Wheat: woes of a bumper crop
Sunday, May 24, 2009
Editorial, Daily Times, Pakistan
Sunday, May 24, 2009
A TV discussion on Friday, featuring Punjab’s agriculture minister, centred on the bumper crop of wheat in the country and what the main producer, Punjab, was doing to reduce the economic damage that may come from over-production. The country normally needs 2.5 million tons to meet its national demand for wheat; it may have produced over 6 million tons this year, enough to feed three countries the size of Pakistan. The federal government says it is already paying a billion rupees a week to the private sector for storing the wheat it has bought off the farmers. Punjab, the main producer, is struggling with purchase.
The situation is so bafflingly unprecedented that it is unwise to level criticism. The area now called Pakistan had never produced more than 2.5 million tons of wheat. It has now three times that amount, a bonanza caused by a number of factors, the foremost among them being the price fixed by the government for the budget 2008-09. A high price of Rs 950 per 40 kg was fixed also to preclude a number of negative factors that had damaged the economy in 2007-08.
In the last days of the PMLQ government, absence of a protection price led to a steep fall in the market price of wheat, which had caused wheat and flour to be smuggled out of the country, till the entire region of Central Asia was eating our bread — while the PPP government had to face rioting citizens in its first year in power. Hoarders and smugglers prospered even as the county imported expensive wheat.
The PPP in its Budget 2008-09 was faced with a shrinking of the economy. Accepting up to 50 percent contraction in the industrial sector owing to global recession and lack of electricity at home, it decided to focus on agriculture with a quick recovery curve and benefiting 65 percent of the people of Pakistan living in the countryside. It took account of the high prices of agricultural inputs after a steady removal of farm subsidies and raised the protection price of wheat, meaning it was ready to buy it at that rate. It raised it above the going international price to prevent smuggling. It didn’t want to spend another $2.2 billion importing 4.3 million tons of expensive wheat while its own cheap wheat was being smuggled abroad. Then the weather lent a hand: during 2008, Punjab had its rare alternation of sun and rain suited to wheat crops.
When the giant crop was announced, Punjab took on the onus. Chief Minister Shehbaz Sharif announced he would buy every grain of wheat. However, he soon ran out of storage, ran out of capacity to handle the tractor trolleys in front of collection points, and, above all, ran out of money. Already under notice from the State Bank of Pakistan for a big overdraft, he went to the banks and borrowed Rs 150 billion to buy the mammoth crop as it rolled in.
Meanwhile, collection is marred by malpractices. Gunny sacks, or strangely named “bardana”, have disappeared and the middle man who has got his hands on them from the government stocks can pick up the crop at a premium and bring it to the collection spots, thus cutting the farmer out. The TV channels have shown the spectacle and brought the fiasco to the notice of the chief minister, who is ironically paying Rs 30 crore per month as subsidy for “cheap chapatti” in a province that has a wheat glut! And there is wheat famine in the battle zone in Swat!
The bumper crop cannot be sold abroad except after a huge subsidy to exporters. It cannot be stored because the country’s storage capacity is low. (It already has stock carry-over to get rid of from last year’s imported wheat!) Because the farmers were not paid for their sugarcane crop, this year we will be faced with a shortage and sugar will have to be imported. And yet the artificially huge acreage under wheat will have to be cut down to spare for other crops simply because we have enough wheat for two years even if we do nothing.
Punjab, the bread market, is in trouble because of too much bread. And Sindh is blocking movement of wheat into Sindh because it wants to sell its provincial stocks while the prices are still unaffected by the Punjab surplus. *
Source
Sunday, May 24, 2009
A TV discussion on Friday, featuring Punjab’s agriculture minister, centred on the bumper crop of wheat in the country and what the main producer, Punjab, was doing to reduce the economic damage that may come from over-production. The country normally needs 2.5 million tons to meet its national demand for wheat; it may have produced over 6 million tons this year, enough to feed three countries the size of Pakistan. The federal government says it is already paying a billion rupees a week to the private sector for storing the wheat it has bought off the farmers. Punjab, the main producer, is struggling with purchase.
The situation is so bafflingly unprecedented that it is unwise to level criticism. The area now called Pakistan had never produced more than 2.5 million tons of wheat. It has now three times that amount, a bonanza caused by a number of factors, the foremost among them being the price fixed by the government for the budget 2008-09. A high price of Rs 950 per 40 kg was fixed also to preclude a number of negative factors that had damaged the economy in 2007-08.
In the last days of the PMLQ government, absence of a protection price led to a steep fall in the market price of wheat, which had caused wheat and flour to be smuggled out of the country, till the entire region of Central Asia was eating our bread — while the PPP government had to face rioting citizens in its first year in power. Hoarders and smugglers prospered even as the county imported expensive wheat.
The PPP in its Budget 2008-09 was faced with a shrinking of the economy. Accepting up to 50 percent contraction in the industrial sector owing to global recession and lack of electricity at home, it decided to focus on agriculture with a quick recovery curve and benefiting 65 percent of the people of Pakistan living in the countryside. It took account of the high prices of agricultural inputs after a steady removal of farm subsidies and raised the protection price of wheat, meaning it was ready to buy it at that rate. It raised it above the going international price to prevent smuggling. It didn’t want to spend another $2.2 billion importing 4.3 million tons of expensive wheat while its own cheap wheat was being smuggled abroad. Then the weather lent a hand: during 2008, Punjab had its rare alternation of sun and rain suited to wheat crops.
When the giant crop was announced, Punjab took on the onus. Chief Minister Shehbaz Sharif announced he would buy every grain of wheat. However, he soon ran out of storage, ran out of capacity to handle the tractor trolleys in front of collection points, and, above all, ran out of money. Already under notice from the State Bank of Pakistan for a big overdraft, he went to the banks and borrowed Rs 150 billion to buy the mammoth crop as it rolled in.
