Tuesday July 05, 2022

Millers and the medieval mind

August 01, 2018

Party manifestoes for the July 25 election made many promises. But somehow, they missed a game-changing step for Pakistan’s agricultural sector: disbanding medieval economic structures for key crops that enrich a few and keep others in poverty.

Pakistan’s largest crops can help increase exports and reduce farmer poverty. But this is only possible if these medieval structures are broken. If we trace the value chains of wheat and sugarcane – two of Pakistan’s biggest crops – the hallmark of a medieval economy emerges clearly.

Over 80 percent of Pakistan’s farmers grow wheat over winter. This means that the wheat harvest involves a vast proportion of the 25 million Pakistani workers who are dependent on agriculture for their livelihood. This value chain is a clear entry point for anyone interested in reducing rural poverty.

Pakistan’s total wheat output has been approximately 25 million tonnes per year. But the wheat output per acre is far below the world average. This shows a clear potential for growth. Yet, the medieval regime prevailing in the wheat value chain gives the farmer no incentive to increase wheat output per acre.

More than a third of the output is kept by farmers to use at home throughout the year. The rest is sold into a system dominated by the government. From March to May, the provincial governments purchase almost half of the traded wheat at a support price set by the federal government with provincial consultation. This effectively sets the price for all traded wheat. So, the rest of the wheat is bought by Pakistan’s flour mills at or around the support price.

There are a handful of excellent operations among the thousand or more flour mills in Pakistan. They realise that their growth is constrained by this medieval regime. Most flour mills, however, are happy with this system of patronage. It helps them remain afloat as they receive an allocation of wheat from their provincial government. From September onwards, the provincial governments start releasing wheat from their medieval storage facilities that are infested with leakage and deterioration. A regime built on patronage cares little about waste and the crumbs disappearing between the cracks.

The elite flour millers have their own testing facilities to check the quality of wheat. But a vast majority of them care little for quality as they get low-quality wheat from the government’s stores and the flour they produce doesn’t have to compete with imported flour.

Pakistan’s progressive farmers already achieve double the national average wheat yield. If the national average is doubled, we will have another 25 million tonnes per year worth almost $5 billion at the current world price. And if we make cookies rather than flour from wheat, the output could be many times higher than this value.

But there are two hurdles along the way. The first obstacle is that the border is closed for wheat and flour trade unless it has been approved by the federal cabinet. This can be changed rather quickly. But the second hurdle is a killer: successive governments have increased the wheat support price as an artificial stimulant of farmer wellbeing and votes. The support price is now nearly 50 percent above the international price of wheat.

Support prices are generally set to ensure that farmers get a price that won’t let them lose money on the crop. These prices are intended to be right below the international market price – enough to help farmers make a profit but not so much as to overly reward him and create incentives for wasteful production.

The penchant for patronage among our leaders has taken the support price to a level that makes farmers produce more wheat than what can be deployed in the country. This is akin to a life on steroids – it feels great until your body begins to fail.

The policy regime has led to two unfavourable results. First, government wheat storage has overflown and wheat from 2014 is still facing the open sky in mounds of sacks covered by tarpaulin in rural areas. Second, the government has had to give exporters subsidies to offload excess wheat in international markets – the subsidies cover the difference between the international price and the domestic ‘support price’. It makes little sense that the government’s scarce resources are being used to subsidise traders to export our biggest crop.

A similar medieval structure prevails in the sugarcane-to-sugar chain. But it is even more generous to millers. There are only 89 sugar mills to process above 70 million tonnes of sugarcane. The ownership of sugar mills is concentrated among a handful of politically dominant players.

This is another closed sector, with the export or import of sugar only being allowed through permission from the cabinet where sugar millers are usually incumbent. Every fall, the country witnesses farmers suffering as millers threaten to start the crushing of cane late, resist prices that farmers are comfortable with, and pay farmers on their own time.

The government doesn’t purchase sugarcane in the same way that it purchases wheat. So, it cannot enforce a support price for sugarcane. But the government and the courts have tried in vain to get farmers a price that they like. Millers invariably win this annual tournament of farmer suffering, with middlemen finishing as comfortable runners-up. In addition, mill owners generally price sugarcane by a medieval metric: its weight. The modern era prices sugarcane by its sucrose content and is able to make more value-added products with the cane.

In 1596, the Mughal encyclopaedist Abul Fazl Allami completed the ‘Ain-i-Akbari’ (Akbar’s Order). It is a celebrated compendium of Emperor Akbar’s 16th century world. The preface reveals how Abul Fazl’s brilliant medieval mind viewed society.

He says that people may be divided into four groups. The first group comprises warriors who act as fire in the body politic and consume the straw of rebellion. The second group consists of merchants who hold the place of the air that moves God’s gifts far and wide. The third group entails the learned who are akin to water because a river rises from their pens and wisdom. Finally, farmers and labourers symbolise the earth. Their toil brings the wealth of life to fruition.

Abul Fazl’s categories practically describe our society. If Pakistan is to become a country where farmers and labourers aren’t dirt poor, the medieval structures that keep them poor have to be replaced.

When a finance minister was asked about reforming these structures, he tellingly said that “our friends in the agri sector will mind”. Such patronage – let your friends prosper while the rest watch and even suffer – was the centerpiece of the medieval order.

Medieval market structures beget medieval outcomes: a few gain a lot while the rest remain in protest. The modern era has been about competition within national boundaries as well as with international players in a fair, transparent regime. This is not only the antithesis of medieval-style patronage, it is also the way to increase our yields and make more profit for farmers.

The medieval regime was removed from the rice value chain years ago. Today, Pakistan not only produces enough rice to meet domestic needs, it exports over $2 billion worth of rice. Now, rice exporters are working directly with farmers to quadruple yields, with a focus on varieties that are demanded in China.

It is time to dismantle the medieval structures of patronage in our agricultural sector. The main priority of the new government must be to encourage the export of wheat and sugar. This will allow international prices to prevail domestically, which will contain over-production and incentivise increases in yield.

Any subsidy payments must be made directly to the bank accounts of farmers. Millers in both value chains will, therefore, shape up and make the highest-value products that they can from Pakistan’s wheat and sugarcane for export purposes.

The writer is a freelance contributor.