Mishandling in the wheat sector

At last the government, which has been claiming of having sufficient wheat stocks for the current year (2004-05), despite reservation of independent analysts, has decided to import one million tonnes of the commodity to meet the estimated requirement of the country during the year.
The high hopes of the government for having good wheat crop this season have dashed to the ground due to early and a bit severe summer and later unexpected rains in Punjab – the major wheat growing area of the country.
According to the official figures, the total requirement of wheat for the 2004-05 will be 20.25 million tonns. This includes 10.55 million tonnes for Punjab, 4.31 million tonnes for Sindh, 2.97 million tonnes for the NWFP, 0.97 million tonnes for Balochistan, 1.0 million tonnes for seed, feed, etc., and 0.45 million tonnes for other miscellaneous purposes.
The expected official wheat output during 2003-04 has been calculated as 19.75 million tonnes which comprise, 15.85 million tonnes from Punjab and 2.1, 1.1 and 0.7 million tonnes from Sindh, the NWFP and Balochistan, respectively.
However, keeping in view the lowest ever carry-over stock (1,60,000 tonnes) in the history of the country, it was being feared that the government will not only miss its extremely optimistic targeted output by a fairly wide margin but would not even be able to procure enough wheat to maintain the strategic reserves for food security.
Independent observers have warned that the crop looks insufficient to under write post-harvest losses, seed retained for the next cultivation and wide scale purchases by the private sector.
They also mentioned another important factor that due to the lack of proper storage facilities and techniques available with the private sector, a sizeable stock retained by the private sector is likely to be lost in case of early monsoon season and humid climate which would be a national loss at the end.
Agriculture in Pakistan has been subjected to a high degree of the government influence and intervention since long. Because of the importance of wheat, there has been strong government involvement in this sector since the late 1950s.
Ban on inter-provincial and inter-district wheat trading by the private sector on the start of harvesting season has become an annual routine in order to facilitate the government procurement from the surplus production areas.
The provincial government decision to enforce ban on wheat movement in certain districts of Punjab and Sindh not only denies its previous claims of level-playing fields to all stakeholders but it also throws the private sector out from the ongoing wheat procurement drive in affected areas.
It would be worth mentioning here that while announcing the procurement policy, the government has ruled out inter-district or inter-provincial ban on wheat movement during the procurement drive.
A combination of sector specific trade and micro economic policies in our country are said to be used in an effort to maintain low consumer prices, achieve price stability for farmers and support the agricultural processing industries. As a matter of fact wheat prices in the country have always remained low relative to imports.
Therefore, much of the benefit of cheap wheat is received by foreign producers and floor millers rather than the consumers. The agricultural prices commission recommends to fix the support price of all major agricultural commodities (wheat, rice, cotton, sugarcane, grams, non-traditional oil seeds, potatoes and onion) each year before the planting season.
The intention, no doubt, is to encourage production and protect farmers from cost increases. But certain loopholes in the policy and mismanagement on the part of the concerned agencies have not yielded the desired results.
The perception behind the support price idea is that the increase in wheat support price will encourage higher investment in wheat production and promote agricultural productivity thereby benefiting the majority of population which lives in rural areas and to safeguard the interests of consumers by making supplies available at reasonable prices.
But the objective of the government to encourage farming community for higher production on the mere basis of support price increase has never been achieved as yet. The table does not show any significant impact on either yield or production area whenever support price was increased.
The decision of farmer to grow more wheat depends upon the pricing of all cropping pattern available before him. It does not depend just on relative price of wheat compared to other crops but on the relative price of inputs to other crops.
The farmer does not look at one price but he calculates the relative prices of various crops that he can grow and also the expected profit margin. So it will be wrong if one assumes that the decision of farmers to grow any crop depends upon the support price.
Further, the support price is intended to be a minimum guarantee at which the government would purchase the commodity in case private sector doesn’t. The support price, in any case, is not a fixed or controlled rate at which the growers are liable to sell their produce, either to the government or the private sector.
No doubt that in most of cases farmers sell their produce to the government at harvest as they have little storage capacity and do not want to take risk of spoilage. But it does not happen all times, as the case during current year is.
The low carryover stocks and the uncertainty about stocks and supplies have pushed the commodity price quite high to that of the support price. Therefore, wheat farmers are preferring private sector rather than the government agencies for selling the harvest to maximize gains on their produce.
Despite reduction in wheat rates in the recent days, private sector parties still offer Rs360-370 per 40kg of wheat to the growers against the government offer of Rs350. It is the basic right of a grower to sell his produce to who-so-ever offers a good price.
Pakistan needs at least 5.3 million tonnes of wheat to maintain the strategic reserves for ensuring food supply of the provinces. Passco has so far been able to achieve half of this target and is facing problems in wheat procurement despite using all sorts of unjustified administrative measures as the private sector offers attractive price as well as better incentives to growers.
What needs to be understood by our policymakers is that the prolongation of such non-farmer friendly policies bodes well neither for farming sector and inter-provincial harmony nor the well-being of the common man.
The answer of a vital question that why Pakistan has not sustained wheat self-sufficiency with such a strong agricultural background lies in the failure of the wheat policy whose sole objective is an assured food supply and provision of cheap flour.
The government has neither achieved food security nor the protection of the common people from paying the high price for wheat/flour. As a matter of fact, in any case, an agriculture-based economy should not be suffering from the shortage of a primary staple food.
The government must ensure food security to people as its import costs a lot to the national exchequer in the shape of foreign exchange. It is estimated that the government will have to spend over Rs5 billion on subsidy for importing one million tonnes of wheat.
Besides this, the government should take concrete steps to bring down input costs of agricultural produces, unveils farmer-friendly policies on time and cuts official levies on seed, fertilizer and pesticides. Agriculture is the backbone and must be treated like that.
In this scenario, it is also recommended that instead of intervening in the wheat sector, the government should liberalize farmgate prices and reduce the state’s role in procurement and distribution of wheat with only a strong regulatory and supervisory role for improving wheat production in the country.

Curtesy: The Dawn