Over the last weeks there have been two major changes in the government’s wheat policy. The first was the decision by the federal government to liberalise the internal and external trade of wheat. Growers, millers and traders can now buy, sell and transport wheat to any part of the country depending on market conditions; in addition, import restrictions and duties have been removed. The second was the decision by the Punjab Government to stop procurement of wheat and allow the traders, millers and other market agents to manage purchases and sales. With these two changes the government is basically handing over the bulk of responsibility for the wheat trade to the private sector. The government’s role will henceforth be restricted to oversight, regulation and the holding of strategic stocks that would be used for emergencies or to stabilise the market in times of volatility.
Both policy changes are much welcome. Many economists, including myself, have long argued for such liberalisation. Restrictions on import and internal trade, along with high procurement prices, created a fragmented and inefficient domestic market for wheat and imposed massive costs on the economy.
There were large direct costs for the government for buying and storing wheat. Huge sums were paid for operations as well as to commercial banks as interest payments for the finance needed for wheat procurement. There were also large physical losses resulting from poor storage with rats, mice, birds and insects playing havoc with government stocks stored in inadequate facilities. Then, there are the costs of corruption and inefficiency of government staff managing this system as pointed out in the FIA Wheat and Flour Report.
High procurement prices, inefficient management of stocks and import restrictions raised the prices for wheat products such as atta, suji and maida — essential food items for almost all Pakistani households. Consumers were losers in this situation.
The bulk of the consumers who were negatively affected were those living in cities and towns. These people currently make up almost 40% of Pakistan’s population and rapid urbanisation means they will make up half the country’s population by 2025. Apart from a small proportion with connections to rural areas, most of these people buy wheat and wheat products. Higher and volatile prices hit them hard. Another group that suffers from high wheat prices, but is less commonly talked about, is the rural poor — the most economically deprived and vulnerable section of the population. This group mainly comprises small and marginal famers, the landless, and migrant labour and livestock herders. Having neither enough land to grow food for their own needs, nor enough income to buy supplies from the markets, most of this population is undernourished or malnourished. With free imports of cheaper wheat, prices would be 5-10% cheaper with the impact being mostly felt by the poor who spend a large part of their incomes on wheat.
Having made these major decisions, the government now needs to take action to ensure these are effectively and efficiently implemented. As is well known, implementation in Pakistan has always been poor, if not abysmal. The shelves of government departments and ministries are laden with policies, strategies and programmes which have almost no bearing on what goes on in the ground. This time around, the federal and provincial governments have made some brave decisions. It is imperative they follow through with strong implementation.
In order to get the new policies to get traction on ground, there are a series of things that now need to be done. The first of these is to actually ensure that wheat can now be traded freely. This may sound trivial but isn’t. Free trade in wheat will require clear guidelines and rules, both for imports and internal trade, to ensure quality, sanitary and phytosanitary (SPS) requirements are met — the last thing we need is unscrupulous traders selling substandard and damaged wheat in the country. Simultaneously, it is critical that customs, police and officials responsible for SPS controls do not hinder or harass, block or delay shipments. Rules and guidelines, bureaucratic responsibilities and complaints resolution mechanisms are urgently needed. These should be developed in close collaboration with the relevant associations of traders and millers.
Next is to improve the logistics of wheat trade. In Pakistan, we need to move out of the current system of transporting and storing wheat in bags, to the more efficient system of bulk handling. To date this move has been hampered by the government’s domination of the market and their requirement that all wheat sold to public sector centres had to be in bags — the supply of which was in government hands and was another source of corruption. The reform of the procurement system opens the way for the transition to bulk handling to occur. However, the move from bags to bulk will require investments in trucks, loading/unloading equipment, and modern silos. Such investments need to be made by traders, transporters and importers but they need to feel confident that the policy changes will not be reversed. There needs to be clear statements, possibly by the Prime Minister and preferably in parliament, that these reforms are not temporary.
The last of the critical implementation issues is related to handling of government stocks. A “strategic reserve” of around two million tons of wheat is deemed sufficient for the country’s needs. However, these have to be stored properly in adequate facilities. Not in improvised warehouses, sheds and under tarpaulin as is presently done, but in proper silos with well-defined protocols for stock rotation and quality and pest control. SOPs will have to be defined for the management of these stocks and cost sharing agreements concluded with the provinces.
The other big question is what should be done with the “Reform Dividend” — public funds freed up by the reform of the procurement system. This could be as much as Rs35-40 billion annually between the provinces and the federal government. Given the importance of the agriculture sector as a source of employment, incomes and exports some of these funds should be retained in the sector to help farmers raise productivity, particularly of high value crops and livestock products, for which demand is growing rapidly inside and outside the country. Priorities for enhanced development spending include improving technology dissemination; improving transport, storage and marketing of value chains; and the management of increasingly scarce water. Another part of the Reform Dividend should be used to bolster food and nutrition security among those that have suffered from previously high wheat prices — the urban and rural poor.
Following through on the big policy decisions and designing operational and implementation arrangement will be a complex task. It is essential that the federal and provincial governments call on the support of technical and funding agencies which have the necessary skills and resources. These include the Asian Development Bank, the Food and Agriculture Organization, the World Bank and the World Food Programme each of which have their own areas of expertise.
The next big task for the PTI government is to liberalise the imports and trade of sugar.
Published in The Express Tribune, July 17th, 2020.
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Thank you for this excellent, thoughtful article - Congratulations to the Government of Pakistan for the policy changes (liberalization) which will go a long way In rationalizing and addressing inefficiencies in the food system. We, then, need to quickly also turn to see how the resource poor smallholder can benefit from these policy reforms - not just as consumers, but as producers engaging strongly in the wheat (other commodities) value chains.