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Over the past 8 weeks, secondary market prices of wheat have been consistently declining across the country – putting an end to the commodity crisis that began exactly 18 months ago. The credit for such sharp reversal in commodity prices is being correctly placed at government’s – albeit much delayed – decision to allow private sector import. But has Pakistan already imported enough wheat?

According to Pakistan Bureau of Statistics’ monthly foreign trade report card, up to 1.6 million tons of imported wheat docked on ports between August and November 2020. This is nearly half of the import quota of 3 million tons ratified by the federal cabinet in July 2020. Bulk of the imported wheat – nearly three-fourths – landed between October and November, reaching the domestic wholesale and retail market only during the past eight weeks.

Thus, that the imported wheat has helped allay fears of shortfall in domestic market, yielding results in the form of sharp price reversal witnessed during the past month is well-established. However, missing from the discussion is another complementing measure that has helped stabilize future domestic price outlook: ECC’s firm position on not allowing an abnormal increase in support price level of wheat, beyond already notified rate of Rs 1,600 per 40kg.

What is the full story? Back in October, the landing of first major imported wheat consignments coincided with demand by farming lobby to set government procurement rate for the upcoming season at parity with landed cost of imported wheat. While the price was indeed increased from Rs 1,400 to Rs, 1,600 per maund, the government resisted attempts by its own allies to goad it into increasing price to Rs 2,000 kg.

Had the government yielded under political pressure, price floor would have been set equivalent to $300 - $310 per ton, helping farm incomes at the expense of consumer welfare. Instead, support price was set at dollar equivalent of $250 per ton; close enough to the average unit price of imported wheat between Aug – Nov of $260 per ton.

Enter global commodity price trends. Over the past 6 months, international commodity prices are on an upsurge after collapsing around Mar – Apr due to worldwide pandemic led lockdown. Price of US Wheat SRW index alone has increased by nearly one-fourths since June-20, indicating that unit prices of incremental wheat import in upcoming months shall be higher than cost of import thus far.

As if taking cue, farming community has renewed calls for increasing wheat support price to Rs 1,800 per 40kg, which will only gain momentum as harvest season approaches in the next quarter. If the federal government yields to vested interests, wheat prices in domestic market will almost certainly increase, wasting gains made in the past 8 weeks. On the other hand, higher unit prices of imported wheat compared to purchase price paid to domestic farmers makes for a poor public policy argument.

It appears that the PTI government may soon be caught between the devil and the deep blue sea all over again. And going by its track record over the past 30 months, the incumbent regime does not boast of a good history of performing well under pressure. Is there a way out?

Clearly, there are no easy choices. Shortfall in domestic supply means that reintroducing controls on import will be a bad idea. On the other hand, the slated import quantum is not large enough to effect domestic prices come harvest season, even if international prices witness a reversal.

Given the catch-22 situation, the administration may feel a strong urge to take ‘corrective’ measures. Any temptation to increase procurement quotas through food departments will backfire, as growers will abhor use of force to sell their produce to government agencies at the ‘perceived’ low base rate when they can sell the same in aftermarket to private sector wholesalers at a higher rate.

Instead, the best strategy at this time may be to just wait and see which direction international prices may take in the following months. Meanwhile, if the government really means well so far as farmers’ welfare is concerned, it should reduce its procurement target in the upcoming harvest season. If secondary market trading indeed sets fair value of the commodity closer to Rs 2,000 per 40kg, let the farmers earn those gains through private sector trading, instead of paying them out of public kitty. In the interim, imports must continue unabated.

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