The coming wheat crisis is official now. The Ministry of National Food Security & Research has reportedly decided to import three million tonnes to keep the next flour year easy and prevent the market from getting overheated. It is now trying to plan by seeking relevant exemptions for official imports and telling the private sector to be prepared.
The decision came on the back of conclusions made by the Federal Committee on Agriculture (FCA) in its last meeting, where it estimated a yield of 26.87m tonnes against a target of 28.89m tonnes — a deficit of over 2m tonnes or 6.97 per cent. Luckily, the country has a carry-over stock of 1.8m tones — almost wiping off the yield loss. The total, however, still falls short of the total national requirement, which is estimated to be 30.79m tonnes. With total availability — fresh yield plus carry-over — standing at 28.67m tonnes, the country will need another 2.12m tonnes to see it through the next season.
Practically speaking, however, things may turn out to be much more complicated than what these figures convey. To begin with, the FCA estimates were firmed up in late March when wheat from the central Punjab region had not started arriving and better yield in the South had created optimism about the final figure. With harvesting almost complete, Punjab is now looking at a figure of 20m tonnes, against 20.4m tonnes earlier when the commodity was trickling in from the South alone.
With Punjab losing almost 2m tonnes of its targeted 21.9m tonnes, the total national figure might actually be down to 25m tonnes. This figure, as calculated by the farmers and private agencies, might be on the lower side, but it would play with market sentiments and keep it volatile by incentivising hoarding and letting stockists play their role.
At current prices, the country would need $380 to $400 per tonne of wheat imports, landing the bill in the vicinity of $1.2 billion — an amount larger than the next tranche of IMF
If the 25m tonnes figure is taken as true, it would increase import requirement by another million tonnes or so to keep the flour market cool for the year.
Wheat imports this year may not be business as usual because of the Ukraine-Russian war — the Black Sea region, one of the four top wheat production regions, exports around 60m tonnes of wheat. The US department of agriculture thinks that its exports may drop by 7m tonnes as war rages between the two states. It says that Ukrainian wheat export may drop from 24m tonnes to 20m tonnes and the Russian exports from 35m tonnes to 32m tonnes.
Even these digits may become quickly irrelevant if war is prolonged and becomes nastier. Its importance for the country can be gauged from the fact that it covers almost 80 pc of Pakistan’s imports because it cannot afford purchases from the high-end markets like the USA, Australia or Canada. Thus planning imports from the Black sea region may carry additional hassle.
Secondly, a bigger issue for Pakistan may be footing the import bill. At the current price, the country would need $380 to $400 per tonnes, according to importers, which adds up to $380m-$400m for each million tonnes of wheat, landing the total bill in the vicinity of $1.2 billion. Can Pakistan afford to spare that kind of amount in the current crunch, when it has been running after the International Monetary Fund for a far less amount?
Another complicating factor may be that when a sovereign state goes to the world market with such a massive order, it is bound to put additional pressure on price — making it even costlier for the country. Availability of such a massive quantity would be an issue that could not only dog the entire exercise but can turn it into an impossible task.
Not to be forgotten, the government not only has to arrange foreign exchange for imports but later has to subsidise it as well to keep flour affordable. At the current conversion rate, each maund of wheat is costing around Rs3,000 (including inland transportation costs) against the national rate of Rs2,200 per maund. It means that the government has to put about Rs800 subsidy in each and every maund after it is able to get 3m tonnes of wheat from somewhere in the world by importing it at the cost of precious foreign exchange. This amount would roughly translate into Rs17.50bn per tonne subsidy at the current rate — totalling Rs52.50bn for three million tonnes. Meanwhile, if the price escalates, it may deteriorate the fiscal picture of Pakistan correspondingly.
Constitutionally speaking, the wheat subsidy is a provincial subject. Punjab may, somehow, be able to afford it, but would Balochistan or Khyber Pakhtunkhwa be able to meet the bill? Or, will any federating unit, which subsidises wheat import for itself, be allowed to block its border without creating constitutional issues for the federation?
Pakistan will have to be extraordinarily careful this season to keep the supply and price of the staple under control. With so many variables in play, Pakistan has to not only plan imports but its timing as well, keeping in view the world wheat supply situation and price movement. Even with 3m tonnes of imports, it would still be a neck-to-neck situation necessitating anti-hoarding checks and keeping vigil on its borders. Otherwise, the situation may deteriorate quickly and exceptionally.
Published in Dawn, The Business and Finance Weekly, April 25th, 2022