Could it be that we are heading for yet anther wheat crisis and a sharp increase in the flour price over the next few weeks, pushing food inflation to new highs? Probably yes. The farmers are demanding that the official wheat procurement price should be raised upwards to Rs600 per 40kg from the recently fixed Rs510, which is already 20 per cent higher than last year’s Rs425.

Unless the government revises the official procurement rate upwards, the farmers wouldn’t sell their produce to the provincial food departments or the Passco.

The official procurement rate is being seen by wheat producers as far too below the international wheat market, which has almost doubled to above $400 per ton from $208 per ton in Jan 2007. The global wheat markets are soaring because of the increasing use of cereals like maize for making bio-fuels. Whether or not the official rate is revised upwards, the flour prices are all set to surge substantially by the end of April, if not earlier.

It is also feared that the wheat output target of 24 million tons for this year may be missed owing to several factors – for example, substantially low use of fertilisers, especially of di-ammonium phosphate (DAP) due to its record high global prices, 22-28 per cent water shortage, severe winter and late sowing.

The wheat sowing target by about 1.2 million acres has not been met owing to the government’s failure to announce the official procurement price before the commencement of sowing in November. Farmers contend that the country will need to import approximately two million tons of grain for meeting its requirements this year due to reduction in the expected output.
The short crop size too is expected to put pressure on the flour prices in the coming weeks.

The farmers’ insistence on a higher official wheat price and the fears of the possible shortage are making the government’s job of procuring sufficient quantities of the commodity( for release to the flour mills during the last few months preceding the next crop and help the poor cope with food inflation) rather difficult.

Reports suggest that the Sindh government has so far failed to start procurement in lower parts of the province – where harvest is underway, because farmers are not ready to sell their crop at the official rate when they are getting a far higher price from private wheat traders and speculators.

Wheat growers from the other parts of Sindh and Punjab – where the harvest is expected to begin in another fortnight or so – are also defiantly sticking to their stand.

“We are not asking the global prices for our crop. But it’s our right to demand at least half the international price for our produce when our input costs have gone up enormously over the last one year,” argues Maqbool Khan Khhichi, a progressive farmer from Mailsi in South Punjab and the president of the Pakistan Kisan Council.

“It is sad that the government would be prepared to pay upwards of Rs1300 per 40 kg to farmers in Australia and America on wheat bought from them, but it is reluctant to pay even half of that price to its own growers,” laments Khhichi.
The farmers say the landed cost of imported wheat is over Rs1350 per maund. “Even Indians are giving their farmers approximately Rs660 per maund,” claims Ibrahim Mughal, the chairman of the AgriForum Pakistan.

The Anjuman-i-Kashtkaran’s Rana Iftikhar Mohammad underscores that the massive differential in the international and domestic prices of wheat would encourage hoarding and smuggling as the traders in the neighbouring Afghanistan are offering over Rs1,000 per maund to farmers. “They are prepared to give us Rs1000 per 40kg because they hope to sell it for Rs1400 in Afghanistan,” he says.

Former production and industries minister, Jehangir Tareen says the government was offering a subsidy of Rs20,000 per ton on imported wheat due to price differential in the global and domestic markets. He believes that the lower official procurement price would encourage the farmers to store their product (in the hope of reaping higher profits in the times of its shortages).

“How can you expect a grower to accept the official rate when the traders and the middlemen offer them up to Rs650 per maund on their standing crop?,” he wonders.

There have been reports that all the provinces save Punjab have approached the federal government and requested it to revise the official price to at least Rs600 per maund in order to make procurement drive easier.

The ministry of food, agriculture and livestock (MINFAL) is reported to have moved a summary for the consideration of the Economic Coordination Council (ECC) and revise the procurement price upwards. It is widely believed that the new PPP-led coalition government would decide in favour of a higher official procurement price in order to maintain its goodwill among farmers of Punjab and Sindh both. But the announcement is not expected any time soon.

Punjab Food Department officials privately admit that they could face a stiff competition from the private traders and speculators in case the federal government did not raise the official procurement price. “We are sure that we would be able to partially achieve the procurement target of three million tons for the coming crop. But it would not be possible for us to outperform the private sector, especially the speculative money,” says a senior official. The federal government has set a procurement target of five million tons – three million tons by the Punjab food department, 1.4 million tons by the Passco and 0.6 million tons by the Sindh food department. “The federal government must increase the procurement target for the year to seven million tons if it wants to avert a wheat and flour crisis that rocked the country in winter. If the government fails to procure sufficient quantities of wheat this year, its handle on flour price and wheat market would weaken substantially and its ability to help the poor cope with the rising food inflation would erode completely,” warns Mughal.

Tareen is of the opinion that the flour prices are set to rise to Rs18- Rs20 per kilogramme from its present price of below Rs15 a kilogramme by the end of April because farmers wouldn’t sell wheat at less than Rs600 per maund. “I fear riots if the government forced the growers to sell their produce at less than Rs600 per 40kg,” he says.

The expected shortfall in production this year will also hamper the procurement drive adversely. “The expected shortage in the wheat output makes it even more critical for the government to procure as much quantities of the commodity as possible. If the government does not acquire sufficient quantities of the grain, it would hamper its ability to act quickly and to exercise control on the wheat market for staving off a sudden jump in the flour prices when the hoarders and speculators tried to take advantage of the supply imbalance,” points out Mughal.
The situation demands that the government acts quickly and take critical decisions to avoid sudden instability in the wheat and flour market in the coming weeks. Further delay would only exacerbate the situation and might make it very difficult, if not impossible, to avert the negative impact of the unstable wheat market on the economy as well as on the growers and consumers on the lower rung of the income ladder.