Managing timely export

By Aftab Ahmad



PAKISTAN has become self-sufficient in wheat and is able to export two million tons of the commodity. But the decision to export from the existing stock has come at a time when firm estimates about the size of current crop is yet to be available and the official procurement drive to gain momentum. It does not seem to be appropriate.
Some analysts fear that wheat crop might be lower than its target of 25 million tons and the last crop of 23.5 million tons, due to drought and shortage of irrigation water. Others have shown optimism lately, saying that the wheat crop is going to be a bumper one and may be close to 23-24 million tons.

The government of Punjab has raised its procurement target from four million to five million tons. However, according to some press reports, farmers in Sindh are not satisfied with the procurement arrangements and they are selling their produce to private parties against cash payments, even at a price lower than the procurement price of Rs950 per 40 kg.

Following the government decision to export two million tons of wheat, buying by the private sector may pick up in coming weeks, possibly making it difficult for the government to achieve its procurement target.

If the government’s procurement target is not achieved and the private sector purchases bulk of the crop, artificial shortage of wheat accompanied by an increase in wheat/wheat flour prices may occur.

The latest government decision to export wheat brings to the mind a similar decision taken a few years ago. The decision, at that time, was also taken in anticipation of bumper wheat crop. However, when final estimates were received, the crop turned out to be of a considerably smaller size. Accordingly, speculative elements were able to take full advantage of the situation. They created artificial shortage of wheat/wheat flour in the open market and sold their stocks at prohibitive prices.

As per the government’s decision, wheat was exported at a time when the international wheat prices were at a lower level. Later, when the government had to import wheat the same year to meet the shortfall, it had to pay considerably higher price for the imported wheat, since the international wheat prices had risen by that time.

While announcing the decision, the prime minister had observed that the decision would benefit the farmers.What the PM had actually meant was that because of the export demand for two million tons, prices of wheat would not witness decline and wheat growers would continue to receive a good price for their produce.

It was to achieve the same objective, when the government of Punjab lately decided to raise its procurement target from four to five million tons. It is, no doubt a step in the right direction to protect the interest of growers, so that they may be able to focus on maximization of production.

However, at the same time, it is the duty of the government to safeguard the interest of the consumers also. It should, therefore, be ensured that export of wheat does not result in shortage and higher prices of wheat/wheat flour. The physical exports of wheat should not be allowed until the procurement target has been fully achieved. By that time, a clearer picture would also emerge about the size of the wheat crop and the government would be in a better position to consider as to how its export decision could best be implemented.

Over the last one year between April 2009 and April 2010, availability of wheat/wheat flour had remained satisfactory and the price of wheat flour also remained stable in the open market. This was because the government had procured a higher quantity of wheat and, at the same time, it did not allow any export of the commodity during the year. Besides, upward revision of the procurement price of wheat from Rs625 per 40 kg to Rs950 per 40 kg also helped in checking the smuggling of wheat across the borders.Thus, the item remained freely available in open market throughout the year, although at a higher price.

The international wheat prices currently stand at a considerably lower level. According to online reports, US and EU wheat prices stand at $197 and $169 per ton, respectively, while top-grade wheat could attract a price of $225 a ton. These prices, when converted into local currency at the exchange rate of Rs85 to a dollar, work out to Rs14 to Rs19 per kg. On the other hand, the local wheat procurement price stands at Rs950 per 40 kg or Rs24 per kg. It may, therefore, not be possible to export wheat at current prices, after buying wheat from the local market at Rs24 per kg and adding mark-up and transportation charges to the cost.

But, world commodity prices have always been subject to fluctuations. According to online reports, lower wheat prices at the moment are attributable to higher global production/expected production from the 2009-10 wheat crop. Global wheat stocks are, also, expected to hit their highest level since the 1980’s. However, these lower prices are likely to prove a disincentive for the wheat growers at the time of sowing wheat crop, which could result in lower production from the 2010-11 wheat crop. Thus, there is a possibility that the international wheat prices could witness a rising trend once again in 2010-11, after remaining at a lower level in 2009-10.

For a country like Pakistan – having meager internal and external resources and a higher poverty level – it is always advisable to attach the highest priority to food security. The government should avoid all such policies and actions that could have an adverse effect on the availability and stability of food item prices.