Agriculture and Technology Belated
decision on wheat export
By Ahmad Fraz Khan
months of foot dragging on the issue, the federal government
finally this week allowed export of one million tons of
wheat and its products. But considering international market
trends, the decision seems to have come at least three
months late. No one is now sure whether the country can
benefit from the decision. Even if it does, there is no
scope for exports to touch the mythical figure of one
Over the last few months, the Punjab government wrote to the
federal government time and again for permission to export
wheat. First, it wanted the private sector to export. But,
later, as financial desperation mounted, Punjab wanted to
export the commodity itself, and clear the massive stocks.
The federation, however, kept de nying permission.
Punjab wanted to grab an opportunity created in the world
market during August this year, when the Russian crop had
failed and the world prices peaked to $400 per ton.
Traditionally, August and September are considered to be
lean months in the world market for availability of wheat.
The federal government, for purely political and
Punjab-specific reasons, withheld the permission. It knew
that Punjab finances would collapse if it does not clear its
stocks. The province has been paying Rs80 million a day ?
Rs2.5 billion a month, and Rs30 billion a year ? to service
wheat related Rs180 billion loans. The federal-provincial
politics thus not only ruined Punjab finance to a greater
extent but an opportunity was lost to earn foreign exchange
and develop a niche in the international market.
The international window, which opened in August, remained
ajar till the beginning of the current month, as rains
delayed harvest of Australian wheat ? second largest crop in
the world. Once the Australian crop hits the world market,
international price is bound to slide and make export of
dearer Pakistani wheat more difficult.
It was not only Russian crop failure, but a slight
speculative pressure on wheat also helped drive prices up.
Concerns about the next US winter crop, tightening the EU
export supplies and mixed harvest results in Australia kept
the prices high for a little longer than expected. These
factors were in addition to world wheat production forecast
of 644 million tons ? five per cent less than last year. All
these factors put together created an opportunity for
Pakistan and Punjab having biggest ever stocks.
This week, wheat prices have come down to $324 and would go
further below during the next two weeks when the Australian
Wheat Board starts displaying its crop size and spot rates.
The current rate of $324 per ton, translates into Rs27,500
per ton in domestic market. The official release price of
little more than Rs25,000 leaves margin of over Rs2,000 per
ton. But, the exporters have to get the wheat graded for
export, which takes away 10 to 12 per cent of wheat. If
transportation charges from Punjab are added, it does not
leave any profit margin for exporters.
Thus, at the present international price, which might not
hold for more than two weeks, exports from Karachi might
make little sense. Exports from Punjab certainly do not make
financial sense, from where Rs300 per ton transportation
charges are added.
Apart from federal-provincial politics, the federal
government must realise that exceptionally high domestic
price of wheat has created a situation, where it would
continue having surplus to varying degrees as long as it
does not either rationalise domes tic price or subsidise
export. With current high domestic price and other
incidentals charges added to it, export, would not make
Pakistan, particularly Punjab, needs to take a longterm view
of the crop ? its future, export potential and pos sible
markets. All big wheat exporting countries have created
permanent institutions, like the Australian Wheat Board, to
look after wheat exports.
It is such institutions that continuously monitor wheat
prospects throughout the world, deal in future buying of the
crop and provide foreign buyers a platform to deal with
producers and exporters.
The need to create such institutions is underscored by three
factors i.e. high domestic prices, massive and
ever-increasing stocks and domestic production, which, on an
average, has gone up by around two million tons during the
last four years. Thus, it is time for the federal and the
Punjab governments to sit together and create a permanent
arrangement for dealing with the crop on commercial lines..
Courtesy: The DAWN