Story of Pakistan’s elite wheat

Published: March 13, 2017
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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.

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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.

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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.

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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 13th, 2017.

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Reader Comments (19)

  • H.A.Khan
    Mar 13, 2017 - 9:50AM

    Yes Pakistan agriculture sector is not very productive even as compared to India by about 40%
    Importing entire need of wheat is a pipe dream especially in an agrarian economy.
    Let us start by removing import tariff barriers on cars as cars inn Pakistan are about 50% more expensive than in India.Here car manufacturers have established a cartelRecommend

  • RK Singh
    Mar 13, 2017 - 10:36AM

    pricing in India is also 137$ per ton. Pakistan’s pricing is pretty high. 310$ per ton is really un-believable. Somebody is making a lot of money there. I am wondering how inflation is so low in Pakistan. The figures are positively doctored. This kind of artificially enhanced figures do a lot of skewering. It may even skewer the GDP of nation. Recommend

  • AK
    Mar 13, 2017 - 11:51AM

    IF these figures and facts are correct then Syed Ali Sajjad has done a massive favour to the nation by pointing it out.

    Let the PML-N Government and the Ministries involved explain their position.

    Our opposition parties and independent economists must get involved in this issue.Recommend

  • Farooq Khan
    Mar 13, 2017 - 11:51AM

    The writer has highlighted a serious issue that needs to be taken in correct perspective, and a multi prong strategy needs to be evolved to get out of an unsustainable practice.Recommend

  • Karachiwala
    Mar 13, 2017 - 12:05PM

    With no knowledge and data, and with a layman knowledge of agriculture I can safely say NO for importing wheat.
    This is the only thing that is making our farmers work. And you are talking to take it away. What we need is to reduce input cost of produce, in terms of irrigation, replace manpower by machines by making tractors and its parts cheap, release land from wadera, chaudhry, sardars and khans. Reduce the cost by buying direct from farmers or building access roads to markets.. But this option of importing is equal to suicide.Recommend

  • SNKN
    Mar 13, 2017 - 12:37PM

    The writer who is a corporate banker has never set his foot on a farm in Pakistan perhaps! And I do feel sorry for his students if this is the quality of economic analysis he teaches.

    I am an International Banker for the past 25 years but I am also a farmer and come from a family of farmers since the 1500’s.

    Clearly the EU and the US governments have been subsidizing farming in their respective countries heavily and hence the low prices to the consumers. Subsidies is a very ‘hot’ topic in EU and farming lobbies have been able to March onto Paris or Rome and London to get their demands met.

    Prices of inputs have not even been touched by our worthy Banker…. Prices of inputs are extremely high in Pakistan… For our writers knowledge, inputs to produce wheat are : fertilizers (Urea, DAP etc), weedicides, pesticides, water (trying pumping water to irrigate an acre of land and you will cringe on your bill for diesel or electricity to pump water), a wheat crop needs four watering rounds, cost of ploughing – to ready the land, for sowing, and for spraying etc.

    Nothing is subsidized for the farmers… As a matter of fact cost of electricity, diesel, fertilizers and pesticides is much higher than our competitor countries – let alone load shedding in rural areas and quality of seeds and fertilizers is always a hit and miss because of govt deptt dishonesty, theft, pilferage…

    As one of the respondents Mr Ashraf Tiwana has correctly pointed out, rather than raising the support price of wheat, the govt should instead be keeping the input prices in check, or subsidizing them, as is being done in Europe and Asia.

    This will ensure that the end consumer is getting wheat flour at a lower price and cost of production comes down by keeping the input prices in check.

    The myth persists in our Banker friends article that the large farmers are the vultures preying on the innocent masses…. 96% landholders in Pakistan own less than 25 Acres apiece. This policy of the govt is impacting all landholders big or small…. There are hardly any profit margins (price minus cost of production)!!!!

    This government has clearly neglected the farming sector and has not made efforts to understand the challenges faced by the farming community in Pakistan – which still is the largest employer.

    So kindly have mercy and please complete your thesis by covering all sides of the issue!!!Recommend

  • Necromancer
    Mar 13, 2017 - 1:45PM

    Totally absurd piece of writing…………. the overall profit margin is comparatively very low in Pakistan kindly compare profit margin on an acre of US farm and Pakistani farm you will get a clear picture………. Furthermore Pakistan requires huge investment in R & D of Agriculture………….Altough a nice effort in sincerely making or farmer more poorer Recommend

  • Mushtaque Ahmed
    Mar 13, 2017 - 2:30PM

    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.

