Story of Pakistan’s elite wheat

Despite country’s financial woes, govt fails to save money by keeping price of wheat down

KARACHI: Pakistan is primarily an agrarian economy and 80% of the farmers’ grow wheat on over 9 million hectares – or 40% of Pakistan’s agricultural land.

Locally, wheat forms around 72% of the nation’s daily caloric intake – it can therefore be regarded as the most important crop for Pakistani households.



However another aspect unique to Pakistan wheat usage is that the country consumes the most expensive category of the crop; hence we are known as the wheat elitist of the world.

The support price of wheat is a staggering Rs1, 300 per mound, which is equivalent to almost $310 per metric ton whereas international price of wheat is $137 per metric ton.

This means Pakistanis are paying almost 126% more for almost 72% of daily food requirement.

There can only be two possible explanations of this disparity between the local and international market. Firstly the international suppliers of wheat through research and development have become much more productive and much more efficient.

Therefore, they have substantially reduced per unit costs and increased supply.

Secondly, local wheat growers have colluded with policy makers (or they are the policy makers as the case may be) and they are silently and legitimately picking our pockets, while we are sleeping in oblivion.

In my view, the case is the combination of both above cited explanations

Solution

A possible solution of this problem is that we may import all our required wheat from international market. According to the theory of comparative advantage, countries must produce goods which they can produce at the lowest relative costs. Keeping in view such high support prices we can safely say that wheat in Pakistan does not fulfill this criterion.



Furthermore, Pakistanis consume around 25 million metric ton of wheat each year. Hence if we replace our local elitist wheat with imported and much more price competitive international wheat, this would result in domestic saving of around Rs450 billion.

The critics might say that this would widen the trade deficit by $3.4 billion and in view of our ballooning current account deficit, which has increased by almost 90%, this may seem a lot.

But we must realise that this is almost one-third of our oil imports.

So if we can afford to import so much oil, the case for import of price competitive imported wheat is not as weak as it seems. However one cannot deny that at least in the short run this solution would create massive unrest and unemployment as too many people are engaged in the business.

Hence this solution may have economic merit but lacks practical and political sensitivities.

The other and more plausible solution would be to decrease our support prices and to bring those in line with international prices. This can be augmented with encouragement for research and development in the wheat sector.

This would not have an adverse impact on our current account and an average Pakistani would get this basic, staple food at much affordable prices.

Farmers require support

The second solution seems simpler and much more doable but why hasn’t it been done already? Why do we have such high a support price? Why do wheat growers need support in the first place? The argument presented generally in reply to the above three questions is one and the same.

It is said that poor farmers of the country need our support and hence we have high support price of wheat and no taxation on agricultural produce in general.

One can take a blow or two for the poor farmers if this is the case. However our poor farmers are seldom beneficiaries of this preferential treatment. It is the elite landlords that skim all these benefits.

Currently Pakistan has almost 5 million metric tons of surplus wheat rotting in warehouses and the bureaucrats cum policy makers are trying to devise a strategy to dispose the surplus stock.

Policy makers are mulling over exporting this wheat with a huge export rebate of $120 per metric ton. But we are not ready to distribute this surplus among the poorest of the poor in Pakistan

The story of elitist wheat in the poverty stricken state of Pakistan is not only contrary to the complicated yet true principles of economics but it also eludes the realm of common sense.



We must reconsider our approach as a nation. If we are not competitive in a sector like wheat, we might consider being competitive in something else.

But if we take the threat of food security seriously, we must strive to become more and more competitive because such imbalances are not sustainable forever.

The writer is a corporate banker in a private bank and teaches economics.

 

Published in The Express Tribune, March 13^th, 2017.

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