The warning shots have been fired. Another wheat price spiral is already in the offing, and there may be very few ways to avoid it. The ongoing fertilizer shortage has solidified fears that the country may once again miss its wheat production target, and the administration can do preciously little now except to brace for impact.
Back in October 2021, the Federal Committee on Agriculture fixed national wheat production target at 28.9 million tons, 6 percent higher over last year’s provisional output assessment. Never mind that the official estimates for FY21 have been widely questioned, including in this space. (For more, read: Wheat output: overstated? published on 05 July 2021). Whatever the true position of wheat output in the preceding season, the crop didn’t face the kind of grievous risks as it does now during the ongoing season, which has put the target output all but beyond reach of the growers.
First, the area under crop cultivation during the last season already touched its maximal strength, achieved only thrice before in national history. Recall that maximum acreage last year had been achieved after a whopping 30 – 40 percent rise in minimum support price (varying prices set by provinces), before the global commodity spiral had fully sunk its teeth in the cost of inputs (wheat sowing across Pakistan is completed by mid-December). Preference for wheat among commercial growers definitely gained traction, reflected in lower area under cultivation for other competing Rabi crops such as gram, sunflower, rapeseed/mustard, canola, barley, rabi fodder, matar (peas), onion, masoor, among others.
The situation could not be more different this time around. Back in June 2021, the procurement price for wheat was 10 percent higher than in international markets (as tracked by Wheat US, SRW). In sharp contrast, rupee equivalent price for SRW contracts has already climbed up to Rs 2,500 per 40kg, against support price of Rs 1,950 set by Punjab for 2021-22, and Rs 2,200 by Sindh. Meanwhile, the shortfall in pulses production – especially gram – has carried forward into the following season, which means that incremental gains in wheat acreage is out of question for 2021-22.
Thus, even if the GoP miraculously manages to maintain sown area at last year’s level, that will do little to allay fears around cost of production and yield. According to Punjab Agriculture Department, the indicative cost of production for wheat has escalated by 28 percent over the preceding season! And the indicative cost estimate does not even account for the phenomenal rise in fertilizer prices witnessed over the past quarter. According to BR Research’s estimate, per acre cultivation may have escalated by as much as 45 percent by December end!
GoP could very well argue that the MSP adjustment during 2020-21 more than compensated farmers for future input cost escalation; and that at current market prices, growers shall not bear losses but merely a shrinking in abnormal return on investment witnessed last year. That may very well be, but with profit maximization no longer possible, commercial growers may well very aim for cost minimization by scaling back on investment in inputs, which will inadvertently damage official hopes for highest-ever-national yield of 3.15 kg per hectares.
And while it may be impossible to accurately forecast the impact of lower fertilizer application on national average yield, even if the yield is 5 percent lower than last year that would mean the output target of 28.9 million tons may be missed by at least 2.8 million tons – or 10 percent.
A wheat shortfall is in the offing. And nothing short of act of God may now help avoid it.
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