Cash-strapped wheat procurement

By Ahmad Fraz Khan



THE wheat procurement drive in Punjab, which starts from tomorrow, is apparently a shaky affair, generating more fears than hopes among farmers.
The farmers’ fears are not unfounded: they mainly stem from the poor financial health of the Punjab government. Short of money, the Punjab government is devising ways to slow down the procurement process as much as it can, by making it tedious and time consuming.

Farmers fear that the ‘go slow’ policy would lead to price crash. In fact, the speculative pressure created by the provincial financial crunch has already led to a price crash of a sort in southern Punjab, where wheat crop is selling as low as Rs800 per 40kg – a difference of Rs150 per 40kg. If this go-slow policy engulfs the rest of the province, the farmers are in for trouble….and so would be the provincial government.

Banks have refused to renew loans without clearance of previous departmental credits. The Punjab Food Department is carrying a staggering Rs96 billion loans from last year because it could not clear its huge stocks. The extravagant provincial subsidy regime also played its part and the provincial food department is currently stuck with Rs96 billion credit and a carry over of around three million tons of wheat.

It needs another Rs119 billion for achieving the target of five million tons. The banks are not ready to throw good money after the bad one, and refusing fresh loans. Though the food department is putting a brave face and claiming to have “arranged Rs81 billion from small and major banks,” they are by no means a certainty. Even if the departmental claim is accepted sake, it still leaves a gap of Rs38 billion. Where will this money come from?

Even the estimate of Rs81 billion are grossly optimistic: they include Rs60 billion payments, or equivalent bank guarantee, from the federal government. The federal government had asked the provincial government to keep ‘strategic reserve’ of 2.5 million tons, and the federal government would pay for it.

Since last year, transfer of these Rs60 billion has been a problem for both, due to federal financial crunch. The federal government has now been offering to shift provincial loans to its accounts, but the banks have refused to oblige. They say that they need money, not shifting of loans. It hardly matters who is to pay, unless the actual payment is made. The provincial claims of Rs81 billion credit includes federal money or transfer of Rs60 billion. How far credible it is, no one knows! Also, the provincial procurement planning does not generate much of confidence among farmers and the market. To begin with, schedule for disbursing for gunny bags has been issued: 50 per cent bags would be distributed in the first fortnight, 30 per cent in the next and 20 per cent in the last 15 days. It gives the impression of winding up the entire campaign in six to seven weeks.

The release of gunny bags would also start after formal launching of the procurement drive, and it means delaying the actual procurement by another week or so. The supply of gunny bags has also been linked to passbook from the revenue department – a process that can take four to seven days if the past practice is something to go by.

The delivery has also been restricted to eight bags per acre, with a maximum limit of 200 bags. The bags would also carry a code number, which in practice would mean slapping inter provincial and inter district ban on movement of wheat. The procurement staff has been told to work for eight hours. Keeping in mind the standards of punctuality of the food staff, the staff availability might not be for more than four to six hours.

All these delaying tactics, along with financial crunch and its extent, are not lost on traders or farmers. They fear that they would suffer a price crash.

The millers and the traders must be getting ready to make windfall. The food department has been trying to get millers’ godowns for storing wheat. The proposals could have helped them earn a fortune in shape of transportation, loading, unloading and incidental charges. But only a few millers agreed to rent their godowns. It means they are expecting bigger price crash and make greater profits than the official offer.

The Punjab government knew since the day last pro curement ended that stocks are much bigger than its requirements. But it failed to export them, suffered huge incidental charges on them and a massive mark up – Rs1.2 billion per month to be exact.

Its financial crisis increased when it converted subsidy regime from cash to kind. Instead of cash like previous year, it started issuing wheat for sasti roti (low-priced bread) and Ramazan package. Over Rs15 billion on both these accounts were thus passed on to the food department, increasing its fiscal deficit.

Currently, the Punjab government owes over Rs31 billion to the department but is trying to deflect the attention to promised federal payments. It is certainly bad economics and bad management.