Apropos 'Populist steps to benefit farmers: Prime Minister' carried by Business Recorder on Monday, I was shocked to read that our Prime Minister was boasting about the timely decision his government has taken to increase the support price from Rs 1200 to Rs 1300 per 40 kg and impose a 20 percent duty that would help the farmer community. Absolutely correct! Mr PM? "Populist steps to benefit farmers". The PM has plausibly argued that his steps clearly indicate that he certainly does not care about the remaining population of the country.
His decision is extremely inflationary that will add to people's woes. It is surely untimely against all the norms because global wheat prices are on a constant decline since last many years. Last year it posted the biggest annual loss since 2008, as global wheat production in 2013 surged by 8 percent, which is down by nearly 25 percent since then.
Further, I would like to add to my argument that there is already record Canadian harvest mainly of high protein variety. The US wheat crop report for 2014-15 suggests excess growth. Due to double cropping aid, US wheat winter acreage is likely to be in abundance. Except France, plantation conditions in Europe are extremely favourable. China and other emerging markets are already piling up stocks since August. So far they have made most of their purchases from the US because of a fierce competition from Russia and other European countries.
It indicates that global wheat stock is set to rise by the year end, as the world producers are flooding the market aplenty, which means wheat prices will remain depressed and hence future trend will remain bearish. What worries most and the question that needs to be answered is that when the global commodity prices are on a constant decline for years, then why general public should pay the price for all the mishaps and agriculture adventuresome.
The biggest threat/challenge for the government will be to hold the price of bread/roti at the current rates, which will surely rise at any cost and this will definitely make them sweat. This is one reason that neither Prime Minister Sharif, nor Finance Minister Dar had the courage to add to his statement that despite a hike in support price bread/roti prices would remain unchanged.
But there is surely a reason for this hike in wheat price. The rise in support price is a clear indication that Rupee will depreciate by 5-10 percent either by the end of current fiscal year (30th June 2015) or by the end of calendar year 2015, as the economy is yet to run on the correct path.
Another linkage to this wheat price hike is that it will lead to a spurt in inflation and hence the positive impact of lowering petroleum prices will be offset, which would give another opportunity to State Bank of Pakistan to justify a higher discount rate in its upcoming monetary policy.
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