KARACHI, Nov 23: The duty-free import of wheat in Karachi has brought a virtual halt in the demand on government stocks, which has forced the federal government to suggest to Sindh for the abolition of quota allocations to individual mills and release 46,000 tons of wheat to quake-hit areas against a US pledge for help.

The release of 46,000 tons wheat to the earthquake-affected areas against the promised US assistance is likely to fetch $12 million (Rs720 million). A policy of liberal allocation of wheat may help the Sindh government to dispose of its half-a-million tons of stocks purchased against bank loans of about Rs5 billion on which interest rate is 9.5-10 per cent.

Officials say these two options were offered by the federal food ministry as Karachi flour mills are reluctant to lift wheat from the government stocks. The Sindh cabinet is likely to review the wheat situation and take a decision on the release of government stocks in the next meeting.

Market sources say import orders for over half-a-million tons of wheat were placed by traders soon after the government made import duty free. Before this decision, there was a 5 per cent import duty on wheat plus 15 per cent sales tax and six per cent income tax.

Imported wheat started trickling down before Ramazan and market reports indicate arrivals of 350,000 tons by mid-November and over 200,000 tons of wheat is expected to be shipped by late December or early January.

No wonder then, the prices of imported wheat in the open market came down to Rs1,065 for a 100-kg bag of Russian wheat, Rs1,155 for Australian wheat, while local wheat is being offered at the officially fixed price of Rs1,112.50.

Mills in Karachi lifted only 29 tons of wheat from the government stocks on Tuesday, officials said. The Sindh government began the current wheat year from May with 580,000 tons stock and started issuing it from October 10. Since then hardly 100,000 tons have been lifted in which Karachi’s share is hardly a few thousand tons. Bulk of the commodity from the government stocks is being lifted in interior of the province.

Millers say they are grinding a mix of imported and local wheat in Karachi. But the imported wheat constitutes 70 per cent and in some cases 80 per cent while local wheat is 20 to 30 per cent.

Financial consequences and political fallout of the duty-free import of wheat apart, the fact is that for the first time after several years of hardships, some 15 million people in Karachi enjoyed a relatively comfortable Ramazan so far as the prices and supply of wheat flour were concerned.

Johar Qandhari, a leader of Karachi millers, say the duty-free imported wheat is best suited to Karachi, which is a big market and located more than 120 miles from wheat growing areas. Akthar Sheikh, another leader of the milers, endorses this policy and is confident that there should be no problem of supply and prices of wheat and wheat flour in January and February that are considered as lean months.

But food bureaucracy is angry. With wheat flowing freely in Karachi, the food bureaucracy is deprived of the power and authority that it enjoyed in terms of fixing wheat quotas for individual mills from the government stocks. Food bureaucracy’s role is now confined to rural areas where wheat is stocked in sufficient quantities with farmers and dependence is relatively less on the government stock.

Officials fear that they would be forced to retain a big quantity of wheat as carryover stocks for the next season when harvest begins in late March. It will result in a financial burden on the Sindh government because of loan and accumulated interest. It could also adversely affect the official wheat procurement programme next year. In fact, the farmers would get affected and would be deprived of their due price.

The political cost of such a situation would be further widening the urban and rural divide. Urban traders and consumers gaining at the cost of rural farmers have all the potential of future flare-up for which many forces —- in Sindh and other parts of the country —- are waiting for.