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Pakistan is the 7th largest wheat producer in the world but, with respect to yield the country stands at 37th rank. Instead of releasing 123 varieties of wheat within last two decades, the growth of increase yield is only 1.1 percent per annum.

Since last two decades, wheat yield is hovering between 2.3 tons/ha to 3 tons/ha. Despite all the research efforts, the wheat production is not increasing at the required rate meet the local demand.

The same is expected to happen this year, raising a serious question mark on the efficiency of Pakistan’s agriculture R&D sector and extension department. It might be because of resource constraint because Pakistan is spending less than 1 percent of GDP on R&D.

According to the initial findings of the digital population census, we are now a nation of 245 million people. Keeping in view 125 kgs of wheat per person per year as a standard requirement, we need 31.19 million tons of wheat roughly to fulfil the dietary requirements of our current population.

This year’s wheat production is about 27.5 million tons and there is about 1 million tons carry-over stock, implying that there will be a gap of about 3.4 million tons. Hence, even after the claim of a bumper crop, the doors for wheat import are not closed yet.

To offset the high inflationary effect on the cost of production, government sets the wheat support price at PKR 4,000 per 40 kgs (i.e. PKR 100 per kg), which is almost 81.8 percent higher compared to 2021-2022 wheat support price (PKR 2200 per 40 kgs).

The government announces support price after the plantation of wheat crop, hence fixation of high support price fails to attract the additional area under wheat cultivation.

The price of wheat in the international market has gone down by 23 percent since the start of the year due to the Black Sea grain deal between Russia and Ukraine and a bumper wheat crop in Australia. The current wheat price in the international market is around PKR 65/kg.

This leads to assert that this year the produce will remain within the borders of the country; firstly, because Afghanistan will prefer to purchase wheat from Kazakhstan (the net wheat exporter in Central Asia) at international prices which are lower than wheat support prices in Pakistan.

Secondly, it is less likely that the grain can be exported to other countries when international prices are lower than the local prices. But the government still has a big footprint in the wheat market.

To ensure uninterrupted wheat supply throughout the year, Punjab and Sindh being highly populated provinces have approved 3.50 MMT and 1.40 MMT with a cash credit limit (CCL) of Rs 950 billion and Rs 214 billion, respectively, from the State Bank of Pakistan to purchase wheat from farmers so that Pakistan Agricultural Storage & Services Corporation Limited (PASSCO) can play pivotal role to maintain the low wheat prices in the country.

Although, recent past years’ experience clearly demonstrates that PASSCO failed to maintain the low wheat prices in the country.

Private sector is offering higher prices to the farmer (PKR 5000 per mound) than PASSCO and therefore, it is likely to happen that PASSCO will fail to achieve the targets of wheat procurement. It is announced by government that wheat hoarding by farmers and private sector will be dealt with strictly. This is restricting the role of private sector in the wheat marketing system.

To tackle the wheat shortage, the Sindh government has announced slightly higher wheat prices than Punjab, which is close to the prices that private sector offers to the farmers in Punjab. Hence, as precautionary measures, the Punjab government has sealed its borders for any kind of export, i.e., both national and international.

PASSCO exists as a major player in the wheat supply to the flour mills, discouraging the private sector to engage in wheat marketing.

As a monopolist, PASSCO provides wheat to flour mills at a predetermined price, but flour mills coordinate with the retailers and exploit consumers to earn extra profit. Wheat prices in Pakistan have increased by more than 33% over worldwide rates as a result of Pakistan’s ineffective marketing system, which is a blatant example of a failed marketing plan.

If the major share of marketable surplus of wheat will be in the hands of private sector, then different suppliers in the private sector will compete with each other and will supply wheat to the flour mills at the compatible market price. Under this competing market situation, the consumer prices might not be less than under the situation when PASSCO is the primary supplier of wheat to the flour mills.

Private sector can be given a set price range and government can declare that wheat import will be allowed, for instance, if prices increased more than 30 percent from the international market to limit the profit of private sector.

By doing this, the government can save a huge amount of Rs 200 billion per annum in terms of loan paid to the banks on borrowed money by PASSCO, the cost of wheat loss taking place during the storage, and salaries of administrative staff of PASSCO. If we use the opportunity cost of infrastructure (buildings, etc.) under PASSCO, then this cost will be significantly higher. If the above said cost is diverted towards R & D in a targeted manner on a sustainable basis, there will be a meaningful reduction in prices for consumers in the long run.

(The writers are respectively, Chief of Research and Research Fellow at Pakistan Institute of Development Economics (PIDE))

Copyright Business Recorder, 2023

Comments

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Abba ji Jun 28, 2023 08:11am
Is this something new? Everyone knows pakistan is full of inefficiencies.
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Noman Raza Jun 28, 2023 11:41am
will private sector import wheat?
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KU Jun 28, 2023 11:56am
If anyone was to ask what is wrong with our agriculture? The answer would be, everything and anything associated with agriculture is wrong and wanting. Our average yield for wheat and rice is 2.5 tons and 2 tons per hectare and is the lowest among wheat and rice-producing countries, while other countries have increased it to 3.5 tons and 3 tons per hectare. How will the leaders handle threats to food security, best guess is that they have no clue. The many reasons for these criminal acts are taxing the import of new technology, ridiculous credit terms, waste of water availability and non-availability of irrigation technology, subsidies that don’t reach the farmer, high cost of solar energy, and the persistent menace of the middle man who discourages farmers from putting any effort in production, while climate change is proving to be doom scenario and we are caught unprepared because of our false past performances on papers and reports.
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Tulukan Mairandi Jun 28, 2023 04:21pm
Pakistan is basically a sick, stunted nation
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KU Jun 28, 2023 07:08pm
@Tulukan Mairandi, you are still avoiding the head doctor.
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Azeem Hakro Jun 28, 2023 09:24pm
Pakistan can increase wheat productivity by improving irrigation practices, using better quality seeds, and applying more fertilizer. The government can also provide financial incentives to farmers to adopt these practices. The government can stabilize wheat prices by implementing a buffer stock scheme or by providing subsidies to farmers. This would help to protect farmers from volatile prices and ensure that consumers have access to affordable wheat. The government can improve wheat storage by building more modern storage facilities and providing training to farmers on how to store wheat properly. This would help to reduce losses of wheat due to spoilage and pests. The government can crack down on wheat smuggling by increasing border security and by working with neighboring countries to coordinate enforcement efforts. This would help to protect the domestic wheat market and ensure that wheat is available to Pakistani consumers at a fair price.
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