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Pakistan’s wheat glut narrated

Business Recorder (BR) Research

The wheat harvest is looking good this year, with the production target of 25.8 million tons likely to be achieved on account of the recent spell of rains in the country. However, wheat exports are still a problem; the present wheat stock in Pakistan remains at around 5.1 million tons, and the anticipated bumper crop will build this stock up even further.

With what is perhaps the most expensive wheat in the world right now due to the support price, Pakistan needed an export subsidy of $45-55[C1] per ton in order to get the commodity out of the country, but even that didn’t work. As the gap widened, the export subsidy was raised even further but still to no avail. Now, the international price of wheat is finding new lows, hitting a five-year low just in the first week of March 2016.

Right now, the price of wheat is Rs32.5 per kg in Pakistan. As for the international market, the price is between Rs21-23 (depending on Hard Red or Soft Red variety). Clearly, the export subsidy should be more than $100 per ton to make exports possible; Dr. Hafiz Pasha says the number should be as high as $150 per ton.

In Pakistan, more rains are expected in the coming week so the Met Office has asked growers to stop irrigating the wheat crop. So, the season has been favorable to production. It might be time to rethink the policies now. One need only turn east to see how it’s done.

Wheat yields in Indian Punjab are twice that in Pakistan, and their price is also competitive in the global market – around Rs24 per kg. That’s how they took the Afghan market from us. Pakistani products are expensive because of their high input costs as well as poor seed quality. Moreover, the Pakistani government only gives a support price for wheat and sugar whereas the Indian government provides a support price for 28 crops [C2]. Despite a far broader support regime, India is doing it far better. That’s because not only is their support price at a reasonable level but because the farmers’ livelihoods are protected by keeping their costs low.

Indian farmers are entitled to various direct subsidies in the form of cheaper electricity, water, urea, and pesticides. The price of urea, for instance, is less than a quarter of what farmers pay in Pakistan. The total fertilizer subsidy announced in India amounted to $15 billion. Compare that with our PM’s generous $200 million subsidies (that was given to the fertilizer companies and not to the farmers!)
Wheat in Pakistan is clearly overpriced while the input costs are too high. Instead of such a high support price, direct subsidies need be given on the inputs. That’s what India is doing: a combination of both.

Right now, the priority should be to find a market for the ever-increasing stock of surplus wheat. With inadequate storage facilities and a dwindling international price, something needs to be done fast.

High stocks of wheat in the absence of silos will either compel Pakistan to export at a steep discount, or the stored stock will get wasted. Plus, because of the surplus, the gunny bags (for selling wheat at support price to the government) are scarce and will be available to only influential and big landlords, while the small farmer will be selling to the middleman at a steep discount to the support price.

In this scenario, the small farmer won’t even get the benefit of the support price, and his margins will be squeezed. The big farmer will get the better price, consumers will pay more on atta, and the government will be giving subsidy on exports that essentially means giving foreign buyers the benefit. What a mess!

First published: March 17, 2016.

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