    Is it “maund”?Recommend

  • Khattak
    Mar 13, 2017 - 4:21PM

    The smaller provinces need to have independent wheat import policy. Wheat from Punjab is 4 times expensive in spite of $50/ton subsidy by Federal Govt to wheat farmers in Punjab & Sindh. PK & Baluchistan should not be held hostage to buy very expensive wheat from the bigger provinces. Recommend

  • Mahkoom
    Mar 13, 2017 - 4:46PM

    @SNKN, The federal Govt is paying $50 per metric ton to the wheat farmers in Punjab & Sindh. So the real price per metric ton is $360. But this is not case in Australia or US or Kerghestan, Kazakistan. Smaller provinces need to have wheat import policy.to buy in international market. Recommend

  • Engineer
    Mar 13, 2017 - 5:47PM

    The author has raised a valid question that how come our prices are $310 per metric tonne while the price elsewhere in the world is $130 metric tonne. He has definitely touched on issues related to unemployment if price is reduced as a lot of people just jumped to guns without even reading the whole article. My question is if you try to import wheat then you could have sustainability issues especially when the world is turning back on globalisation and emphasis seems to be on producing your own stuff. Also, what are the differences of different quality of imported wheat as a lot of people complained about imported wheat quality etc. in the past.Recommend

  • Shahid
    Mar 13, 2017 - 6:34PM

    Congratulations on this brilliant piece of article. Let the market forces come into play. If we are going to save4. 5 billions dollars annually by importing wheat we can spent the same amount of money into public education health sector. If growing wheat is expensive grow some thing else, go into livestock. Do some thing which can be more competitively done under local conditions. Big land lords are the most previlidged class in Pakistan.Recommend

  • Najeeb Rehman Bhutto
    Mar 13, 2017 - 6:36PM

    There are both positive and negative aspects of increased wheat prices. Both pros and cons both should be analyzed to get a holistic view. Recommend

  • Javaid Randhawa
    Mar 13, 2017 - 7:46PM

    Fantastic article. Once there was good price in Dubai and I started importing wheat flour from Pakistan. Only two monthes I could have good business and then prices of wheat went high in Pakistan and rate of wheat flour in Dubai went down. I tried my best to remain in business but faced heavy loss. As I had limited resources I could not adopt alternate solutions. I used to import at around 70 dirham of 50 KG bag and after adding sale expenses It was 80 dirham. Our wheat is very good in glutten. If I could have mix Ukrain flour with Pak flour, I was still doing business. Can someone think on it. Still I appreciate author for his commendable effort.Recommend

  • curious2
    Mar 13, 2017 - 9:02PM

    Paying 2.5x more than the rest of the World should be a red flag. More importantly you don’t see any concrete steps to address the fundamental inefficiency of the agriculture section. Maye it’s time to import wheat and have the farmers change production to something else?Recommend

  • Najeeb Rehman Bhutto
    Mar 14, 2017 - 10:44AM

    From the perspective of consumer the higher wheat prices could be disadvantageous but high prices of wheat have ensured smooth supply of wheat because higher prices of wheat give incentive farmers to produce more wheat. Moreover, the incentives of higher wheat prices have positively impacted the rural economy.

    Last time Pakistan experienced food crisis (wheat shortage) was in the days of Shoukat Aziz. At that time global commodity prices were rising because speculative money was entering into commodities due to turmoil of financial markets. At that time the prices of wheat in Pakistan were lesser than global wheat prices, which increased the incentive to smuggle wheat from Pakistan to nearby countries. This resulted into shortage of wheat in the country. Recommend

  • Najeeb Rehman Bhutto
    Mar 14, 2017 - 10:45AM

    Policy makers at that time increased the prices of wheat and brought local wheat prices at par with international prices due to which incentive to smuggle has decreased and Pakistan hadn’t experienced the major shortage of wheat since then.

    Moreover, higher wheat prices have provided economic stimulus rural economy and agro-based industries. Due to good prices of wheat people in the rural areas purchased items such as home appliances, motor cycles and tractors which positively impacted the industrial sector. Moreover the due to higher incomes the people of rural areas built the pakka houses in their villages and became able to build houses in nearby cities which resulted in increase in urbanization of the country.

    There are both positive and negative aspects of increased wheat prices. Both pros and cons both should be analyzed to get a holistic view.Recommend

  • Just Someone
    Mar 14, 2017 - 1:14PM

    The price of wheat is high because until a few years back, in 2012 – 2013, the international wheat prices were still in the USD 300+ range and our support price of wheat was inline with that price. However, once the international price of wheat fell down, our support prices did not. Moreover a strong rupee also meant that wheat prices remained high in the USD terms.

    There is no single solution to this, the least of which is to import wheat. We should also contend that the wheat prices will not remain this low forever. And considering that we have excess stocks of wheat, we should build proper storage to store this wheat to improve our food security. We can try to export wheat, but we can also donate it to international causes and to the domestic poor.Recommend

  • Benjamin
    Apr 3, 2017 - 3:37AM

    @Javaid RandhHi, do you still work with wheat there? Low cost storage for farmers could be a good business there Recommend

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