Meanwhile, collection is marred by malpractices. Gunny sacks, or strangely named “bardana”, have disappeared and the middle man who has got his hands on them from the government stocks can pick up the crop at a premium and bring it to the collection spots, thus cutting the farmer out. The TV channels have shown the spectacle and brought the fiasco to the notice of the chief minister, who is ironically paying Rs 30 crore per month as subsidy for “cheap chapatti” in a province that has a wheat glut! And there is wheat famine in the battle zone in Swat!
The bumper crop cannot be sold abroad except after a huge subsidy to exporters. It cannot be stored because the country’s storage capacity is low. (It already has stock carry-over to get rid of from last year’s imported wheat!) Because the farmers were not paid for their sugarcane crop, this year we will be faced with a shortage and sugar will have to be imported. And yet the artificially huge acreage under wheat will have to be cut down to spare for other crops simply because we have enough wheat for two years even if we do nothing.
Punjab, the bread market, is in trouble because of too much bread. And Sindh is blocking movement of wheat into Sindh because it wants to sell its provincial stocks while the prices are still unaffected by the Punjab surplus. *
Source
Labels: Economy, Governance, Wheat Export
posted @ 10:20 AM,
,
Wheat export barred
Thursday, May 21, 2009
Editorial, Dawn, Pakistan
Thursday, 21 May, 2009
IN a positive move, the Economic Coordination Committee has rejected the food ministry’s request to allow the export of wheat. For its part, the food ministry has argued that initial surveys have indicated a bumper wheat crop this year and that given the lack of storage facilities in the country it makes sense to export the surplus and earn some foreign exchange rather than see a part of the crop go to waste. There is also the suspicion that in a year when the GDP growth rate is expected to barely cross two per cent and with the next budget around the corner, the possibility of wheat export could bump up preliminary GDP estimates. If farmers fear that there is a significant wheat surplus, they may rush their crop to the market earlier than usual and thus allow the government to claim a higher crop estimate and hence higher GDP growth at the time of the budget.
Thankfully though the ECC has resisted the food ministry’s demand. Past experience suggests that the decision to allow the export of wheat on the basis of estimates has proved disastrous for the country’s food security. There are two problems here. The first is the estimate of how much wheat is needed for domestic consumption. Placed at between 22 and 24 million tonnes, the measure does not take into account wheat smuggling out of Pakistan. Depending on the price of wheat elsewhere, relatively cheaper Pakistani wheat is smuggled across the porous border with Afghanistan and Iran and even to Central Asia and Dubai. Since the practice has proved difficult to stop, the estimate of how much wheat is needed domestically must incorporate the smuggling factor. The second problem is the estimate of wheat output: history suggests it is more an art than a science. This year the signs are all positive and a bumper crop is expected — upwards of 24 million tonnes versus last year’s dismal 21.8 million tonnes — but they are still only estimates. So to allow the export of wheat on the basis of estimates that historically have pegged local requirements at lower than actual and production at higher than actual would be irresponsible.
Besides, it is necessary to point out who will be the only guaranteed winners if wheat exports were allowed at this point in time: the small group of wheat exporters. The government may benefit in the short run from an unexpected inflow of foreign revenue, but it would do so at the risk of having to import wheat later, and possibly at a higher price, if the estimates do not pan out. And with food inflation still hovering near historic highs, consumers could face the double whammy of having good quality local wheat sent abroad now and then later having to buy lower quality imported wheat at a higher price.
Source
Thursday, 21 May, 2009
IN a positive move, the Economic Coordination Committee has rejected the food ministry’s request to allow the export of wheat. For its part, the food ministry has argued that initial surveys have indicated a bumper wheat crop this year and that given the lack of storage facilities in the country it makes sense to export the surplus and earn some foreign exchange rather than see a part of the crop go to waste. There is also the suspicion that in a year when the GDP growth rate is expected to barely cross two per cent and with the next budget around the corner, the possibility of wheat export could bump up preliminary GDP estimates. If farmers fear that there is a significant wheat surplus, they may rush their crop to the market earlier than usual and thus allow the government to claim a higher crop estimate and hence higher GDP growth at the time of the budget.
Thankfully though the ECC has resisted the food ministry’s demand. Past experience suggests that the decision to allow the export of wheat on the basis of estimates has proved disastrous for the country’s food security. There are two problems here. The first is the estimate of how much wheat is needed for domestic consumption. Placed at between 22 and 24 million tonnes, the measure does not take into account wheat smuggling out of Pakistan. Depending on the price of wheat elsewhere, relatively cheaper Pakistani wheat is smuggled across the porous border with Afghanistan and Iran and even to Central Asia and Dubai. Since the practice has proved difficult to stop, the estimate of how much wheat is needed domestically must incorporate the smuggling factor. The second problem is the estimate of wheat output: history suggests it is more an art than a science. This year the signs are all positive and a bumper crop is expected — upwards of 24 million tonnes versus last year’s dismal 21.8 million tonnes — but they are still only estimates. So to allow the export of wheat on the basis of estimates that historically have pegged local requirements at lower than actual and production at higher than actual would be irresponsible.
Besides, it is necessary to point out who will be the only guaranteed winners if wheat exports were allowed at this point in time: the small group of wheat exporters. The government may benefit in the short run from an unexpected inflow of foreign revenue, but it would do so at the risk of having to import wheat later, and possibly at a higher price, if the estimates do not pan out. And with food inflation still hovering near historic highs, consumers could face the double whammy of having good quality local wheat sent abroad now and then later having to buy lower quality imported wheat at a higher price.
Source
Labels: Economy, Wheat Export
posted @ 11:33 AM,
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