The week in focus

Analysts ask the need for the increase in wheat price at a time when the international market is at a much lower level

Responding to a longstanding demand of farmers, the government increased the wheat support price last week in a bid to encourage its cultivation on a wide scale, but it fell well short of expectations of the farming community.

Some analysts question the need for the increase in wheat price at a time when the international market is at a much lower level and underline the need for improving efficiency through technological advancements.

Wheat support price was increased from Rs950 to Rs1,050 per 40 kg while farmers were demanding Rs1,250 to Rs1,300 per 40 kg. In support of their demand, farmers cite a hefty increase in prices of inputs over the past three years when wheat price was last revised.

Among major inputs, urea price has shot up from Rs800 to Rs1,800 per bag, di-ammonium phosphate (DAP) from Rs1,800 to Rs4,200 per bag and diesel by around Rs30 per litre.

“The new support price will not cover the cost of production. If the government cannot increase wheat price, then it should provide subsidy on inputs as is the case in many countries around the world,” Sindh Abadgar Board Vice-President Nadeem Shah said from Hyderabad.

He said the government was giving subsidy on imported fertiliser but not on domestic produce and the subsidy was not reaching the farmers as middlemen were pocketing the money.

The government is importing 700,000 tons of fertiliser to meet shortage in the ongoing Rabi crop sowing season. It has also earmarked Rs25 billion subsidy on fertiliser. Though the country’s urea production is enough to meet domestic needs, persistent gas shortfall faced by fertiliser manufacturers have brought down production.

Expressing fears, Shah said less than targeted area may be brought under wheat crop, a staple food for a country of about 170 million people, because of lack of incentives and a host of problems for the farmers.

However, analysts on their part come up with a different set of arguments. “The increase in support price is not a solution and that too at a time when the international wheat market is falling,” said InvestCap Head of Research Khurram Schehzad.

At present, the international wheat market stands at a 30 per cent discount to Pakistan’s market. “In the world market, wheat price was around Rs20 per kg compared to around Rs26 per kg in the domestic market,” said Schehzad.

He said government’s commodity financing debt already stood above Rs100 billion and the high wheat price would further widen the debt burden. The government is expected to purchase six to seven million tons of wheat this season from farmers to support the market and maintain buffer stocks.

Schehzad stressed the need for utilising the resources efficiently in order to boost farm productivity and for that both government and farmers had to play their part. The old irrigation and canal system needs to be revamped to check wastage of water, new high-yielding and disease-resistant seed varieties should be introduced and electricity should be consumed judiciously.

A programme, sponsored by the United States Agency for International Development (USAID), to replace old and install new tube wells at farms across the country is going on to control wastage of electricity.

Schehzad saw no noticeable impact of the high wheat price on overall inflation, saying the increase of Rs100 could not be termed a significant revision. “Only we have to be cautious about hoarding and black marketing, which could send prices soaring and may have a destabilising impact on the agricultural sector and overall economy,” he said.

(the writer is incharge Business desk for the Express Tribune and can be contacted at [e-mail])

Published in The Express Tribune, November 28^th, 2011.