencies (food department and Passco) out, the chances of further price crash are real but no one is sure how much?

He concluded with remarks: “The private purchase would directly respond to market price behaviour. If it drops more, the purchase would be heavy. If not, the millers would be under pressure to go for expensive wheat because of ample stocks with the food department.”

Published in Dawn, May 29th, 2016

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