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Erratic wheat policy




  • In a knee jerk response, the government abruptly suspended wheat export on Wednesday while acknowledging that the open market price of the grain has shot up by seven per cent in spite of a record bumper crop of 23 million tons plus being harvested this season. Shipment of about 30,000 tons of wheat worth more than $6 million is said to have been stopped at the Karachi and Bin Qasim ports immediately after the government decision. By the time, the Economic Coordination Committee (ECC) of the Cabinet headed by Prime Minister Shaukat Aziz decided to suspend export, about 0.4 million tons worth about $80 million is reported to have already been shipped. Besides, there are letters of credits for export of about one million tons of wheat. In the initial days of the harvest, the profit margin on wheat export was said to be more than Rs3,000 a ton which has slipped down to Rs1,500 per ton because of the gradual rise in prices in the domestic market and also in transportation cost in Karachi after announcement of May 12 rallies in Karachi About 16–18 well connected exporters from Karachi and Lahore and a few from Islamabad are said to have so far made about Rs1 billion in wheat export, for which the low income consumers are paying a high price. There is now a gap of 0.6 million tons between the booked orders and the shipment made. The exporters were on a buying spree in Sindh and Punjab till last Tuesday to line up wheat for shipment. Now, the exporters lobby has started working overtime in Islamabad to allow them ship the 0.6 million tons of wheat for which they booked orders. A quick decision to scrap these export orders of remaining 0.6 million tons of wheat, the shopkeepers say can have a good effect on local supplies. An overwhelming majority of small farmers in Sindh and Punjab has already sold away its wheat to the local grain brokers. Bought by these brokers, the wheat is stocked in ginneries, rice husking factories and even in buildings constructed for schools and dispensaries in villages. As the price of wheat in the domestic market went up by Rs80-100 on a 100 kg bag, the government agencies are encountering difficulties in procuring wheat stocks.. The government’s target is to build up a strategic reserve of five millions tons plus. Normally, the government releases wheat to flour mills from its stocks from August or September to cover what is called a “lean period” from October to March. It is believed that from April to August, the market gets adequate supply of wheat from the farmers and flour mills get their requirement from the open market. But this season, there is a visible market distortion or what one can be termed ` manipulation’, the price of wheat flour for a consumer in Karachi went up from Rs13 for a low quality flour and Rs16 a kg for a relatively better quality flour to Rs14 and Rs17 a kg respectively. Reports coming from NWFP reveal that wheat flour prices in small and big towns have started creeping up. Balochistan also showed the same trend and Punjab has just started showing a rising trend. Tandoors, hotels and restaurants started shrinking the size of baked breads and there were reports of a possible price hike next month before the budget. Obviously, the low income groups have been hit badly by this unexpected price hike when elections are scheduled to be held. If World Bank is to be believed, 94 per cent population earns less than two dollars (Rs120) a day which comes to less than Rs4,000 a month. A family of five spends more than 55 per cent of its earning on food bill. A 7-10 per cent rise in flour price has upset the family budget. Three more factors– other than export-driven push–are being mentioned as causes for price rise of wheat flour for consumers in Karachi. The first is freight of the trucks. Transportation from upcountry to Karachi remains disturbed since early May. Finally an announcement was made to put off a local three-day transport strike till next month. “Freight for a 100 kilogram bag from Lodhran in Punjab increased from Rs65 to Rs90”, a local trader said. Another reason for the transport freight hike was that fertiliser import has not commenced this season so far. Normally, imported fertiliser is transported to upcountry from Karachi from May onward. The trucks that bring export cargo or wheat from upcountry carry fertiliser on their return journey. The journey of an empty truck escalates freight cost. A ship carrying fertiliser is about to reach Karachi sometimes next month. Till then a majority of the trucks will continue to come loaded with wheat and export cargo and return empty. A rise in rice prices has also caused a price push in wheat. Traders say that broken rice is now being sold at Rs20 and Rs22 a kg. Broken rice is used in poultry feed. Wheat is being sold as poultry feed because it still costs less. Officials in Sindh food department said that government godowns in Karachi have less than 1,000 tons of wheat stock. It may take another few days before wheat starts coming to Karachi which is the biggest consuming centre of the country. Karachi’s consumption is more than a lakh tons of wheat in a month. Out of 78 flour mills in Karachi, more than 20 have closed their operations because they ran out of stocks. A few mills reported wheat has started trickling in. But the prices of wheat flour is still high, There are at present no visible flour shortages but wheat transportation uncertainty is causing a price push at the retail level. A ”reconciliation” move by the Sindh Governor to meet opposition leaders have been well received by the market. The wholesale and retail business in Karachi look relatively relaxed. A shopkeeper in Soldier Bazar sees improvement in wheat flour supply and prices once the government takes a final decision on the 0.6 millions of wheat for which export orders were booked. If these orders are cancelled, wheat will start coming out from private stocks into the market. Inconsistency in wheat trading policy has been a distinct feature for the last several years but it has become more pronounced in last four years. In late December, the government announced to clear its carryover wheat inventory of about 3.5 million tons by allowing half a million tons export. It found that inventory cost (bank interest, storage charges and transportation cost) has rendered the wheat somewhat uncompetitive in the international market. But the government in its wisdom quietly increased the export quantity from 0,5 million tons to 0.8 million tons. And when the harvest started and there were reports of a bumper crop-23 million tons plus-the government allowed half a million tons export from the new crop also so that it could be marketed without any inventory cost. Without any regulatory authority and with weak governance, the market abuse is rampant.. No sooner, wheat export was initiated, , hoarders, profiteers and speculators entered the market to mint money. The State Bank of Pakistan’s annual report issued on December 2, 2006, about three months before the wheat harvest, had warned of speculators taking over the control of market, if wheat export was allowed before the build up of strategic reserve and assessment of the crop. This is what happened. Within a month of the commencement of harvest of what was declared to be a record bumper crop, the wheat prices in the open market and prices of wheat flour for consumers started moving up. Late last week, the market in Karachi was abuzz with rumours that prices of wheat in open market will touch Rs1,300 for a 100 kg bag. The prices of wheat flour will be Rs20 a kg for a consumer. Hotels, restaurants and tandoors are all set to increase the price of baked bread up to Rs6 or Rs7. Till Tuesday last, the senior bureaucrats in Islamabad Food ministry were defending wheat export policy. None of them was ready to accept that wheat export has pushed up the prices of wheat flour in the local market. They were all convinced that wheat flour price hike is a passing phase and market will behave normally after the effects of May 12 will be over. “Why should not there be a permanent Wheat Board”? Responding to this question, a senior official in the federal food ministry disclosed that such a board is now being constituted. But the composition of the board and its mandate are yet to be decided.

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