AS the pandemic slows down, global markets are showing a massive rise in agricultural and mineral prices — with severe implications for commodity-importing countries, including Pakistan, that have significant trade and current account deficits. In Pakistan, the rupee depreciation has worsened matters. It makes imports costlier and life more miserable for lower and lower-middle-income households. Shipping costs which have increased five- to 10-fold since the opening up of the global economy add another layer of complexity. It is a nightmare scenario for policymakers and for the government which is desperate for a feel-good factor ahead of the 2023 polls.
Pakistan is importing millions of tonnes of wheat and sugar that have to be made available to the population at subsidised rates. This will impact Pakistan’s dollar reserves. According to the Economist, global food prices have risen in 13 of the past 15 months and are close to their global peak in 2011.
Wheat is Pakistan’s staple food. The crop has been cultivated on around 22 million acres in 2021. Pakistan has produced nearly 25m tonnes in 2021 and is still set to import 3m tonnes to ‘build strategic reserves’, a euphemistic indicator of local shortage. Fakhar Imam, a large farmer and the federal food security minister, himself stated in parliament that millions of tonnes of wheat could not be accounted for when the country witnessed a wheat price hike immediately after the harvest in April and May this year.
Our policymakers don’t know that when wheat prices are higher in the international market (wheat is the largest-traded commodity globally) than our local ‘support price’, which is in fact a suppressed price, wheat invariably finds its way to neighbouring countries such as Afghanistan and we are left with a shortage. Policymakers should be aware that given the price differential in our local ‘support price’ market and international prices, the commodity would be likely to find its way to Afghanistan; the needs of our neighbour have to be a part of our wheat requirement calculus.
Wheat is the only commodity which justifies government intervention as the poor strata cannot be left at the mercy of the market.
The finance adviser is reportedly claiming that Pakistan has become a net food importer due to the faulty economic policies of the last 30 years. He is not wrong but regrettably, those wrong policies continue to be implemented. One example was the announcement of a ‘wheat support’ price of Rs1,800 per 40 kilogrammes by the federal government for the 2021 crop. Sindh fixed the ‘support’ price at Rs2,000 for 40kg. The government is importing wheat at Rs2,500 per 40kg (the cost is likely to surge given the rupee’s depreciation). The loss to Pakistani farmers on account of the ‘support price’ is over Rs400 billion.
Wheat is the only commodity which justifies government intervention as those in the poor/low-income strata cannot be left at the mercy of the market. But the official logic of importing expensive foreign wheat while denying local farmers a fair price also defies common sense. The solution lies in a local floor price as close as possible to the international wheat price while providing targeted subsidies to poor households under Ehsaas and provincial welfare initiatives. This will require more wheat production at home. Farmers must be informed of the correct policy, and most importantly of price signals, before they plant the next crop in a few weeks’ time. Farmers should be provided a production subsidy (perhaps a modest Rs5,000 per acre) to be borne equally by the provinces and the federal government.
The trade-offs can be worked out by the federal government and the federating units but the most important thing is the price policy signal; farmers would immediately respond to ‘behavioural economics’ rather than Punjab’s ‘digital subsidy’ through nearly 1,600 agri input dealers in the province.
The question that comes up with any policy (or operational) decision is the government’s capacity to enforce it. Here the question would be how to provide and disburse production subsidies to hundreds of thousands of agriculturists growing wheat over 20m acres of land across Pakistan. This is only possible with the application of GIS and satellite technology. The technology service, to be secured from an international satellite technology firm, would work out a national aggregation of the wheat crop within the country. It would further allow the disaggregation of data down to the lowest administrative level of the union council.
GIS and satellite technology have developed to a level where the image of either side of the coin (heads or tails) can be taken from miles up in the atmosphere. For the application of wheat crop assessment and disbursement of production subsidies, the government would require a low-resolution service justifying the cost. The technology would provide cropped-area data in each province and help resolve the production subsidy burden between the provinces and the federal government.
Combining union council-level transparency (regarding the subsidy amount received by an individual farmer in a union council) with GIS technology virtually eliminates chances of fraud and corruption in such matters. The production subsidy decision should come before wheat planting begins in a few weeks. After all, it is not farmers but policymakers in national capitals who decide what crop is to be planted.
The writer serves as additional secretary in the forestry department, Sindh.
Published in Dawn, October 22nd, 2021