LAHORE: With Islamabad already struggling to arrange financing for its rapidly expanding current account deficit, there is more bad news to come. Not only will the government likely be forced to withdraw the massive fuel and electricity subsidies that have hemorrhaged tens of billions from the treasury, it may find it has no option but to raise wheat prices as well due to shortages that will need to be covered with expensive imports.

According to a briefing given to the prime minister earlier this month, Pakistan is expected to reap only 26.9 million tonnes of wheat this season against a target of 28.9m tonnes. An unexpected, early heatwave in mid-March shriveled wheat grains, while poor application of fertilizer (both DAP and urea), either due to unavailability or higher costs, as well as a severe shortage of water also depleted crops.

As a result, the harvest is expected to be over 2m tonnes less than last year, when an all-time bumper crop had resulted in wheat output of 28.7m tonnes. These figures are, however, not final, as the grain procurement drive is still ongoing in various parts of the country and is expected to conclude in a couple of weeks.

It is estimated that the country needs around 30.8mt to meet its requirements until the next harvest. With about a million tonnes of wheat available in carryover stock, the gap between the total requirement and expected supply (26.9m tonnes) reduces to about 3.0m tonnes.That number is bound to be a headache for the foreign exchange-starved government.

Pakistan may have to spend $1.5bn to offset supply disruption caused by Ukraine war

According to IndexMundi, a US-based data aggregator, prices for the American ‘hard red winter variety’ of wheat were touching $495.28 per tonne in the international market for the month of April. This represented an over 39pc increase from the October 2021 rate of $354.67 per tonne. At that rate, the purchase price of wheat comes to around Rs99,100 per tonne(Rs99.1 per kilo) based on a rupee-dollar exchange rate of slightly above Rs200 per dollar.

Pakistan, however, prefers to import its wheat from Ukraine, the fifth-largest wheat supplier in the world with 19m tonnes of exports in 2021-22. This is because freight charges are comparatively less while Ukrainian grain is close to local wheat varieties in terms of gluten and protein levels; i.e. it is the closest in taste to local wheat. However, exports from Ukraine have been hampered since the blockading of the Black Sea region by Russia.

Ukraine has been using its railway network as the main route for exporting grain, but this often leads to the accumulation of wagons at border crossings and has thus throttled its exports considerably. Markets in South Asia have also been disrupted after governments banned or restricted exports of wheat due to severe heatwaves diminishing wheat yields. These nations include neighbouring India, the eighth-largest wheat exporter.

These factors, coupled with higher fertiliser costs and weather worries, are compounding disruptions in the global supply chain and bringing grain prices further under pressure.

Even at April 2022 rates, Pakistan will have to spend around $1.5 billion to import 3m tonnes of grain to bridge the gap between demand and supply and stabilise the local market. The imported wheat will cost Rs99.1 per kg and the government will have to bear an additional financial burden to subsidise it to match its price with the local variety, which retails at over Rs68 per kg.

The private sector (the flour milling industry) has already made it clear it is not ready to share the government’s import burden and is instead looking to federal authorities to import the wheat and ensure it is supplied onward to the industry at subsidised rates.

Khaleeque Arshad, a member of the Pakistan Flour Mills Association, said the private sector will not be importing wheat this year because of the extraordinary cost of the commodity in international markets. He urged the government to make import arrangements before wheat prices rise further and also to begin releasing stocks to mills as soon as possible to make sure flour prices stay stable in the local market, which is heating up as the harvesting season comes to an end.

The price of wheat flour was already up 18.34pc on a year-on-year basis in April for urban consumers and 18.82pc for rural consumers, according to the Consumer Price Indices of the Pakistan Bureau of Statistics. The month-on-month increase in prices in April over March was 0.63pc and 3.45pc, respectively, for the two categories of consumers. A 20kg flour bag was selling for Rs1,370 in April, against Rs1,112 in the week ending May 5, 2022 and Rs966 on May 13, 2021.

Published in Dawn, May 24th, 2022

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