Wheat — a saga of mismanagement

Updated 13 Oct 2020

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The wheat policy of the government is providing food for thought as well:  how not to conceive and run a staple policy. — Reuters/File
The wheat policy of the government is providing food for thought as well: how not to conceive and run a staple policy. — Reuters/File

The wheat policy of the government, which determines the production of food that fills the majority of the stomachs in the country, is providing food for thought as well: how not to conceive and run a staple policy. Based on confusing figures, it has been a saga of vacillation, delayed decisions and exceptionally poor execution — playing havoc with the flour market and creating food insecurity for millions. To make the matter worse, the experts think, rather insist, the worst may yet to come.

Ever since fresh crop arrived in the market in April this year, every wheat watcher knew what was coming their way, except for the government. It first refused to acknowledge the extent of yield loss. When the yield loss translated into procurement loss, the government slowly started waking up to the crisis but kept wavering and losing crucial time before deciding in favour of import. Even when import was allowed, it did not know exactly how much was needed to stabilise the market: the import figure was decided at three different stages, spanning ten weeks. Even during those ten weeks, many crucial questions were left unanswered — will the imported wheat be released at the official price? If so, who will underwrite the subsidy (around Rs17 billion for a million tonnes)? If not, how would the flour market get impacted?

Against official dilly delaying, the figures spoke loud and clear from day one — the target was of 27.03m tonnes but independent experts assert 25m tonnes were grown. While conceding the shortfall, official estimates put the figure at 26.10m tonnes.

Official stocks are depleting fast, the private sector is reconsidering the commercial viability of imports at the current high price in the world market and the Trading Corporation of Pakistan is experiencing procedural hiccups

The procurement drive immediately confirmed the yield loss as official agencies could only manage 6.4m tonnes against the target of 8.5m tonnes. By the end of procurement, everyone knew that the two million tonnes gap had to be bridged immediately to prevent the market from heating up. The federal government, however, took its time to realise the gravity of the situation.

Since millers, who traditionally procure 1.5m to 1.8m tonnes (who only got 175,000 tonnes in Punjab), were kept out of it. They went to the market as soon as procurement ended to meet their grinding requirements — creating a daily demand of 15,000 to 20,000 tonnes in a market where hoarders and profiteers ruled. It gave them the leverage to demand the price of their choice and destabilise the supply chain. The millers could either close down mills or yield to a higher price. They opted for the latter and wheat prices, which had been on an upward spiral since last January, skyrocketed — shooting close to Rs2,000 per maund — by the end of May. Did the government think through the results of restricting millers to three days stock? Circumstantial evidence suggests no one spared a thought.

As the situation worsened, fearing further social and economic chaos, the federal government woke up to the crisis in June but only to commit a series of policy miscalculations. It first estimated that a million tonnes of import should be sufficient to correct the market. Next month, the requirement was raised to 1.5m tonnes. By September, the figure was put at close to 3m tonnes.

To fill the gap, the federal government allowed duty-free import of 1.5m tonnes to the private sector in June. But it took one month — while the price situation was deteriorating daily — to issue the statutory regulatory order on July 21. Since import is a time-consuming exercise, the private sector has so far brought in less than half a million tonnes.

As Pakistan went to the world market with a demand of over 3m tonnes, price escalated: from $230 per tonne in June, it went up to $280. This converts to around Rs2,100 per maund, against the official release price of Rs1,475 — a difference of Rs725 per maund. The private sector thus slowed the import down and told the government to increase the official release price to keep their imports feasible. This request was politically too risky for anyone to attempt. In Punjab, the proposal for increasing the release price went to the cabinet thrice in the last four weeks but got defeated each time fearing social reaction.

In August, when shortfall calculations changed and the private sector was dragging its feet, the government belatedly inducted the Trading Corporation of Pakistan (TCP) to import another 1.5m tonnes. When the TCP asked for Rs75bn for the purchase, the federation realised the lack of funds and went into negotiations with the provinces to underwrite the bill. After weeks of negotiations, Punjab agreed to finance 700,000 tonnes, Khyber Pakhtunkhwa 300,000 tonnes and the Pakistan Agricultural Storage and Services Corporation 500,000 tonnes.

The TCP is in the tendering process even after 60 days of permission and may take another few weeks to actually start having any role in the market. Currently, even the government-to-government deal with Russia, meant for 180,000 tonnes (at a rate of $279 per tonne), is in the doldrums since the government has realised it has set the wrong price benchmark for subsequent imports and is therefore renegotiating.

Meanwhile, this indecisiveness has taken its toll and the domestic wheat price escalated to Rs2,400 per maund and flour, for the first time in the country’s history, is being sold at three different rates: officially ground flour for Rs45 per kg, privately ground flour at Rs75 per kg and chakki flour at Rs85 per kg.

As things stand today, official stocks are depleting fast since they are absorbing pressure from the entire supply chain, the private sector is reconsidering the commercial viability of imports at the current high price in the world market and the TCP is experiencing procedural hiccups. Things may simply get out of hands in the next few weeks — a probability that sends shivers down the spine of those watching the situation deteriorating.

Published in Dawn, The Business and Finance Weekly, October 12th, 2020