Profiting from wheat conundrum
The meeting was informed that a govt-to-govt deal with Russia was expected to be finalised in July for import of one million tons of wheat. Photo: file
The print, electronic and social media is replete with the handling of surplus wheat in the province of Punjab.
The soil of Punjab produces around 75% of the total wheat output in the country. The government has fixed the support price at Rs3,900 per 40 kg for this year. It has a designated corporation named Pakistan Agricultural Storage and Services Corporation (Passco), which buys wheat from farmers, stores it and releases the desired quantity as and when required by a deficit province.
In order to ensure food security, the government does import wheat and store it as a buffer stock. The purpose of the buffer stock is to maintain prices.
Considering the available imported stock of wheat, the government has reduced the targeted quantity to be bought from farmers.
The international wheat price is hovering around $6.1 per bushel. The price was $8 in July 2023 and touched the nadir of $5.3 in March 2024. The price has rebounded in the last month.
It has been reported that the Pakistani government imported wheat from September 2023 to March 2024. As a result, the government possesses a surplus stock at the moment and intends to buy a stipulated quantity of wheat from farmers.
Given the specified quantity of wheat to be bought by Passco, there is surplus commodity in the domestic grain market. The price of wheat swings between Rs2,800 and Rs3,400 per 40 kg depending on arrival of the staple commodity in the market. If the arrival accelerates, the market will experience a lower price of wheat.
Although some farmers deliberately delayed the harvesting of crop to some extent, they could not get the desired price. Small farmers cannot wait for long since they have to realise the return on their crop to start fresh cultivation. They do not have adequate funds to adopt a wait-and-see strategy.
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On the other hand, large farmers have the financial muscle, they can even stock their produce and wait for prices to get better.
The government has responded in a number of ways. First, it announced a specified quantity of wheat to be bought from farmers. Second, the provincial government has quelled the protest from farmers. Third, it has formed a committee to inquire into the matter and has transferred a couple of officials.
The question arises: has the situation improved for the farming community?
Media commentators, analysts and journalists are of the view that the government should have stopped wheat buying after December 2023 since there was anticipation of a decent output. They are of the view that officials of the government have given benefit to an interest group, which has pocketed a huge sum out of this wheat conundrum and this situation requires an investigation.
Keeping in view all this, domestic financial capitalists are ruling the roost. They look for opportunities to earn quick profit out of them. They normally speculate in the real estate market and the grain market is not an exception.
Similarly, international financial capitalists become active in the international grain market when policy rates are low. Since the policy rates are high at the moment, international commodity prices are sliding.
In a nutshell, financial globalisation provides opportunities to international and domestic financial capitalists to earn quick profits. The government normally succumbs to the force of international finance.
However, a strong and stable political government can withstand this pressure and provide commodities to people at stable prices. Let us see how policymakers respond to these conundrums in the coming months.
The writer is an independent economist who worked at SDSB, Lahore University of Management Sciences (LUMS)
Published in The Express Tribune, May 13th, 2024.
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