LAHORE, March 23: Wheat price may face intense pressure this year, as the Punjab Food Department cuts its target to a paltry two million tons amid expectations of over 21 million tons total production. Market analysts and farmer bodies on Thursday expressed fears that the wheat price this year might crash (some of them believe it may be a substantial decline), thanks to the food department’s restricted role.
The department traditionally plays a vital role in stabilising market, at least psychologically, because it enters with a huge sum of ready cash. It also works as insurance policy for farmers by creating a fall-back position for them. This year, that insurance has been reduced by 33 per cent.
Last year, the department had a target of three million ton but it pledged to buy every grain. By slashing its target by 33 per cent, it would cause a market crash.
“One should not ignore the context in which the department has cut its target,” according to Ibrahim Mughal of the Kissan Board Pakistan.
According to initial assessment, he said, the country was heading for a healthy crop this year. The area under wheat cultivation had increased by two per cent this year and the recent rain spell provided a crucial irrigation to the crop. These factors might increase yield by one to two per cent, as over 21 million ton was expected this year against 20.3 million ton in 2005.
As Punjab is hoping to get 17.3 million ton against its requirement of around 10 million ton, it would have a surplus of over seven million ton, said market analyst Fayyaz Ahmad. He said the NWFP purchased around one million ton from Punjab, Balochistan another million or so, FATA and AJK 0.5 million ton. Sindh had its own surplus left from the imported wheat. After this calculation, the province would still be left with around 4.5 to five million tons of wheat.
Out of it, the food department would procure only two million ton, thus leaving some 2.5 to three million ton for market. This quantity might glut the market and cause a price crash, he said.
“The food department has its own mess to clean up this year,” according to one of its employees. It still had around 1.65 million tons of wheat in its stocks. In the next 27 days, barring holidays, it might release 200,000 ton and would still be left with 1.45 million ton carry-over wheat, he said.
Besides, the government had allowed it a credit line of Rs36 billion out of which it would straightaway pay Rs10 billion to banks because it had a huge loan of Rs28 billion due to these carryover stocks. So, it would be left with only Rs26 billion for the coming procurement drive.
“One can imagine what kind of market stabilisation it can bring about with this amount,” he wondered.
The province also had to increasingly give space to the private sector due to the federal governments’ commitment with donors, another official involved in the potential restructuring of the food department said.
“The federal government is under loan obligation to increase the role of the private sector. That is why it is cutting targets of the food department ever year. Last year, it came down from 3.5 million ton to three million ton and this year to two million ton.”
He claimed that the private sector would fill the gap being created by the food department, something the donors and the government were hoping for. But he agreed that the private sector would purchase wheat at the end of the procurement season when the price would have already crashed rather than coming to the farmers’ rescue in the beginning of the season. Thus, the policy might cause a price crash rather than stabilising it as claimed by both government and donors.
Advocate Nisar Ahmad of the KBP said the government policy was the cause of the situation, as it had allowed unlimited duty-free import of wheat and helped create glut in the local market. It knew by December that the country had surplus stocks but it kept allowing duty-free import of wheat.
The import was still being allowed and some 21 ships originally booked by private sector, were still in the pipeline. “If the government allows import even in a surplus regime, one should not wonder much about its priorities,” he said.