A worker carries a sack of wheat flour outside a store in Sheikhupura.
A worker carries a sack of wheat flour outside a store in Sheikhupura.

The Punjab wheat worries have a bad habit of not only renewing themselves periodically but getting complex as well. With the early release of official wheat eating up to 20 per cent of stock even when the historical start time of release season is still more than a month away, it is time for the government to recalculate its earlier calculated risks and also assess emerging ones. The Food Department is doing exactly that.

Its earlier calculations were: Punjab had procured 4.5 million tonnes of wheat this year, with a carry-over of 700,000 tonnes — thus arriving at a total of 5.2m tonnes. It added 1m tonnes to its earlier target of 3.5m tonnes as additional security for the year at a time when imports are expected to be costly, as well as with procedural hiccups because of the war in the Black Sea region that meets 80pc of Pakistan’s requirements. So, a million tonnes addition was made as insurance for the year.

Its yearly calculations concluded that it needs 6m tonnes to safely sail through the season, thus facing a deficit of 0.8m tonnes for which it placed a demand for a million-tonne share of imported wheat.

Before that, Punjab tried to convince the Pakistan Agriculture Services and Storage Corporation (Passco) to sell one million tonnes of its local stocks: it thought that the local supply would not have quality issues like the imported commodity and would also be time- and cost-effective. The latest agreement, as revealed by the Food Department officials, is that Passco will provide half a million tonnes of imported and half local wheat.

The complexity of sufficient procurement continues with the early release of the staple in Punjab and the four different prices at which it can be bought

However, these calculations went askew when the new Punjab government, which took over on April 30, ordered the immediate and subsidised release of wheat. The millers normally grind private purchases for the first four months before knocking on official doors in September.

With official releases starting in mid-May this year at a rate of 16,000 tonnes a day (or roughly 425,000 a month), the first three months have so far cost the Food Department around 1.2m tonnes — denuding it of the advantage it secured with one million tonnes of additional purchase. The department is now holding 4m tonnes and has nine full months to go before the next crop hits the market.

These nine months would also be increasingly drier ones, pushing daily releases beyond 25,000 tonnes a day, or around 600,000 tonnes a month. Punjab now thinks that its stocks may last till January, leaving the last three months of the season uncovered for the national staple.

These calculations were made on paper which did not cover contingencies like an earlier release, routine slippages through provincial and national borders and hoarders’ behaviour and capacity in a scarcity situation. These enervating possibilities, even probabilities, are adding to uncertainties.

Stakeholders are nervous especially since Pakistan’s wheat is relatively cheaper compared to the international price and hence the risk of it finding its way to neighbouring countries, especially Afghanistan, is very high — stretching to the extent of certainty. If Pakistan, or any of its federating units like Punjab, keeps releases high, the chances of slippages will only increase and add volatility to the market.

Another layer of explosive instability is going to be the price factor. At present, three different prices are operating in the market, which are going to be four shortly. Punjab is releasing wheat at a rate of Rs1,665 per maund, under a subsidy package. It purchased this wheat at Rs2,200 per maund — subsidising each maund by Rs535 and burdening the provincial exchequer every day.

Beyond this officially-subsidised regime, wheat is trading at Rs3,000 per maund in the open market, and, if the millers are to be trusted, increasing by the week. On the third plank is imported wheat, which will cost anything between Rs3,500 to Rs4,000 per maund. According to market calculations, imported wheat would entail a Rs50-60 billion subsidy for every million tonnes if it has to be brought down to the level of local wheat price (without subsidy). If any government wants to subsidise it, an additional amount would be required.

At what rate would Punjab make normal releases in the next month or so, introducing a fourth price in the market? How to equalise them all? No one knows exactly or has the financial capacity to do so. This situation will continue dogging the market for the rest of the season because the gap between the three prices is beyond the financial capacity of any player — be it federal or provincial or both joining hands.

The gap in prices also reflects confusion at the policy level or incorrect preferences that add to the unpredictability of the market. Take the example of Punjab’s policy on wheat where the preference for releasing wheat below the purchase price has not been limited to any one government: everyone has done it and left the department holding and servicing a Rs621bn baby — the current food circular debt that Punjab owes.

Despite this staggering cost, the policy continues: “Since the Food Department loan comes from a consortium of banks, not the provincial exchequer, every new government finds it easy to enjoy this free and popular lunch and leave the bill on the table. If it was financed through the provincial kitty, the government would have to pay or divert its resources to finance wheat purchase or release.

“The present rate of Rs1,665 per maund has been approved by the Punjab cabinet. It approved this below the purchase price exactly at a time when it was assailing the previous federal government for selling petrol at lower than the purchase price — terming it an economic landmine for its government,” an official of the Punjab Food Department points out.

In final words, one can say that though it is a combination of local and international factors, which are essentially beyond the control of the government, affect supply and price, Pakistan makes matters worst through policy failure and governance crisis — and hapless Pakistanis pay the price.

Published in Dawn, The Business and Finance Weekly, July 25th, 2022

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