Needless wheat procurement

Its difficult figuring out Pakistans wheat economy. The dynamics keep changing and decisions have to be taken in accordance with fluctuating conditions. But who will explain that to the Ministry of Agriculture that has been bent upon repeating the same old policy from last year?
The wheat procurement target for 2011 has been set at 6.5 million tons, lower than the target set for 2010. The support price stays the same at Rs950 per 40 kg.
The decision has been taken when the current market wheat prices at home are around Rs27 per kg, which is a tad higher than the support price, which comes to Rs23.75 per kg.
A study, conducted by Pakistan Institute of Development Economics (PIDE), based on wheat production during 1966-2001 shows that, in order to support the farmers community and encourage wheat production, procurement at support prices should begin only if the market price falls below the intervention price.
If the market price is greater, or near par with support prices (as is the case today), theres no obligation on the government to procure wheat at support prices as farmers can sell at an equivalent price in the market.
Sadly, however, if procurement agents feel the procurement target will not be met, they resort to coercion towards the same farmers the government is trying to facilitate, said the PIDE report titled "Wheat Production in Pakistan: Saga of Policy Disincentives".
Many, backing the government, also argue that allotting a support price encourages wheat production and thus prevents a shortage of the grain in the market.
But, the government already had excess stocks of wheat from last year, and the production target for this year has been estimated at 23 million tons - thus averting the likelihood of a wheat shortage.
Amongst all this, an even greater concern is the financing of this wheat procurement target, especially since the governments commodity financing stands over Rs350 billion.
Though export of wheat stocks from the previous year to retire a portion of commodity financing debts is not a totally futile exercise, the need to conduct this practice every year could have been avoided had the decision to procure wheat been taken more rationally this year.
"There wasn much need for the government to procure wheat. Besides, procurement will be very difficult financially unless the banks are paid back the previous commodity financing loans," said Dr. Ashfaque Khan, Director General & Dean NUST Business School.
Dr Khan also lamented that procurement is being supported by big farmer lobbies - backed by many government agents - and the benefit doesn really accrue to the poor, vulnerable farmers.
Given that international wheat prices are quite high in the wake of cold weather conditions in the US, and that wheat exports from Pakistan have been allowed, domestic market dynamics of the wheat industry appear quite sound.
The government shouldve taken heed of the current situation before making a procurement decision. Its about time market dynamics are allowed to take control as this will also benefit the farmers who can adjust the selling price as per running local and international prices.