Surplus wheat stocks: Passco paying Rs 13.4 million per day as financing cost

Pakistan Agricultural Storage and Services Corporation Limited (Passco) is reportedly paying Rs 13.4 million per day as financing cost on surplus wheat stocks procured at an inflated price as compared to international prices, well informed sources told Business Recorder. PASSCO procured entire stocks through massive borrowing from banks which charge heavy mark-up @ Kibor + 250 basic points.
Passco argues that early disposal of one million tons of surplus wheat will not only forestall deterioration in the quality of stocks but burden of Rs 4,889.18 per ton on account of storage/financial cost etc for next year would be eliminated which comes to approximately Rs 4.889 billion for storage of one million ton surplus wheat which implies a cost of Rs 13.395 million per day.
Statistics show that world wide wheat stocks would be at an all time high/record level during 2012 and there is unlikely to be a chance for a rise in wheat price in international market. Reasonably high wheat crop in Pakistan, coupled with an all time high world wide wheat stocks would make it difficult to dispose off stocks at an appreciable price at a delayed stage.
Economic Co-ordination Committee (ECC) of the Cabinet recently ordered a probe against PASSCO for inflicting Rs 2.75 billion loss to national exchequer by delaying offloading of wheat stocks of 2010 crop. Secretary Cabinet, Nargis Sethi, will conduct an inquiry into the matter and submit a report to the ECC on reasons of submission of a summary to the ECC for offloading wheat crop of 2010.
Official documents reveal that stocks with Passco amount to 1.75 million tons from 2010-11 crop of which 0.25 million tons would be released to deficit provinces and World Food Programme (WFP), while 0.5 million tons would be kept as strategic reserves. Thus, PASSCO has surplus wheat stock of one million tons.
The ECC on April 11, 2011 had allowed sale of 0.2 million tons of wheat at Rs 25,000 per ton (plus packing material) for export purposes but no wheat could be exported due to cost differential of Passco''s wheat and international market price. PASSCO maintained that because of downward trend of international wheat prices, disposal of its surplus stock through exports will not be possible and other avenues needed to be explored for off-loading the surplus stocks before the next crop comes in the market in May 2012. According to documents, ECC was informed that private sector had shown substantial interest in purchase of wheat from Passco at Rs 950 per 40 kilogram plus cost of bag.
It is being suggested to the government to allow PASSCO to dispose of its entire surplus quantity of one million tons of wheat due to following imperatives: (i) Pakistan''s 2010-11 & 2011-12 crop wheat is very expensive comparable to benchmarking international prices (due to very high price/premium allowed by the government to benefit farmers), and (ii) Pakistan today has abundant wheat stocks (existing public-sector stocks are at an all time high/record level).