Wheat storage cap: no semblance of sanity

A circular from Punjab’s district management is drawing severe flak on social media. The notification imposes an upper cap of 25 maunds (1 ton) on private wheat storage for personal/marketing purposes. The action follows a high-level meeting on May 05^th between civil and military authorities in the province to discuss progress of wheat procurement, and road map for achieving set target. Is the criticism warranted?

Some context, first. Long before the onset of Covid-19, Pakistan set itself an ambitious target for wheat procurement of 8.25million tons. The memory of flour price debacle during Jun-Dec last year lay heavy on the government. Ever since, authorities have strived to make all the right moves to ensure adequate domestic supply: an increase in support price by hundred rupees to Rs1400/40kg; allowing duty free import; ban on use by feed mills; and coming down hard on purported smuggling.

Now that harvest season has come to an end, it appears that procurement target appears nowhere in sight. Several – perfectly legal – forces appear to be at play. Historically, the government procured 6 million tons on average, which is less than a quarter of national output. At 8.25million tons, the target is already over one-third of domestic production and may be unrealistically high. Critics cite Pakistan’s high on-farm consumption (USDA-FAS estimates at least 60 percent of total) as reason why private stocking cap spells disaster for rural economy.

According to Ministry of Food Security & Research, per capita monthly consumption of wheat in rural households stands at 7.8kg (or 93.5kg per annum). An average rural household of 6.5 members may have to save at least 600kg (or 15 maunds) for kitchen use. But that is not all.

One, according to USDA, almost 1.2 million tons goes toward on-farm feed use. Two, growers save at least 1 maund per acre for next season plantation. According to Agriculture Census, 2010, average wheat farm size in the country is 4.1 acres, an average grower must save at least 160kg (4 maunds) for next season sowing alone.

Considering the crop is cultivated over 22.8million acres (or 9.2million ha) all over the country, seed-saving alone may take up an additional 1million tons of national output. Put together, on-farm non-traded volume appears to much lower than the cap. Moreover, average yield of 30 maunds per acre leaves sufficient stock for growers to market at a profit.

Furthermore, using generous estimates of rural demographic size (three-fifths of total pop.), rural demand for human consumption should stand at 12million tons, with additional two million tons for seed and feed use. Shouldn’t that leave enough for government procurement?

Unfortunately, demand drivers do not agree. Given the lockdown has now entered its second month, uncertainty regarding economic outlook coupled with rumour mongering regarding food shortages appears to have made growers wary of future, encouraging tendency to stock at farm-level. Two, mass exodus of labour from cities at the beginning of lockdown has increased supply of workers in rural economy. Many of these landless workers participate in manual harvest and are paid in kind for their services. Wheat received as payment by labour is stored at farm and collected on need-basis.

Three, by increasing the support price right before harvest, the government has sent a price signal to producers regarding commercial (market-set) rate for the remainder of the year. Four, at $226 per ton ($ equivalent of support price) is not all that different from international market rate, which has leapt ahead by 15 percent since mid-March to $210 per ton.

Five, conflicting news of damage to corn yield in the ongoing season due to untimely rain is putting upward pressure on demand from feed mills (wheat is a substitute). Sixth, the 25maund private storage cap does not take into account large-hold growers (25 acres+), whose seed-saving requirement alone exceeds the limit. Lastly, by going into a hyperactive mode – district management has tasked government teachers to report and seize private stocking in villages – the authorities are adding fuel to the speculation fire, and not doing themselves any favour in the process.

Considering the abuse of government procurement operations by large-hold landlords historically, small-hold growers’ refusal to sell to Food departments this season is deeply ironic. Given the steep procurement target, this is effectively a seller’s market. That should speak volumes about the efficacy of support price policy and procurement operations, ostensibly in place to benefit the “poor farmers”. But that lament is for another day.