Punjab sees little progress on wheat procurement reforms

LAHORE: The Punjab government has made little progress on wheat procurement reforms that had been agreed with the World Bank a couple of years ago.

The reforms in the department aimed at reducing inefficiencies and financial burden on the provincial government as the wheat procurement and grain distribution system has been marred by food officials' alleged corrupt practices coupled with unabated hoarding and black-marketing by certain ‘ghost flour mills’.

Although provincial government has yet not officially backtracked from the commitment given on execution of World Bank-funded $300 million Strengthening Markets for Agriculture and Rural Transformation (SMART) programme, implementation on the programme has been virtually held in abeyance. Also, Punjab also appears to be deviating from a major agreed indicator of reducing wheat procurement to two million tons in 2020, and is vying to purchase 4.5 million tons for, as it claims, ensuring food security.

As a whole, in its third year, there has been zero percent progress on wheat procurement reforms in Punjab province since the launch of programme about two years ago. According to a latest report of World Bank, although there is a lack of progress, the Punjab government has expressed commitment to the general goal of wheat market reforms.

The World Bank and the provincial government have agreed to discuss restructuring the project during the upcoming mid-term review following an in-depth discussion from August to October 2020 to reach a restructuring package to break the deadlock. Punjab chief minister has also constituted an expert committee in an effort to break the stalemate.

As per plan agreed with the World Bank, after reducing wheat procurement to two million tons in 2020, Punjab Food Department will be fully phased out from the wheat market. Its strategic wheat reserves will not be more than 2 million tons and silos will be developed for bulk storage of wheat. Not a single penny has yet been spent on this account.

When contacted, Punjab food secretary was of the view that provincial government would have a holistic view of wheat procurement system after finishing ongoing buying spree. However, he did not agree with the notion that corruption of food officials and certain flour mill owners' greed had been one of the major hurdles in reforming the wheat procurement system.

The PTI government in Punjab admitted shortcomings in wheat procurement system and devised a policy for getting rid of such inefficiencies in the public sector. According to agriculture policy announced by the provincial government early last year, among the large subsidies in Punjab, wheat procurement spending has been among top such expenditures.

The policy report adds that the wheat procurement programme carries the largest subsidy burden for the provincial government estimated at nearly Rs35 billion, and has several negative effects on the growth and performance of the agricultural sector.

The wheat support price is above international levels, thus inducing more/surplus production than it would have been otherwise. This causes losses to the government more than the support programme itself through added storage and handling costs. When sold at higher prices to local consumers than the cost of imported wheat flour, the extra production burdens both urban and rural consumers, including small farmers who are net wheat buyers as research shows that only 26% of wheat producers are net sellers, and these are mostly the larger farmers. This programme additionally ties up land, fertilizers and water resources that could go to other products, including horticulture products with huge export potential; and oilseed and pulses to reduce import burden.

The policy recommends reducing government wheat procurement only to maintain a security stock of 2 million tons of wheat at national level for emergencies. Free market forces should be allowed to determine the production and price of wheat and the government should exit the wheat support price subsidy programme altogether.

As per policy, the government may require importing wheat in case of shortage or excessive price increase in domestic market, and also encourage private sector investors in development of proper infrastructure for grain warehousing, so the farmers and value chain players can stock wheat and benefit from the seasonal variations in prices in the free market space to maximise their profits.

Furthermore, government can redirect some of these funds to improve yields of farmers through investment in technology and innovation in agriculture and promote good agronomic practices to make farmers competitive internationally and to ensure that wheat sector is developed in a more sustainable manner.