Re: So where is the Aatta ‘wheat flour’ crowd now?
So pray tell which political party’s members own the majority of flour mills in balochistan, NWFP and sind? answers on the back of a post card.
the govt either failed in it’s basic duty of regulating distribution or was complicit. It’s something that reminds me of oil rich nigeria which within the country you have shortages of oil..
ECONOMY: Understanding the wheat crisis —Shahid Kardar
The wheat crisis is underpinned by a paradox: there is severe shortage even though we produced enough wheat to satisfy the demand for our staple diet. Why?
This is because of flawed policies that belie both common sense and foresight. And these policies have come from a government that, to an extent and fairly, prides itself on high-growth performance and good economic and financial management over its extended tenure of eight years.
Wheat is the cheapest source of energy and protein and hence vital for the food and nutrition security of low-income groups. Moreover, increased production and consumption of livestock products, resulting from rising per capita income, require grain as a feed for livestock. Wheat will thus continue to be the mainstay of our food security and any slack in its production and policy will translate into a rude price shock. It is not alarming then that a general feeling of helplessness prevails with the price of flour having almost doubled to Rs30 per kg, making it increasingly difficult for the less privileged households to buy this most simple and basic food item.
Over and above the issue of price is its availability, raising the obvious question: What is Pakistan’s food consumption requirement? Based on a demand requirement of 125 kg per capita per annum, Pakistan’s food consumption requirement is roughly 21 million tons. Of the 23.3 million tons cropped this year, 13.5 million is retained in rural areas for self-consumption, 1 million is set aside as seed for next year’s crop, around 4.5 million tones is procured by the Federal and Provincial Government agencies, and the rest is traded privately.
In 2007 the country produced grain of 23.3 million tons. Stocks of around half a million (which appeared quite adequate on the face of it) were carried forward by the government from last year’s crop. It appeared that all was well under control and there was enough to go around at a price that people could historically afford.
So what explains this acute shortage of wheat? The answer can be sought through analysing policies pursued by the government in the wake of changing global trends in food prices. The prices of cereals are spiralling upwards around the world. The world price of wheat is trading close to USD450. The price of maize (corn) has exceeded USD175 a ton which was 50% higher than the average for 2006. Furthermore, prices of wheat were rising rapidly in our region — they were 30-35% higher in Afghanistan and Iran and more than 50% higher in Central Asian States.
Not only are international prices of cereals rising, they are likely to remain high in the foreseeable future. Two main explanations have been provided for this price hike.
First, rising incomes in China and India have led to a change in consumption patterns with more consumers switching to the consumption of meat, which has increased the demand for cereals to feed animals. According to the Economist, in developing countries since the 1980s, demand for meat has more than doubled, and farmers are now feeding their animals about 200-250 million more tons of grain than they did twenty years ago. Consequently, the pressure on the world’s total cereal crop is rising.
Secondly, growing consumption of ethanol has contributed to increases in the prices of other crops and foods as American farmers eager to take advantage of the bio-fuel bonanza planted maize on land previously devoted to wheat and soya beans, thereby pushing up the price of these commodities.
With the international price of wheat more than double the support price of wheat in Pakistan, the government in its wisdom, over-looking not just international developments, but also those in the region, exported the carry forward stock of half a million tons of wheat. Moreover, given our porous borders historically, and the huge price differential indicated above, this was a perfect recipe for our wheat to be smuggled out of the country, resulting in a countrywide shortage of wheat, and the resulting price climb.
Furthermore, the government’s policy is to provide subsidised wheat from its warehouses to flour mills, many of which are owned by politically well-connected parties. These entrepreneurs either hoarded the wheat or the flour to be able to sell it later at rising prices, thereby making abnormal profits (it is estimated that around 1.5 million tons is stashed away even after the estimated smuggling of over 1 million tons of wheat or flour across the border).
While the Pakistani farmer was being paid less than half of what the government has been willing to pay to the Australian and American farmer for the wheat imported from them, and with price of flour significantly higher beyond our borders, the government continued to provide cheaper wheat to the flour mills, over a million tons of which, as mentioned above, was smuggled out.
The beneficiaries of this bizarre wheat policy have been middlemen (Arthis), officials of the Food Department, the flourmills, traders, and personnel of border security forces, all of who connived in this smuggling racket. As a result, the Pakistani consumer ended up paying close to the international prices for wheat while the Pakistani farmer failed to get a remunerative price for his product.
The beneficiaries of the lower price of wheat supplied from government stores to the flour mills were not those intended, the domestic urban consumers, but this motley crowd, which makes one question the efficiency of the nature of the wheat subsidy as it stands today.
The author is an economist and a former Finance Minister of Punjab. This is the first of a two-part series. The concluding part will appear tomorrow
