UNDER a renewed pressure from lenders, Pakistan, especially Punjab, plans to get out of the wheat procurement business.

For testing waters, the World Bank delegation met farmer organisations from Punjab in November and floated the idea that instead of purchasing, growers can get direct cash subsidy to bridge the differential between the officially announced wheat price and what the market offers.

Last week, Punjab called the first meeting of all active farmer bodies to refine this proposal.

Growers who own up to 12.50 acres were offered a Rs200 per maund subsidy. The next meeting is due shortly to arrive at the right price.

The mere idea of ending procurement price has touched a raw nerve of the farmers. They not only opposed this proposal in both the meetings but the Pakistan Kissan Ittehad and the Pakistan Kissan Board also threatened to take this issue to the streets.

The biggest problem of the provincial government is its huge financial cost of the procurement process and ever-building stocks.

The mere idea of ending the procurement price has touched a raw nerve of the farmers. They not only opposed this proposal in both the meetings but the Pakistan Kissan Ittehad and the Pakistan Kissan Board also threatened to take this issue to the streets

However, the subsidy would also burden the provincial exchequer. Around 95pc of farmers fall in less than 12.5 acres category and contribute anything between 60-65pc of the provincial produce. Even if 25 maunds average is taken as a bench mark for them, each acre would cost the province Rs5,000 subsidy.

If their total acreage stands at around 17m acres, the subsidy would amount to a staggering Rs85bn per year per crop.

An additional constraint on Punjab would be paying the full amount every year; for procurement, the targets can be decreased considering stocks and market trends. The subsidy would be inelastic as everyone will have the right to claim subsidy.

Limiting price fall to a reasonable extent would still be a gigantic administrative task. What will happen to the flour price fixing? Can Punjab afford to let the wheat price fall owing to market manipulation and let the flour price skyrocket? These aspects have to be considered before taking any decision.

The Punjab government, on its part, thinks that private sector should be inducted in this business as well. Private investments could help the government improve storage facilities which cost in billions and the existing ones leave much to be desired.

This would also save the government from politically sensitive procurement process every year that adds around Rs200bn in its loans. Some additional benefits can be avoidance of administrative hassle, corruption charges and finally saving billions in subsidies that it bears on account of incidental charges on stocking the commodity.

Growers are also contesting the proposal as wheat has been the only crop, which has financially supported farmers. Otherwise, they have lost money on almost the entire range of crops – be it cotton, cane or rice.

All provincial and federal agencies put together do not have the capacity to store the entire crop that is thrown into the market each season. More than 60pc of the crop is stacked in the open.

The small wheat farmers suffer because they lack storage ability to hold supplies in order to get a fair price. On top of the storage issue, they have to clear their seasonal loans.

Published in Dawn, Business & Finance weekly, December 19th, 2016