LAHORE, April 20: The federal government may offer 10 per cent cash margin to the private sector against the advice of Sindh, Punjab and the Ministry of Food, Agriculture and Livestock. According to sources in Minfal, the government has taken the decision at the recently-held meeting of the Economic Coordination Council. However, it has yet to decide on which date this facility would be available to wheat traders.
The sources said the decision was taken by Prime Minister Shaukat Aziz, who wanted the private sector to play a substantial role in wheat trade. The decision was against Punjab and Sindh advice.
Punjab wanted the government to offer 25 per cent cash margin to millers with immediate effect. It also suggested 50 per cent cash margin for private investors from May 15.
Sindh, on the other hand, suggested 50 per cent cash margin both for flour millers and investors, but not before May 15 so that it could first achieve its procurement target.
Minfal had recommended 30 per cent cash facility for private investors and millers with immediate effect.
The prime minister decided to allow the facility to the private sector up to 10 per cent only. The ECC, however, decided to delay the disbursement of loans under the facility on stubborn insistence of Sindh, which wanted to first meet its target of procuring 500,000 tons of wheat. This, according to the sources, was precisely the reason for delay in announcement of facility.
They said the State Bank of Pakistan had not communicated any kind of decision to banks and was waiting for final instructions and date of starting the facility.
Talking about the rationale of the decision, they said, the government was under pressure from donors to progressively cut the official role in procurement. Last year, they said, the government feared food security and virtually drove the private sector out of procurement.
The federal government imported liberal quantity of wheat and the State Bank made early recoveries of commodity finance. Then the Punjab government raided private stocks. All these steps scared the private sector that was reluctant to enter market this year, the sources said.
For this reason, the prime minister wanted to reduce cash margin (fiscal contribution from investors to commodity finance that they get from a bank) to 10 per cent for luring the private sector back into wheat trade.
Mr Aziz was also of the view that turning the private sector’s role on and off would not help the economic cause in the long run. The government must create space for private people to play a major role in wheat trade and spare the government of this responsibility.
Farmers and millers, while welcoming the possible step, sought an early announcement of the decision. “The government must at least announce the decision,” said an official of the Pakistan Flour Mills Association.
He said it would show the official commitment to the private-sector role and dispel last year’s negative impression. Given the crop size, he said, there would certainly be sufficient wheat in the market for the government and private parties. Such an announcement would make the government intention and the private sector role clear, he said.
Farmers believe that the announcement would arrest wheat price slide, as they would be in no hurry to dispose of wheat if they knew that the private sector would be inducted despite some delay.
Most of the farmers could keep wheat for a week or two and would certainly avoid the hassle of throwing away the product, the sources said.
