A ten times increase in import volume in a month. Surely, Pakistan’s wheat imports are now in full gear, as the country imported 0.4 million tons of it in September. Yet, monthly wheat imports are just 13 percent of the total shortfall in domestic supply. Is Pakistan importing wheat fast enough?
To answer that, let’s first analyse the corollary. Spreading out imports over a long stretch ensures that market is not suddenly flooded with imported commodity, throwing a spanner in the works for domestic producers and stockists.
That argument is spurious. Over the past 12 months, domestic retail prices of un-milled wheat have increased by a dangerous 72 percent (in rupee terms), and 62 percent in dollar terms. Meanwhile, international prices have remained largely stable, increasing by just 5 percent as global demand stagnated.
While the failure to control the crisis lays squarely on government’s mishandling, it may help to remember that there was little reason for this to turn into one. Domestic wheat production targets have been missed by similar margins before, without sending prices in such an endless spiral. Unlike recent past, wheat crop did not suffer any significant losses either for the commodity to become a victim to speculative trade.
With next crop still 6 months away, there is an urgent need for prices to stabilize, before rumours of PASSCO and provincial food departments running out of stocks sends domestic wheat trading on a mad run by December-January.
Signs of peak speculative interest are already here. Between mid-September and mid-October, domestic wheat price witnessed an increase of 11 percent, even as September saw landing of highest monthly import volume in recent memory. Imports were supposed to trigger a price signal, yet it appears the volume imported thus far is not large enough to have a desired effect.
Given the official estimate of 3 million tons shortfall in domestic supply, it is now clear that the country will witness many more wheat-laden ships docking on the port before import is restricted again. But the timing matters. Here’s why.
In order to maintain pro-agriculture pretences, the government will have to ban imports come harvest season next March-May, to ensure that farmers get good rates for their produce. Purely a political play, there are slim chances of any government behaving differently. At best, that leaves a 5-month window to import remainder shortfall of 2.6 million tons.
And it may already be too late. Imports make the farming community nervous, as it raises fears of domestic prices collapsing in the face of cheaper imports coupled with a domestic bumper crop. That risks adversely impacting investment in expensive inputs during the sowing season, which may hold back yields, leaving everyone worse off.
Meanwhile, the government is already caught between the devil and the deep blue sea. While official quarters are deliberating an increase in the procurement rate for next season to compensate growers for the fifty percent differential between the support and wholesale prices, it risks having another knock-on effect on prices down the supply chain.
On one hand, in order for MSP to incentivize production in next season, it must be increased early on in the sowing season so growers may invest in inputs to achieve better yield. On the other hand, given 85 percent of slated imports are still awaited, an early announcement of increase in MSP may cancel out whatever impact cheap imports could have in bringing down domestic prices.
That more imports aren’t already here should raise red flags in Islamabad. News of G2G negotiations with Russia hitting an impasse is not helping, especially when the risk of changing weather patterns hurting next season’s crop prospects cannot be ruled out.
Getting tough on price control implementation and subsidizing flour for poor can only work if government has sufficient stocks, a questionable assumption if imports are not made soon enough. Pakistan faces a tough winter ahead. This may very well be the last opportunity to reign in prices by expediting import. Let’s not bungle it up.
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