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Record wheat harvest, exports                                        
By Sabihuddin Ghausi

This summer, farmers are reaping a record wheat harvest of 23 million tons plus which, when translated into hard cash at the rate of officially fixed procurement price of Rs425 for 40 kg or Rs10.62 per kg is expected to inject more than Rs230 billion in the rural economy.

It comes as a big opportunity for the government in an election year but is also likely to prove a challenge for the political leadership and bureaucrats to manage. How a challenge comes from a situation of plenty, was well articulated in the last annual report of State Bank of Pakistan (SBP). ``Domestic wheat prices may rise despite an anticipated bumper crop, if speculators seek to take advantage of the rising international prices, the central bank warned the government as far back as in December 2006 when farmers were looking hopefully at their fields after a tiring plantation job in the autumn.

The SBP then urged the government to ensure that, ``the benefit of higher prices should accrue to farmers and it also pointed out that, ``an excessive rise due to speculative activities can lead to a net welfare loss to the economy.” The SBP’s advice was meant to caution the government against the speculators by ensuring availability of sufficient buffer stocks with the government agencies. It forcefully urged the government to defer export of wheat, until size of crop in known and buffer stocks are in place.

While the government has raised its wheat crop estimate from earlier projection of 21.5-23 million tons, the commodity traders predict a much more optimistic export outlook and are convinced that in the final count, the crop would exceed even 24 million tons. Their optimism is based on the international media reports that the size of wheat crop in Australia and few other countries is not up to the expectations. Traders say their offices are being flooded with wheat demand from India, Bangladesh, Sri Lanka, Indonesia, Malaysia, UAE and many African countries.

Reports of a bumper wheat crop had already brought down prices in the open market to Rs1,050 and Rs1,100 for a 100 kg bag in late March which is a shade above the officially fixed procurement price of Rs 1,062. Procurement operations were delayed because of rains while farmers were getting restive. During last one week or so when Sindh government was going ahead with its procurement and traders are said to be buying wheat for export in the open market, the prices gradually crept up to Rs1,150 a bag. A week ago the wheat was being quoted at Rs1,120 for a 100 kg bag.

By April 19. officials in Sindh reported procurement of 212,000 tons. Punjab is about to begin its procurement from today. But media reports say that a ship carrying a small quantity of Pakistani wheat has already sailed off to India on April 16. ``A Pakistani trader has contracted 25,000 tons of wheat export to India, Bilal Sufi a senior leader of millers in Lahore informed this correspondent on telephone.

``The best time for wheat export was in October-November 2006 when world grain prices were $280 a ton (about Rs16,800 a ton) and we carried plenty of stocks from the previous crop, Bilal said adding that the demand for wheat is there but prices are not attractive.

Traders in Karachi confirmed that about 250,000-300,000 lakh tons of wheat has already been shipped or is in final stages of shipment to African countries (Somalia, Kenya etc.), Yemen, UAE, India and other countries and orders for additional 300,000 tons are being booked or are in advance stages of the negotiations. Pakistani wheat is considered to be the best for its nutritional value, grain taste and other qualities. Traders are getting $209-216 a ton on their export orders.

Exporters are said to have booked orders for `unprocessed wheat at $180-190 a ton. It means that wheat is being exported at Rs12,960-12,540 a ton as against local official price of Rs10,620. Traders meet all their incidental expenses including interest rates on bank loans, transportation and handling within this margin of Rs1,900- 2,300 on a ton and making some good money. The margin is the difference between the purchase price and export price.

Market watchers are apprehensive of these hectic activities of commodity traders in the domestic market. A local analyst said the global food companies are the deadliest sharks in international business making huge profits from distress imports and exports particularly in the developing countries like Pakistan where regulatory frameworks are virtually absent and legal and administrative structure is too weak to withstand the pressures of money.

These companies have a vast network of their business representatives in almost all the developing countries and enjoy good amount of influence on the political leadership and bureaucrats. ``They know how to play and make good profits when it is a situation of plenty or scarce, the analyst said.

Pakistan lacks an effective and accurate system for estimating a crop. In these days when even many developing countries employ satellite technology to predict weather changes and crop estimate, Pakistan depends on `patwaris of the area to assess any particular crop. Samples are designed on tehsil and district basis. But these samples designed for such monitoring and subsequent information gathering also remain mere a guess work.

There have been many instances in the past when initial estimate of plenty ended up in scarcity and scarcity into plenty. A glaring example was the Spring 1997 when Nawaz Sharif was elected with a big majority and one of the first his first decision was to increase official price of wheat in the face of the general expectations of a bumper crop.

Whether that was a bumper wheat crop or not remains an unanswered question till this day. However it proved to be one of the worst years in the history Pakistan when wheat flour prices went up to Rs24-25 a kg and there were demonstration on the streets of Peshawar and other Northern cities. Flour mills and wheat stocks were set on fire in many places by the angry mob.

The anti climax came when the then Punjab Food minister reported that he saw himself flour bags of Pakistan mills in stores of Moscow and many Central Asian cities during his visit that summer. Since the year 2002, the flour prices in retail have never been stable. With the arrival of Ramzan every year, the supply of wheat flour, sugar, pulses, cooking oil and vegetable ghee becomes scrce and prices of these commodities shoot up never to come down. .

Officials in Sindh government said that a high level meeting with Prime Minister Shaukat Aziz in chair recently took stock of the wheat situation. Sindh has been asked to procure 0.7 million tons but it should procure 0.3 million tons more to maintain a buffer stock of one million tons. The PASSCO has been given the job to purchase 1.3 million tons and Punjab government will procure 2.5-3 million tons.

However the lobby of rich farmers has been successful in persuading the government to ignore the SBP’s warning and go for immediate export so that wheat prices start moving up in the market. The government has initially fixed an export target of 0.8 million tons for private sector but there is no benchmark export price to prevent a cut-throat competition. As the indications are, the initial export target of 0.8 million tons would be met in a week or 10 days. Traders are coming with demand to unfreeze this cap of 0.8 million tons export.
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Courtesy: The DAWN

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