Liberalising wheat imports
At the same time it should next do for sugar what it has done for wheat — free up the imports
PHOTO: REUTERS
For many years Pakistan has maintained a high domestic price for wheat. The government-fixed, farm-gate procurement price of wheat used to be Rs1,300 per maund. This corresponded to around $325 per ton when one US dollar equalled hundred rupees. In comparison, farmers in countries such as Ukraine, Romania and Kazakhstan, which are among the more efficient wheat producers, were happily selling at half that price.
The system was costly, inefficient and inequitable. Firstly, the logistics were all wrong. The wheat had to be supplied to the procurement centres in bags, which meant there was no bulk handling. Smaller farmers often sold their wheat to middle men at a discount, as they could not get the bags which were only available through the government; nor could they wait for days outside the procurement centres. The government did not have enough storage for the 4 to 5 million tons of wheat that they often ended up holding. As a result the wheat was kept in open sheds and sometimes under tarpaulin. Large losses were reported during such storage.
Secondly, there were massive costs. In addition to paying high prices to farmers, the government was releasing stocks to flour millers at subsidised rates. At the same time, huge interest payments were made to banks for money borrowed to fund wheat purchases.
Thirdly, the government domination of the wheat marketing system effectively kept the private sector out of the wheat trade.
Finally, urban consumers, as well as the rural poor, who are net buyers of wheat, were being forced to pay extortionate prices — well above prices even in rich countries, such as those in Europe and the US.
To prop up this inefficient and unjust system, cheaper imports were effectively banned through massive import duties of around 70%.
To the credit of the current government, it has been chipping away at the system. The procurement price was raised only marginally — now standing at Rs1,365 per maund — and the procurement targets progressively lowered to 2.7 million tons for the current season.
However, the government avoided the one single measure that would have solved the issue: liberalising wheat imports. The recent wheat crisis, with prices of flour shooting up to Rs70/kg has finally forced the government’s hand. The announcement of allowing duty-free imports — albeit only for 500,000 tons — is something that should have been done years ago. Let the Pakistani consumer have cheap wheat! Why must the poor continue to pay for the inefficiencies of the system?
The freeing of imports must be expanded, with flour mills and traders allowed to import as much as they wish. Moreover, this must be firmly fixed as part of our food security policy. This is likely to have a number of other positive spin-offs. The most important is that it will reduce the pressure on consumers, especially the poorest. Secondly, it will help contain cost-push inflation in urban areas which will help industry. These likely developments are similar to what happened in Britain after the repeal of the Corn Laws in 1846. These laws prevented the imports of cheap corn (wheat, barley and other cereals). Their repeal allowed the flow of cheap food from North America and dramatically changed the economic and political configuration of Britain by reducing the power of the large landlords, allowing wages in urban areas to be contained, and moving investments into manufacturing. This was the prelude to the industrial revolution and Britain’s domination of the world.
In addition to such effects, increased imports and lower wheat prices will facilitate the move out of wheat and into high-value crops such as fruits, vegetables, oilseeds and fodder (for livestock). The government now needs to move strongly to help these structural changes in the agriculture sector. At the same time it should next do for sugar what it has done for wheat — free up the imports.
Published in The Express Tribune, February 9th, 2020.
The system was costly, inefficient and inequitable. Firstly, the logistics were all wrong. The wheat had to be supplied to the procurement centres in bags, which meant there was no bulk handling. Smaller farmers often sold their wheat to middle men at a discount, as they could not get the bags which were only available through the government; nor could they wait for days outside the procurement centres. The government did not have enough storage for the 4 to 5 million tons of wheat that they often ended up holding. As a result the wheat was kept in open sheds and sometimes under tarpaulin. Large losses were reported during such storage.
Secondly, there were massive costs. In addition to paying high prices to farmers, the government was releasing stocks to flour millers at subsidised rates. At the same time, huge interest payments were made to banks for money borrowed to fund wheat purchases.
Thirdly, the government domination of the wheat marketing system effectively kept the private sector out of the wheat trade.
Finally, urban consumers, as well as the rural poor, who are net buyers of wheat, were being forced to pay extortionate prices — well above prices even in rich countries, such as those in Europe and the US.
To prop up this inefficient and unjust system, cheaper imports were effectively banned through massive import duties of around 70%.
To the credit of the current government, it has been chipping away at the system. The procurement price was raised only marginally — now standing at Rs1,365 per maund — and the procurement targets progressively lowered to 2.7 million tons for the current season.
However, the government avoided the one single measure that would have solved the issue: liberalising wheat imports. The recent wheat crisis, with prices of flour shooting up to Rs70/kg has finally forced the government’s hand. The announcement of allowing duty-free imports — albeit only for 500,000 tons — is something that should have been done years ago. Let the Pakistani consumer have cheap wheat! Why must the poor continue to pay for the inefficiencies of the system?
The freeing of imports must be expanded, with flour mills and traders allowed to import as much as they wish. Moreover, this must be firmly fixed as part of our food security policy. This is likely to have a number of other positive spin-offs. The most important is that it will reduce the pressure on consumers, especially the poorest. Secondly, it will help contain cost-push inflation in urban areas which will help industry. These likely developments are similar to what happened in Britain after the repeal of the Corn Laws in 1846. These laws prevented the imports of cheap corn (wheat, barley and other cereals). Their repeal allowed the flow of cheap food from North America and dramatically changed the economic and political configuration of Britain by reducing the power of the large landlords, allowing wages in urban areas to be contained, and moving investments into manufacturing. This was the prelude to the industrial revolution and Britain’s domination of the world.
In addition to such effects, increased imports and lower wheat prices will facilitate the move out of wheat and into high-value crops such as fruits, vegetables, oilseeds and fodder (for livestock). The government now needs to move strongly to help these structural changes in the agriculture sector. At the same time it should next do for sugar what it has done for wheat — free up the imports.
Published in The Express Tribune, February 9th, 2020.