Wheat procurement drive: The yearly ritual

Just as the Rabi season approaches its end, the state machinery is gearing up for wheat procurement, an exercise undertaken every year for the past many decades in the name of food security, price stabilisation and grower-protection. The wheat harvest will soon hit the market and it is expected that Passco and the provincial food departments would start securing supplies from the second week of April. Though the procurement targets are yet to be announced, Passco is making arrangements to buy 1.5 million tons in 20 tehsils across Pakistan. Punjab Food Department, the largest procurer, may procure around 3.5 million tons. Unlike the provincial governments who have a mechanism of steady stock releases to the flour mills, Passco is caught in a logjam. It has to procure fresh supplies even as it is hard-pressed to get rid of prior years stocks in order to free up its financial and storage capacities. Passco is currently holding 1.75 million tons of wheat, which includes 0.45 million tons from MY10 crop and 1.27 million tons from MY11 crop. The reason federal grain agency could not dispose of the older, MY10 surplus stocks last year is said to be infeasible exports resulting from an unfavourable price differential. Reportedly, the federal government had to book a loss of nearly three billion rupees due to this. Current scenario is no less troubling. Wheat exports are going to remain a distant dream as the pricier, fresh local wheat will further expand the price gap with international wheat which is expected to be in abundant supply. The anticipated one million ton wheat shipment to Iran under a barter arrangement might offer some respite. But Iran is, reportedly, insistent on buying from the fresh wheat arrivals. Since procurement is mostly financed with borrowed funds on premium markups, the government has had to incur huge financial charges on disposable surplus stocks, in addition to the storage and surveillance costs. Keeping aside the strategic reserves and other requirements, holding on to one million surplus tons of wheat is reportedly costing the exchequer nearly five billion rupees per annum. While the fresh wheat is just around the corner, Passco has covered storage of only 0.43 million tons, all taken up by previous stocks. The older stocks - which are at risk of losing their nutritional value and should have been released much earlier - are now being offloaded in a hurry, so much so that the Ministry of Finance is okay to swallow a whopping loss of six rupees per kg. There seems no other way! Besides the states constrained capacity to procure every year, the whole process is infested with lacunae. It starts right from the distribution of gunny bags, which are a ticket for payment of full support price, from the official procurement centres. All these years, small farmers have been agitating against the malpractices of officials and middlemen who sell these bags in the black market. Wheat is a season-specific commodity, which means that most of the produce arrives in the market in a matter of weeks, which can affect the prices even as small growers cannot store for long. Hence, the concept of support price hinges on protecting the crop investment and well-being of small growers by offering a government-guaranteed price in case of dampened market prices. But a massive procurement drive effectively distorts the market. Not reaching out to the 80 percent small growers and banning the inter-district movement actually wreak havoc in the wheat market every year, to the detriment of the intended beneficiaries. It is no wonder then that support price becomes suppressed price!