Punjab is in the middle of a panicky wheat procurement drive. Barely one week into the campaign, it is resorting to restricting movement and storage of wheat by the private sector. Punjab’s district management machinery is nudging farmers towards procurement centres and edging the middleman out.
The Punjab Food Department has itself to blame for the chaos as it failed to read the market dynamics specific to this year. Farmers and millers think that the transfer of the secretary food only a week before the start of the drive caused the chaos.
The new secretary landed in the middle of an enervating exercise of wheat procurement. As things started spinning out of hand, he restored to administrative actions sending the entire market into a tail spin.
The Punjab Food Department has no idea how much wheat to procure to ensure national food security next year
In the first week, two departmental letters — restricting procurement to only licensed purchasers (millers alone) and then limiting them to only 48-hour grinding stocks — have been doing the rounds in the market. This is unprecedented.
To make things worse for the government, there were a number of factors unique to this year. To begin with, the department had no specific target. Thus there were no fixed targets for field formation and no one knew how many gunny bags had to be distributed and how many had to be taken back.
All this made the field staff unsure of the whole exercise. Since the crop was late by two to three weeks, everyone expected a sudden glut and a resultant price crash once harvesting picked up pace.
But here another factor intervened — the price of wheat hay that had hit Rs1,200 per maund last year due to the expanding dairy sector. Thus, farmers opted for manual harvesting and use of thrashers instead of harvesters that lay hay waste. Thus, the arrival of wheat was slowed down by about 50pc.
This, along with rumours about the exceptionally small crop size, sent the price shooting beyond the official limit of Rs1,300 per maund. Hence, official procurement became irrelevant compared to ground realities. On May 9, open market price in Lahore was Rs1,300 per maund and Rs1,340 per maund in Rawalpindi.
The slowdown and price rise came amid widespread rumours that bad weather — high speed winds accompanied by hail and thunder storms all over the country in late April — has reduced the crop size anywhere between 30 to 40pc in Punjab.
Meanwhile, the federal government also revised its production figures in early May from 25.60 to 24.20 million tonnes. Punjab conceded a loss of 3pc when it said that it would be harvesting 18.58m tonnes instead of 19.18m tonnes.
However, these official figures do not matter in the market where rumours rule. Farmers guestimate loss of 30 to 40pc, which comes to 23-24 maund yield against last year’s 36-37 maund yield. It is these figures that are determining market sentiment.
Another factor that the Punjab Food Department failed to account for was export potential this year. With rupee losing around 35pc value within few months, export potential suddenly brightened.
Since there is no export ban on wheat, exporters who hit the market first (especially in South Punjab) were able to obtain huge orders and set sentiment on the higher side.
Since there is no export ban on wheat, exporters who hit the market first were able to obtain huge orders and set sentiment on the higher side
Two additional factors that made export more lucrative were Russian crop failure by 30pc, leaving Central Asian states dry, and Afghanistan dropping duty on wheat imports by Rs200 per maund to encourage its local flour milling industry.
Both these factors multiplied Afghan demand and traders from Afghanistan were early to arrive in Pakistani markets — right down to central Punjab — with ready cash.
Further complicating these circumstances is the poultry feed industry. Last year, poultry farmers had to purchase corn at a higher rate of Rs1,200 per maund. This year, fearing a further hike in corn prices, poultry farmers replaced corn with wheat for feed.
The poultry feed industry says it can use up to a million tonnes of wheat for feed manufacturing this year — an increase of 30pc from what has been traditionally purchased.
These factors were bound to hit official procurement and they have. The absence of an official target only added to panic as it shifted the responsibility of building up safety stocks till the next harvest to the Punjab Food Department. On its part, the department does not know what to do to ensure national food security next year.
It started the season with a carryover of 1.5m tonnes this year. It normally releases wheat from late September to March — for around six months. Last year, the departmental release touched 800,000 tonnes a month, which traditionally has not been more than 500,000 tonnes.
By this calculation, it needs 4.8m tonnes of stocks to see it through next year, requiring additional purchase of almost 3.3m tonnes this year.
Since Sindh has not been officially procuring wheat this year, how will the additional demand of around 2.2m tonnes impact Punjab’s supplies next year?
How much of wheat has already slipped to Afghanistan from Khyber Pakhtunkhwa? And how much will Punjab have to chip in to ensure adequate supply in KP?
With so many variables in play, the Punjab Food Department has no idea how much wheat to procure for next year to keep the country food secure.
Published in Dawn, The Business and Finance Weekly, March 13th, 2019