Money Matters

Wheat fiasco

Money Matters
By Mehtab Haider.
Mon, 10, 20

Despite deafening claims made by different tiers of the government in the country, the common citizen has been facing numerous difficulties in buying flour at affordable prices owing to a variety of reasons. Everyone is blaming the other for this persistent crisis, having no clue as to how this lingering crisis will be overcome.

Despite deafening claims made by different tiers of the government in the country, the common citizen has been facing numerous difficulties in buying flour at affordable prices owing to a variety of reasons. Everyone is blaming the other for this persistent crisis, having no clue as to how this lingering crisis will be overcome.

This crisis situation was triggered because of flawed decisions made by the PTI-led regime during the last fiscal year, when wrong estimates were presented before the highest forum of the country for seeking permission to export wheat. Later on, it was proved that wheat production was less than the target so export of wheat was banned in October 2019.

However, the government did not impose a ban on other related products of wheat. Thus, in the guise of maida, suji and other products, wheat continued to smuggle out from the country. It was a time when the country already possessed low strategic reserves. This resulted in price escalation of wheat and wheat flour in the domestic market around November-December 2019.

The situation aggravated further when Punjab slapped a ban on inter-provincial and inter district movements. Prices in Sindh, Khyber Pakhtunkhwa and several other parts of the country increased drastically, pushing it further out of the reach of the public.

For fiscal year 2019/20, the Ministry of National Food Security and Research and provinces assessed that wheat production would be over 27 million tons. In the middle of this difficult situation, the country was struck by heavy rainfall in May and June; the time when wheat is being harvested. This inflicted a loss of one to 1.5 million tons wheat. Thus, Pakistan could not meet its envisaged wheat target of 27 million tons.

The centre and provinces envisaged wheat procurement target at 8.25 million tons, as Sindh also decided to procure wheat keeping in view its experience of last year; however, this desired target could not be achieved either. There is a need to assess whether wheat production was actually close to 26.4 or 26.6 million tons, a figure still claimed by the Ministry of National Food Security and Research or the actual production was less than the claims.

Prices of wheat have continued to escalate in the last few months. The commodity went up from $218 per ton to now $278 per ton within the last three to four months period. Shortage of wheat has put the government’s decisions under the microscope. Amidst the fiasco, there is also a demand to ascertain who is responsible for delayed decision-making in the ranks of the PTI-led regime.

The government is also under severe criticism for its indecisiveness for allowing import of wheat through the public sector.

The government assessed that the wheat shortfall stood at one million tons. This assessment was revised upward to 1.5 million tons. This shortfall was again revised upward a third time, and now it shows that wheat shortfall was hovering around two to 2.2 million tons.

In the domestic market, the prices of quality/edible flour produced at a chakki are hovering around Rs75 to Rs80 per kilo, while the flour produced by mills was either not available or not up to the required standard.

The reason that the government decided to import wheat through the public sector was the reluctance of the private sector to come into the market. Therefore, it took a much longer time than it should have in taking the decision to import the essential commodity.

For policymakers, there are some practical difficulties in the aftermath of the 18th constitutional amendments because there were five governments working and the centre needs to take everyone into confidence by evolving consensus. Secondly, the centre also wants that the provinces should contribute their due share for providing subsidy, because it cannot carry the whole burden on its shoulders.

With this approach in mind, the Economic Coordination Committee (ECC) in its meeting showed its displeasure over the Ministry of National Food and Research as well as attached departments – PASSCO and TCP – over one tender at a price of $274 per ton. However, after a few days it had to accept Russian wheat at price of $279 per ton because there was a possibility of further fluctuation in the prices of wheat.

The policymakers are citing examples that they used the same method for importing sugar, as higher prices were pitched at first, but the government’s refusal to accept higher quotes signalled the markets, subsequently reducing prices in tenders. The same strategy will be followed for importing wheat.

The government is fully cognizant of the fact that the prices of wheat might go up, but it is trying to save each and every penny. The summary presented before the ECC stated that the decision was made in July 2020 to explore the option of government to government import of wheat from all countries, especially from Central Asian States and Iran.

The Ministry of National Food Security and Research sent out OD to Ukraine, Russian Federation and Iran to find out the possibility of importing wheat of a minimum quantity of 200,000 tons. The Russian Federation showed their interest in sending wheat to Pakistan.

The Russian Federation selected state-owned firms namely United Grain Company and Prodintorg for making arrangements. The government of Pakistan selected PASSCO. Both sides started negotiations and finalised in the light of exchanged wheat specification and other items. The Ministry of Foreign Affairs received a proposed memorandum of understanding (MoU) that was also submitted to the cabinet for approval by the end of September 2020. The Ministry of Agriculture of the Russian Federation informed that they were ready to provide 180,000 (plus-minus 10 percent) of milling wheat from October 15, 2020 to November 30, 2020. But they further informed that this proposal stands valid till October 2, 2020 at 18:00 hours Pakistan Standard Time.

The Ministry of Food Security and Research evaluated the proposal in detail, and was of the opinion that due to fluctuating pricing in the international market and domestic demand and supply situation, the prices offered by Russian side at $279 per ton equivalent to Rs46,116 per ton (1 $=Rs165.29) was reasonable. This quantity of 180,000 will be used to replenish the strategic reserves of PASSCO.

Keeping this in view, the Ministry of National Food Security and Research recommended the import of 180,000 metric tons of wheat from Russia on GTG Basis at a rate of $279/ton. The entire cost for importing 180,000 tons wheat would be at a rate of $50,220,000 (plus-minus 10 percent), equivalent to Rs8,300,863.800 (plus-minus 10 percent).

The ECC was informed that about five million tons of wheat was available with the public sector in stocks. In terms of import 430,000 tons has already been imported by the private sector and another 1.1 million ton was expected to be imported by the end of December 2020. In terms of wheat import by the public sector, TCP has already opened an LC for importing 330,000 tons of wheat while TCP is in the process of tendering another about 1.2 million tons. Another 180,000 tons is being imported through GTG arrangement from Russia.

There is need to ensure strict vigilance at borders to stop smuggling of wheat, or else the lingering crisis might move towards an even worst situation with far reaching political implications for the incumbent ruling regime. It can only be avoided through timely decision-making and placing strict administrative actions.

The writer is a staff member