Wheat Export: window of opportunity
The bumper wheat crop has until now resulted in a bumpy ride at home. Local consumers faced price up to 20 percent higher than the international prices.
Just when every bit of news seems negative for the country, there is a window of opportunity that Pakistan can benefit from.
Wheat prices in international markets have surged in recent weeks. Owing primarily to a severe drought n Russia and the former Soviet Union countries, wheat prices have increased nearly 50 percent since late June.
Hitting a 22 month high, wheat was trading at nearly $215 per ton on Wednesday. Drought stricken Russia is the fourth largest exporter of wheat in the world and its production has declined by nearly 25 percent.
"We are very curious to see how this rally will play out, but are not holding our breath for significantly higher wheat prices in Q3 given that the winter and spring plantings, by all reports, are faring quite well" said Roubini Global Economics, an economic think tank led by the famed Nouriel Roubini.
Wheat production in Pakistan was recorded at 23.5 million tons in the March harvest. Historically wheat consumption in the country has hovered around 18 to 20 million tons for the year.
When wheat was procured from farmers, price was set at Rs950 per maund. Add to that the carrying cost of storage, interest payments and transportation costs, thats another 20 percent.
At the time, the price in Pakistan was non-competitive in the international market but with the recent spike, wheat held up in make shift storage is ripe to be exported.
Though international prices, currently around Rs850 per maund, are still below the support price in Pakistan, actual trading in the local market is nearly tracking international markets. And prices in international markets are unlikely to increase any further.
So in order to unclog the liquidity stuck in commodity operations and to lower the burden of carrying cost on the already stressed fiscal position, it is high time to export some of the excess wheat stock in the country.
Inadequate storage capacity has resulted in stocks on wheat to be stored under makeshift arrangements that run the risks of being destroyed under rain. "Some of the wheat stored in Punjab has already been destroyed due to rains and flooding" said one wheat trader based in Karachi.
Informed sources reveal that government procurement agencies hold up to 11 million tons of wheat at the moment. After accounting for strategic stockpiles, almost 2~4 million tons may be allowed for export without risk to national food security.
Buyers in the international market look for early delivery times and continuous supply as key metrics for awarding purchase contracts.
And given the inefficiency of state run procurement and trading companies, a better solution to meet the short time line would be to allow private traders to buy stocks from the government and sell directly to international markets.
If at all Pakistan is to benefit from the current high prices, Ministry of Food and Agriculture would have to first move a summary in the Economic Coordination Committee for the sale of wheat stocks.
Hopefully, folks in Islamabad will not let this opportunity pass by.