Wh(e)at a pity

27 Jan 2020

Email

Was it already too late when the government allowed the import of wheat last week? The answer is an emphatic yes, according to importers. They think that Pakistan had a valid import option only until November (that is, before the start of the current price spiral).

Had wheat been ordered then, it could have arrived in early December and kept the price and supply situation in control. Or the federal government could have given provinces the confidence to keep the market flooded and ward off speculative pressures.

Now, that option has lapsed for two reasons: the world prices have gone up by 10 per cent and the time lag has closed the window.

At present, the rate of Ukrainian wheat is around $245 per ton, which translates into Rs1,900 per 40kg — if port handling charges and transportation (to Karachi) are included. The price would increase correspondingly if it is taken beyond Karachi.

According to millers, the current open market price in Karachi is around Rs2,000 per 40kg, a margin of Rs100 per 40kg if the imports arrive within a day or two.

For the second factor, it would take anywhere between four and five weeks to complete the import process. By that calculation, consignments are expected to reach Karachi either in the last week of February or the first week of March, depending on the availability of ship and berth at the port.

It may take anywhere between four and five weeks to complete the wheat import process. By that calculation, consignments are expected to reach Karachi in either the last week of February or the first week of March

By that time, fresh wheat crop from Sindh is also due and would cause a massive drop in local prices, rendering the imported wheat way too expensive. Because of this scenario, no one is ready to risk import.

As a fallback, importers are seeking official buyback guarantee in case they fail to sell in the open market at a certain price before ordering imports, something the government is not ready for. It wants importers to calculate their own risks, something importers are refusing. This is the point where things are in a deadlock.

Some millers, however, are claiming that federal ministers are prodding some PTI enthusiasts in Karachi into import and they may order if some kind of preferential treatment is assured to them. However, the wheat import as a commercial venture does not make sense anymore. Politically, it may make for one or two importers.

In the absence of timely imports, the situation on ground is worsening for two reasons: supply hiccups and speculative pressure on wheat and flour prices. Punjab has increased supplies from 22,000 tonnes a few weeks ago to 25,400 tonnes right now, citing its own population figures and its dietary requirements.

It has also started supplying subsidised wheat to registered local grinders (chakis) at the rate of five bags each grinding machine. The supplies to local grinders would ensure a price of Rs42 to Rs45 per kilogram and ease overall pressure.

It’s true that it was local grinders where the price spiral started. But this supply increase has its limits: out of the total over 5,500 such grinders in the province, only 900 are registered and supplies are restricted to them only. Punjab would run out of its 2.3 million tonnes stocks at that rate of releases by the end of April, or even before if it has to increase releases to ease the situation further.

The fear for increase in supplies because Punjab’s theoretical explanation does not make practical sense in the federal context — where it has to ease pressure on other federating units as well; in practical terms it means wheat released for 100 million people (of Punjab) has to actually cater for, or at least supplement to, 220 million people’s dietary requirements. That is the point where market calculations and speculative pressure on price take over and inflate flour prices.

Provincial governance issues aggravate the situation even further. The failure of Sindh has been stupendous on three accounts. It first refused to procure wheat without checking the actual stock position. It then failed to check reported theft of its stocks. At the third stage, it delayed wheat lifting from Pakistan Agricultural Storage and Services Corporation (Passco) stocks even when the market went into a tailspin and it was allocated a share of 400,000 tonnes from the federal pool.

On its part, Khyber Pakhtunkhwa failed to warn the federation on its vulnerability and its extent in the first place. It also failed to check its porous borders to stop slippage to the Afghan market.

Balochistan acted even oddly when its food department first refused to lift 50,000 tonnes off the Passco stocks and then rejected millers request to receive the same share on its behalf and grind it. All the federating units thus made their contributions to the national crisis.

However, it is the federal government that caused the crisis in the first place and then let the provinces turn it into a social disaster. Moreover, the same party that rules the Centre is in charge of three federating units as well.

First, it allowed around 700,000 tonnes of exports without assessing the domestic fallout, and permitted it as late as the beginning of the crisis at home. Once the situation deteriorated, it failed to read the causes correctly or at least respond in time. It lost two crucial months in understanding the situation and get convinced on the remedy and took decision, when, according to the wheat watchers, any action is almost meaningless.

Published in Dawn, The Business and Finance Weekly, January 27th, 2020