KARACHI, May 19: A delegation of Pakistan Flour Mills Association is meeting the Governor of State Bank Dr Ishrat Hussain in Karachi on Thursday to plead for relaxing the 50 per cent cash margin on bank loan given to wheat traders.
Millers want bank loans on terms on which these are being offered to official agencies -provincial governments and PASSCO - involved in procurement of the wheat. The official agencies enjoy the status of sovereign guarantee and hence get loans from banks on lower than 2 per cent rate and without any cash margin requirement.
Market sources estimate disbursement of about Rs15 billion bank loans to wheat traders in Pakistan in the current wheat season. About Rs10 billion is reported to have been given to traders and millers in Punjab where number of flour mills is reported to be more than 600 and their total grinding capacity is more than three times the flour requirement of the entire country. The remaining Rs5 billion is shared by millers and traders in Sindh, NWFP and Balochistan.
Central bank's intervention in wheat trading came on May 10 when it imposed a 50 per cent cash margin on loans being advanced to wheat traders. The banks have been advised to get these loans adjusted by September 30 next to "discourage wheat hoarding and ensure availability of flour at reasonable prices to the consumers round the year."
Market analyst, however, believe that the Central Bank took a pretty long time to intervene in wheat trading. Its last quarterly report issued much earlier in April had made it clear how the "unfettered private trader", is causing havoc in the market by getting bank loans on dirt cheap rates and is using this money for hoarding and profiteering.
The State Bank stepped in when substantial harvesting of current wheat crop has already been done. In Sindh where crop size is estimated at around two million tons, the provincial government has managed to procure hardly 175,000 tons till this day.
Assuming 1.5 million tons of the wheat has been harvested and the government agencies - the Sindh government and the PASSCO together - have managed to procure hardly 350,000 tons, then more than 1.2 million tons wheat has been purchased directly by the private traders through a network of 'banias' who dominate rural trading in Sindh. Wheat procurement by official agencies in Sindh has remained dismal despite inter-district restrictions imposed on wheat movement.
In Punjab too, the official procurement remains far from satisfactory as private trader and millers are reported to have made heavy purchases against easy bank loans. Punjab is expected to give a harvest of about 16 million tons.
The federal cabinet has now decided to import one million tons of wheat to effectively counter the hoarding of wheat by the traders and traditional stockists. "Prices of wheat and flour came down instantly on Wednesday in the wholesale and retail market," Mohammad Shakeel, the Secretary General of Karachi Wholesale Grocers Group informed Dawn.
Market operators are, however, unsure of the year long sustainability of wheat supply in the market. They recall that flour prices started moving upwards in October 2003 and reached the peak during Ramzan.
The government intervened in November when import tariff on wheat was reduced to zero. Australian wheat was imported in February and was rejected. And there was wheat crisis during March and April. This crisis lingers on till this day in one form or the other.
"Flour is still being sold at Rs14 and Rs15 a kilogramme and the price of Irri-6 rice is also crawling up," warns Mohammad Shakeel. Unhindered export of rice has led to price increase of irri-6 and other varieties of rice in the market.
Weeks before the announcement of 2004-05 budget a poor man is paying higher cost for flour, rice, pulses, vegetables, beef, edible oil and ghee, milk and all other essential items.