Raising the wheat support price

Better late than never! The federal government finally decided to raise the support price for wheat by Rs.100 per maund for the crop marketing year 2011-12. The official price now stands at Rs.1,050 per maund, at which the Pakistan Agricultural Storage and Services Corporation (Passco) would procure wheat next year. It appears that some breather is in order for the forlorn growers, though some farmer organisations have dubbed this decision as too little, too late. Ex-federal wheat commissioner and wheat grower, Dr. Qadir Bux Baloch, told BR Research, "its a positive step; farmers are showing some activity now. The decision to import one million tons of urea for the Rabi crop has also stabilised urea prices to some extent." However, whether this upward price revision would compensate for the recent surge in cost of farming inputs remains to be seen. The Agricultural Policy Institute (API), which advises the government on agricultural production and pricing, carries out a yearly survey among 1,000 growers in Punjab and Sindh to update the costs of wheat. An API official apprised BR Research about the methodology of the survey in detail. "Cash and non-cash costs for each step in the cultivation process-land preparation, sowing, application of fertiliser, irrigation, harvesting and thrashing-are determined. Besides this, the survey includes capital costs, like land rent and opportunity cost of funds invested in cash inputs. Then, crop marketing cost is added to cultivation and capital costs and an average cost of production (per maund) is determined." API conducted its latest survey in July this year, in which wheats MY12 cost of production is assessed at Rs.1,032 per maund for Punjab, and Rs.1,040 per maund for Sindh. This implies that the support price of Rs.1,050 per maund barely covers the growers costs. Moreover, costs estimates are based on MY11 wheat season, and urea and dap prices have been increased considerably since July. Dr. Zubair Khan, an IMF-veteran, ex-Commerce Minister, and a wheat grower himself, highlighted this issue in a recent conversation with BR Research: "Unfortunately, people think wheat grows in the wild. Its a difficult crop; it needs multiple ploughs and pricey inputs. Ploughing, sowing, irrigating and thrashing, all require the ever-expensive diesel. Per acre cost of inputs, alone, is now hovering above Rs.20,000." As for the exports, if local wheat trades at or above the official support price in CY12, the countrys wheat exports are likely to lose on price competitiveness. International wheat prices have been down lately, owing to healthy carryover stocks and expectations of bumper harvest for MY12. Besides, the Russian and Ukrainian wheat, trading below $250 per ton, have captured the regional market. "In this scenario, Pakistani wheat exports, currently priced above $300 per ton, would become even pricier should the domestic prices go higher next year," predicted a wheat trader. In such scenario, there is little small growers can do to cheer themselves up, especially when government is not addressing the lacunae and corruption in the yearly procurement ritual. Though support prices are fixed in the name of small growers; in reality, growers are forced to sell their produce to the government. Authorities need to intervene only when the market prices fall below official support price. Dr. Zubair believes that support price is a misnomer for this anti-farmer behavior: "I think it should be called suppressed price. By putting restrictions on wheats movement, authorities suppress the prices, pressurise the growers, procure their targets and later on, sell it to the flour mills themselves."