Wheat procurement: SBP to provide funding to provinces and Passco

The State Bank of Pakistan (SBP) has, reportedly, agreed to extend conditional funding to provinces and Pakistan Agricultural Storage and Services Corporation (Passco) for wheat procurement, well-informed sources in the Finance Ministry told Business Recorder.
"On the basis of a reference received from the SBP, provinces and Passco will be eligible to receive funding for wheat procurement equivalent in amount to the tune of retired quantity of wheat since June 30, 2010," sources added. Sources said the Economic Co-ordination Committee (ECC) in its meeting on March 8, 2011 considered the summary and directed the Ministry of Food and Agriculture (Minfa) to resubmit a summary for the ECC, in consultation with Deputy Chairman, Planning Commission, Secretary Finance, Secretary Commerce, and all provinces including all stakeholders.
It was also directed that the summary should contain essential information/data ie total quantity to be procured and quantity to be purchased by each province, strategic reserves, financial implication of procurement, purchase mechanism and the role of federal government and provinces in the procurement of wheat.
A meeting was convened under the chairmanship of Deputy Chairman, Planning Commission on March 11, 2011 which was attended by Secretary, Minfa, Secretary, Planning and Development Division, Additional Secretary, Finance Division, Additional Secretary, Ministry of Commerce, Managing Director, Passco, Secretaries Food Departments of all the four provinces, Crop Commissioners, Minfa and senior officers of Planning Commission.
After detailed deliberations following proposals were finalised: (i) in future the issue price of wheat should include incidentals; (ii) in view of existing 3 million tons federal strategic reserves, Passco may not procure wheat during the current season; (iii) provinces may fix wheat procurement targets according to their requirements. For procurement of wheat the provinces may approach the Ministry of Finance to negotiate sovereign guarantees; (iv) no abrupt closing of wheat exports should be undertaken. The Ministry of Commerce may be requested to introduce a procedure to ensure that the policy of export of wheat will not be terminated abruptly at the expense of exporters; (v) there should not be any restrictions on the movement of wheat across the provinces and districts; and (vi) ECC should not get involved in setting targets for wheat purchase.
The ECC was also informed about the details of total quantity to be procured, province-wise, strategic reserves, financial implications of procurement purchase mechanism and the role of federal government and provinces in the procurement of wheat, which is as under:
Total proposed quantity to be procured, 6.57 million tons of which Passco will procure, 1.30 million tons; Punjab, 3.50 million tons; Sindh, 1.30 million tons; Khyber Pakhtoonkhwa, 0.40 million tons and Balochistan, 0.07 million tons; Existing strategic reserves, 3.00 million tons - Passco, 0.5 million tons and Punjab Food Department. 2.5 million tons.
Financial Implications: Passco (1.30 million tons) Rs 36.966 billion; Punjab (3.50 million tons) Rs 83.475 billion; Sindh (1.30 million tons) Rs 30.333 billion; Khyber Pakhtoonkhwa (0.40 million tons) Rs 10.524 billion and Balochistan (0.07 million tons) Rs 03.500 billion, total Rs 164.798 billion.
The following points came under discussion during the meeting: (a) provinces may fix their own targets of wheat to be purchased. The formula/bottom line for the purchase of wheat would be "Retire Quantity" is the quantity to be purchased; (b) it was stated that the purpose of strategic reserve is to stabilise prices, support and encourage farmers by buying their wheat and to utilise it when the stocks decline due to gap in supply and demand; (c) it was also noted that, the prime minister, to facilitate provinces last year, had authorised to finance procurement of wheat to the extent possible. Whether this could be done this year cannot be assumed, considering the financial constraints. Nevertheless, the prime minister may take an appropriate decision to this effect, being his prerogative; (d) it was noted that the FBR had stopped export of wheat in the past, but it was clarified that now there is no restriction on export, rather the government facilitates export of wheat. Moreover there is no government intention to restrict the export of wheat in future. While considering the available stock of 03.00 MT of wheat and its export for the purpose of creation of storage as well as financial capacity for the purchase of next crop (6.57 MMT) the existing stock(s) must be exported as soon as possible, preferably before May-June. It was also emphasised that there should not be any deviation from the 6.5 MT target of purchase and people to be incentivised to export also; (e) it was proposed to purchase 01 million tons of wheat as strategic reserves by the government of Punjab and Passco in the ratio of 50:50; (f) If 3 million tons of stock is exported before May and June, the next stock for the year 2011 may not exceed 6.57 million tons. However, it was stated that exports may take time, therefore, purchase may not be linked to export and availability of credit. The current scenario of disaster in Japan was also seen as an opportunity for export of wheat and it was observed that Pakistan may find market of wheat/wheat products in the disaster area; (g) in case of a bumper wheat crop this year prices may crash, therefore, while keeping this eventuality in mind, provinces may be encouraged to procure any quantity, according to their requirement and capacity; (h) it was observed that procurement of 6.57 million tons of wheat be subjected to availability of credit as well as export; (i) The government of Punjab emphasise the need to extend Federal Government sovereign guarantee, ensuring purchase of required quantity of wheat; (j) it was also stated that the government of Punjab has already started export of wheat from existing and old stocks but it will take considerable time before all old stock(s) are exported, therefore, Federal Government''s support is essential; and (k) Balochistan government apprised that they would require additional 0.150 MMT to cater for their needs.
The ECC after detailed discussion on "procurement of wheat by the public sector institutions" took the following decisions: (i) The ECC approved the wheat procurement target of 6.57 million tons from the current crop, as indicated in the summary. Financing of excess stocks, if any, would not be supported by the Ministry of Finance; (ii) commodity financing would be monitored and funds would be provided equal to the retired amounts. Receivable dues from the Federal government would be included for this computation; (iii) Punjab would continue to export from the strategic reserves of 2.5 million tons; (iv) strategic reserves of 1.0 million tons would be maintained, 0.5 million tons by Passco and 0.5 million tons by the government of Punjab. The Federal government would provide sovereign guarantee to this effect; (v) Passco would provide 0.15 million tons to Balochistan and Federal government will cover the finances; and (vi) there would not be any restrictions on the movement of wheat across the provinces and districts.