Following the Economic Coordination Committee (ECC) decision to lift the ban on wheat export, the Punjab government has earmarked 3.5 million tons of wheat for export. The ECC has allowed export of the grain to ease Punjab’s financial woes.
“Punjab, the largest wheat producer, has obtained Rs174 billion in loans from the State Bank of Pakistan to buy wheat from farmers and is paying a daily interest of Rs70 million,” said Secretary for Food Punjab Irfan Elahi.
He said that the loan has been obtained at the Karachi Interbank Offered Rate (Kibor) – the rate at which banks lend each other – plus 2.75 per cent, meaning an effective interest rate of over 16 per cent.
There are risks attached to the decision, as conflicting estimates are given on exact production and domestic consumption of wheat, the staple food of 180 million people.
The Damage and Need Assessment Report, a joint study of the World Bank and Asian Development Bank which assessed flood damages, has already warned about a reduction of five million tons in wheat production. The government has estimated production at 25 million tons – even after accounting for flood losses.
Annual wheat consumption is not more than 18 million tons, said Elahi. He said that Punjab has 5.7 million tons of wheat in stock and consumption up until the arrival of the new crop in April will not be more than two million tons.
Elahi said that the government of Punjab is expecting 3.5 million tons of surplus wheat stock that can be exported. “If the surplus is exported it will not only ease financial woes but also to solve the storage,” he said.
Regarding wheat production, he said that it would not be right to expect 25 million tons of output, as during the last 10 years the maximum production in any given year was 23.8 million tons. He said that initial reports suggest that this season the wheat crop has been sown on five per cent less land than last season.
“Punjab’s average wheat production remains over 18 million tons and even if sowing is less by 10 per cent this season, production will not be less than 16 million tons, which is sufficient to meet consumption needs,” said Elahi.
On the other hand, food and agriculture ministry officials assess annual wheat consumption at 21 million tons, which is three million tons more than the Punjab government’s assessment. They are also insisting on an expected production of 25 million tons, disregarding the findings of the WB and ADB report.
“The federal committee on agriculture has estimated 25 million tons of wheat production and the food ministry owns that estimation,” said one of the top officials of the food ministry on condition of anonymity.
The uncertainty about the wheat production and consumption may cost dearly. In 2007, the government could not asses the actual production and consumption. The government exported the excess grain causing a shortage in the domestic market and then ended up importing more expensive grain. That year, Pakistan spent over $1 billion just to import wheat.
Elahi said that presently the wheat export business was profitable, as the grain is priced at over $300 per ton. In the domestic market, the government has fixed the wheat price at Rs950 ($11) per 40 kg but the farmers are not receiving more than Rs850 ($9.9) per 40kg.
Published in The Express Tribune, December 11th, 2010.
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