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Centre to subsidise sale of wheat

March 15, 2012

The meeting was informed that Iran had offered to purchase 1 million tons of wheat under a barter trade deal but it was not interested in old stocks and was asking for fresh wheat produce to be harvested from April 1 onwards. - File photo

ISLAMABAD: With international prices going down to Pakistan’s disadvantage, the federal government has decided to follow Punjab government’s wheat offloading plan by providing Rs6 billion subsidy to sell its surplus stocks at Rs950 per 40 kg.

“Punjab government has been disposing of its stocks at Rs950 per 40 kg in the local market and differential is being picked up by the provincial government. If the strategy of the Punjab government is emulated, the federal government will need to pay a subsidy of Rs6.045 billion on sale of one million tons of wheat”, pleaded a summary of the Ministry of National Food Security and Research.

While considering this request, the Economic Coordination Committee of the cabinet approved on Tuesday the sale of 450,000 tons of wheat lying with Pakistan Agricultural Storage and Services Corporation (Passco) at Rs950 per 40 kg for which the ministry of finance would provide a subsidy of Rs6,045 per ton. Passco currently carried wheat stocks of 1.75 million tons, which included 450,000 tons from 2009-10 crop and 1.27 million tons from 2010-11 crop. Of this, 250,000 tons would be released to deficit provinces and world food programme while 500,000 tons will be kept as federal strategic reserve. This leaves with a surplus wheat stock of one million tons.

The ECC had earlier directed Passco to sell 200,000 tons of wheat at Rs25,000 per ton plus cost of packing material for export purposes but no wheat could be exported due to cost differential of Passco’s wheat and international market price.

The cost of Passco wheat comes to Rs30,845 while international prices have come down from Rs29,540 ($354) per ton to $296 per ton on March 1, 2012.

Passco had contended that early off-loading of the one million tons of surplus stock was crucial because operation for procurement of next wheat crop will suffer due to shortage of storage space while Passco was incurring Rs13.395 million as storage and mark-up cost per day and would incur Rs763 million as financial cost if the surplus stocks was not cleared by May 2012.

“In fact if this narrow window of opportunity is missed, then the availability of fresh stock will push the possibility of selling old wheat to January 2013, by which time the 2009-10 crop may not remain fit for human consumption”.

Also international estimates suggest the world was again likely to have wheat stocks at an all-time high level during 2012 and wheat price is unlikely to increase in the international market.

On top of that, the food security ministry said the federal government has already increased current year support price of wheat to Rs1,050 per 40 kg which will further broaden the price gap between Pakistani wheat price and international market price, making it even more difficult to dispose surplus stocks at a delayed stage.

Therefore, the government was left with a situation where it could only minimise its losses. Early disposal of surplus stock would not result in any gain but the government will save Rs4.9 billion out of Rs6 billion per year borne on account of storage cost and other incidentals and vacated storage spaces.

In view of higher prices this season, some private parties and millers have shown interest in purchasing older stocks. Therefore, the ECC has allowed Passco to offload 450,000 tons of wheat stocks at Rs950 per 40 kg to the private millers.

The meeting was informed that Iran had offered to purchase 1 million tons of wheat under a barter trade deal but it was not interested in old stocks and was asking for fresh wheat produce to be harvested from April 1 onwards.

Iran had offered to provide fertiliser and iron ore in return. The ECC constituted a committee comprising ministers for water and power and food security, deputy chairman Planning Commission and secretaries for commerce, finance and food security to consult provincial governments to update wheat surplus stocks and suggest what products and at what prices the barter trade with Iran could be finalised and come up with its recommendations within the current week.