Commodity debt touches Rs 382 billion mark: no viable plan yet to dispose of four million tons of surplus wheat

The commodity--wheat, sugar, rice and urea--debt has touched Rs 382 billion, but the government is still unable to devise a viable plan for disposing of over 4 million tons of surplus wheat.
Sources in the Ministry of Food and Agriculture told Business Recorder that last year public sector wheat procurement had crossed 7.5 million tons, of which, about 4 million tons was procured by Punjab government, 1.5 million tons by Sindh government, and 1.2 million tons by Pakistan Agriculture Services and Storage Corporation (Passco).
"Of the total Rs 382 billion commodity debt, the wheat debt alone stands at around Rs 300 billion, and the cost of debt makes it unaffordable for the state to pay back Rs 125 million per day ie Rs 3.75 billion a month, and Rs 45 billion a year", sources said.
They said that Punjab Food Department had 6.1 million tons of wheat stock on October 25, 2010 and the loan liability against the stock, required to be paid to the banks, had risen to about Rs 77.5 million, of which Rs 24.6 million is liable to be paid by the federal government against the cost of strategic wheat reserve, leaving a daily mark-up liability of approximately Rs 52.9 million for the Punjab government.
According to sources, Punjab government has proposed to allow export of wheat/wheat products in appropriate quantities to reduce the overload and to make space for the 2011 crops. They said that in the upcoming season, the government has estimated wheat production target at 25 million tons and if surplus wheat is not exported there would be no storage facilities for the next crop in public sector.
Sources said that the government had delayed the wheat export decision. If the decision had been taken in early September, when international rate was nearly $350 per ton, the government could have earned around $800 million through export of 2 million tons wheat. At current international rate of $290 per ton, the government will earn 580 million dollars; resultantly, Pakistan would lose about $220 million due to this delayed decision. At present, wheat export without subsidy is not possible, which is why at present no private party is willing to export wheat.
Sources said that the Punjab Food Department has recently decided to sell wheat to local exporters on 30-45 days' letter of credit to facilitate them in exporting the commodity in store with the department which is in excess of domestic requirement.
The Punjab government has decided to bear the transportation charges, up to Rs 600 per ton, for those exporters who may export more than 100,000 tons of wheat. Talking about the huge commodity stocks and its consequences, sources said that political preferences of the current governments at both federal and provincial levels in wheat-related decisions had made the situation worse. The federal government raised wheat support price by 46 percent from Rs 625 per 40 kg to Rs 950 per 40 kg in 2008 to attract growers to grow more wheat, and the Punjab government matched it with the biggest procurement drive, which cost it more than its annual development plan.
Punjab launched the biggest ever subsidy regime of around Rs 35 billion, releasing cheaper wheat, instead of money for its schemes, like food stamp, Ramazan Package and Sasti Roti. Resultantly, Punjab government's loans swelled. Punjab Food department at present is holding 5.5 million tons of wheat stock, with the next crop barely two months away, while Sindh's crop is expected to reach the market by March-end. Sindh owes around Rs 170 billion to banks and is paying Rs 80 million a day (Rs 2.4 billion a month, and Rs 29 billion a year) as interest payments.
Sources said that the real concern is carryover stocks that Punjab would take into the next season as it carried over 2.93 million tons from last season to this year, with a debt of Rs 104 billion, and it would be carrying even bigger stocks to next season, along with the ballooned debts.
As per current calculations, Punjab would be carrying around four million tons of wheat into next season along with a debt of Rs 150 billion and it would be dealing with a debt of over Rs 250 billion next year--against Rs 175 billion this year--and paying much more to service them.
The federal government through Passco last year procured over 1.2 million tons of wheat. At present, Passco owes around Rs 56 billion to banks for around two million tons of wheat stocks carried over two years. Passco carried around 812,000 tons into the current year along with Rs 40 billion loans. Passco got Rs 22 billion additional loans for wheat procurement of 1.12 million tons in 2009-10, and has only been able to clear Rs 6 billion so far and is servicing Rs 56 billion debt estimated at Rs 24 million a day or Rs 729 million a month and Rs 8.7 billion a year.
If 140,000 tons of rice stocks are added, Passco's debt would swell by Rs 17 billion with daily interest payment of Rs 7 million (Rs 210 million a month). Passco took a loan of Rs 6 billion in 2008, which increased to Rs 17 billion by 2010 because of its inability to pay interest. There is no way this debt can be retired, without clearing the stocks.
Similarly, Sindh Food Department is holding 1.5 million tons of grain stocks and Rs 31 billion loan which compels it to make daily interest payment of over Rs 13 million.
The food departments of Khyber Pakhtunkhawa and Balochistan also jointly hold around one million tons at a cost of Rs 24 billion per annum. Naeem Butt, Chairman all Pakistan Flour Mills Association, Khyber Paktunkhawa chapter, told Business Recorder that Afghan government was charging Rs 28,000 per truck as duty on imports coming Tajikistan side, while it charges Rs 88,000 per truck of Pakistani origin. He urged the government to take up the issue with Afghan officials. Butt said that the supply of wheat products to Afghanistan would reduce the financial burden on the government and it would be able to pay the outstanding dues as the move would enable them to sell wheat stocks to the millers.