Yet another wheat crisis!

Pakistan’s wheat sector has been under significant strain due to several structural factors

Yet another wheat crisis!


The Government has once again messed up the wheat market — grandly!

In a year when domestic production hit an all-time high of nearly 30 million tons, the Government, through the Trading Corporation of Pakistan (TCP), imported 3.4 million tons of wheat. As the domestic harvest was coming in, Government stores and godowns were full with imported wheat, as well as 3.2 million tons of carryover stocks from the previous year. This made it impossible for PASSCO (the Federal agency responsible for procurement) and the provincial food departments to buy the wheat offered by domestic producers.

Unable to sell to the Government at the procurement price of Rs3,900 (Rs4,000 in Sindh), producers were forced to sell on the domestic free market. Prices fell sharply — in May 2024, prices were below Rs2,500 per 40 kg, some 36% below their levels in 2022. This is good news for consumers.

However, farmers are up in arms. According to them, the current market price does not even cover their direct cash outlays on seeds, fertilisers, chemicals and machinery hire. Their frustration and anger are redoubled as they feel that they have kept their part of the bargain by raising wheat production in response to the higher prices offered by the Government, but the Government has not kept its part of the bargain by purchasing at the prices announced.

As often happens in such situations, there is a political blame game going on. The current Government is blaming the Interim Government; the previous Prime Minister is stoutly defending his team, saying that the ample wheat imports are helping consumers and bringing inflation under control. And, as usual, the PTI is blaming anyone and everyone.

Prime Minister Shehbaz Sharif is, in good faith, trying to make changes by dismissing some of the top officials involved at the federal level. Changes will likely also be made at the provincial level. At the same time, a high-level committee has been set up to investigate the crisis and suggest solutions.

This is not the first time that the Government has got things completely wrong in its management of the wheat marker. It has happened often before, including last year when wheat was in short supply, prices soared, and there were riots in the street. However, it may be worth looking at the experience of the crisis of 2018-19 when a similar high-level committee was set up.

In that year, the Ministry of National Food Security and Research (MNFSR) estimated that domestic availability (production plus carryover stocks) were above domestic needs. The Government, therefore, approved exports of wheat and 640,000 tons left the country. However, production and stock estimates proved to be wrong. The domestic market was short of wheat and imports had to be made on an emergency basis at a high cost.

The then Prime Minister, Imran Khan, set up a committee headed by the Federal Investigation Agency with support from the National Accountability Bureau and the Intelligence Bureau to look into the wheat crisis. The committee correctly identified the proximate causes of the crisis — a mix of incompetence and corruption — and made recommendations to improve the situation.

The committee called for strengthening the MNFSR’s capacity to monitor wheat production and make assessments on a “scientific basis”. They also pointed out that food departments are rife with malpractices. Referring to Punjab, the report said that “corruption is rampant in the lower formation of the Food Department, who in connivance with the millers are involved in pilferage of Government stocks.” Similar problems of theft exist in Sindh. The Committee recommended the use of an “IT-based surveillance mechanism to prevent pilferage and damage.”

So what happened after the report was released? The Punjab Food Minister resigned and several high-level officials at federal and provincial levels were removed. However, apart from this, little changed. Crop forecasting remains a hit-and-miss exercise with limited use of modern scientific methods. Similarly, corruption and inefficiency in the wheat procurement system persist. Year after year there are scandals related to the distribution of gunny bags; about the role of traders; stocks that go missing; and the quality and prices paid for imports by the TCP.

So will the new committee achieve any improvement? To do so, it must recognize that deep changes are needed.

Pakistan’s wheat sector has been under significant strain due to several structural factors. These include poor inputs, poor cultivation practices and poor handling and storage. Climate change — floods, heat waves and pest attacks — have resulted in high levels of variability and uncertainty. In theory imports, exports and use of public stocks should help stabilise domestic markets. However, due to poor decision-making, public sector has tended to exacerbate the situation creating acute shortages and gluts.

Studies and reviews conducted over the last several decades have pointed out that the Government has to stop playing “mother and father” to the wheat market and allow the private sector to manage the bulk of operations. There are some indications that finally there may be progress to this end. The Punjab Government has announced that it will not procure wheat in the coming season. While this is a welcome first step, three other major changes are needed.

The first is to abolish the monopoly of the TCP and allow the private sector to import or export wheat. The second it to remove the ban on inter-provincial trading of wheat and allow wheat and wheat products to move across the country in response to market demand and supply factors.

The third is to limit Government’s role to interventions of “last resort”. They should hold a strategic stock of 1-2 million tons of wheat, divided between a federal agency (such as PASSCO) and the provincial food departments, to be used to stabilise the domestic markets. In addition, the Government should retain the right to impose tariffs, or subsidise wheat imports, to cushion domestic markets from the turbulence of international prices. Simple, clear and transparent rules should be in place for such interventions.

The Government also needs to push ahead with improving productivity through research into higher-yielding varieties as well as promoting better cultivation practices, including through increased water use efficiency. The billions of rupees that could be saved from eliminating inefficient and corrupt Government practices should be redirected to these tasks.

The Government also needs to focus on bringing new areas under wheat cultivation, particularly non-irrigated areas where, due to climate change, rainfall is higher. New forms of farm organisation, such as corporate farming, may prove to be game changers in these areas.

Published in The Express Tribune, June 9th, 2024.

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