Policy flaws forcing consumers to foot inflated bills for wheat, sugar

LAHORE: Consumers in the country have to pay far higher prices for domestically produced wheat and sugar because the rates of these two commodities are much higher compared to the international market.

Massive devaluation has further highlighted the inefficiencies of our agricultural production as even after rupee lost Rs18 against the US dollar, since last July the prices of wheat and sugar, the two surplus crops in Pakistan, were Rs13 and Rs27 higher than the global market respectively.

Analysts estimate domestic consumers spend around Rs420 billion/year extra on these two commodities, a figure not confirmed by the official data.

The rates of wheat in international market are hovering around $157/ton.

This means the global price of wheat at current value of rupee should be Rs19154/ton or Rs19.15/kg.

In Pakistan the price of wheat is Rs32.5/kg or Rs32500/ton.

Pakistan has been producing surplus wheat in recent years.

It is piling up stocks as this wheat cannot be exported without subsidy.

The support price of Rs1300/40 kg for wheat has made our farmers lethargic as they can cover their cost even at a low yield.

On average, farmers obtain around 26 maunds (40kgs) of wheat/ acre, which is almost half the global average and one-fourth of the best global yield.

The farmers still complain that they cannot recover the cost of cultivation.

In Pakistan, there are farms that are producing 50-60 maunds of wheat/acre. It’s the use of best farming practices that makes all the difference.

Theoretically wheat prices could be cut by half if we could double our yield through better management practices that requires hard work and prudent interventions.

The standard procedures of leaving the fields to the mercy of nature after sowing should be stopped. The fields should be laser leveled and all weeds should be plucked out manually if proper herbicides are not available.

The farmers across the border in Indian Punjab are doing the same and getting double the yield. The higher production also spares the land for sowing oilseed crops.

The inability to increase yield is taxing the consumers heavily.

The average per person wheat consumption in Pakistan is Rs110kg/annum. This means that every Pakistani is paying Rs1430 more for wheat than its global price. In other words wheat consumers are paying an additional Rs285 billion annually because of inefficiencies in our agricultural setup.

The case of sugar is even more alarming. Its average price in Pakistan is Rs60/kg or Rs60000/ton.

The current sugar price in global market is $0.272/kg that comes to $272/ton. In rupees it comes to Rs33.18/kg or Rs33,184/ton. Thus consumers are paying almost Rs27/kg more than the global price of sugar. Average sugar consumption in Pakistan is 25 kg/person per year.

In one year each consumer spends Rs675 more than the global rate of the commodity.

This means the cumulative impact of higher sugar rates on Pakistani consumers is Rs135 billion/year. This brings the cumulative burden of higher wheat and sugar prices to Rs420 billion.

This is the direct impact. The subsidies the government doles out to the agriculture sector and on exports of these commodities are an additional burden on the economy.

There is no sales tax but it is charged on sugar and is adjustable on exports.

Even after that the government has to give a subsidy of Rs17/kg on sugar exports out of which federal government contributes Rs10 and provincial governments from Rs7-9/kg.

Why can’t Pakistani sugar mills match the global sugar prices? Why does the government allow encroachment of cotton producing area for sugarcane production? It is because of government’s flawed policies that each year mills suspend payments to the sugarcane farmers till the government allows them to export sugar at subsidised rates. Sugar mills are neither big job providers nor are they efficient but they operate and strive because of their huge political clout.

The sugarcane crop consumes double the water than cotton crop, whose cultivation area is shrinking because of sugarcane sowing.

Devaluation is a curse for poor consumers as they are already paying much higher prices for locally produced foods like wheat, milk and sugar.

Moreover, it also correspondingly increases the prices of imported food

items especially edible oil --over 70 percent of which is imported.