In a highly unusual development, Pakistan, despite being a customer for a million tons in a global wheat market awash with 15 millions tons surplus in the EU alone, finds itself faced instead with conditions and stipulations set by a handful of international wheat trading companies, backed by three supplier countries.
The Trading Corporation of Pakistan (TCP), which received only six bids for its first Tender of 500.000 tons, was constrained to reject all the bids because "the bidders had attached conditions which had made interpretations of intentions difficult." With the Ministry of Food stating that TCP "did not reject all the bids," but TCP itself advising that rejection of all the bids "was a purely technical process," even the tendering process has become cluttered with confusion.
Whatever the correct position, there is little doubt in regard to the intentions of the bidders who have put forward terms that present TCP with a choice of either accepting the sellers' terms or going elsewhere for its requirements.
This has come to pass in spite of the fact that TCP had revised its earlier stringent pre- and post-shipment inspection terms, to bring these in conformity with standard international practices.
This was a necessary corrective measure, otherwise no bidder from any export origin was likely to have participated on the basis of TCP's original terms.
But TCP went two steps further to accommodate the prospective bidders. Not only did it amend the quality specifications, it also incorporated a clause that allowed independent testing by the official agencies of the export-origin countries (USA, Canada, Australia.)
The latter terms was designed to address the concerns that had arisen as a result of Pakistan's rejection, earlier this year, of the sub-standard wheat which the Australian Wheat Board had attempted to ship, using the opportunity presented by an unusual third-party transaction.
Unfortunately, TCP's co-operative measures appear to have had little effect and it finds itself re-tendering for this cargo and clarifying that it is again "revising" its purchase conditions to conform to "world standards." It cannot of course be a coincidence that a supposedly diverse group of bidders competing for this Tender have independently put forward almost similar selling conditions and are showing equal reluctance to do business with TCP, except on their own terms. A sale of a million tons of wheat is no small matter, many commercial enterprises would break alliances and promises to competitors in order to steal from them such a large business.
Therefore we have to examine why, despite its concessions, TCP is faced with a cartel that is pushing for its own terms in a buyer's market, in the process pushing up the cost by more than two billion rupees for the first cargo alone.
Part of the problem is self-generated, caused by the inexplicable stipulation of the Food Ministry that the import be restricted to "white" wheat. Such a condition in effect restricts the sourcing from only three countries (USA, Canada, Australia) and encourages the creation of supply and price cartels, whose muscle in the present instance is enhanced by the political considerations of the supplier countries.
Press reports indicate that the average price received by TCP was USD225.00 per ton, which is not only considerably higher than current world prices but calculates to almost two billion rupees more than the cost of importing half a million tons of wheat of European origin.
At current prices, the delivered (C&F) cost of, for instance, French medium-hard milling wheat would work out to rupees nine per kg, as opposed to the average price of rupees thirteen per kg received by TCP from its restricted sourcing. Put another way, this means that the government will be paying an additional subsidy of Rs 4.00 per kilo merely for the privilege of importing wheat from the US, Australia or Canada.
Perhaps the obduracy of the bidders, and the suppliers behind them, results from an effort by the US-Canada-Australia wheat exporting trio to "punish" Pakistan for having questioned the credibility and business ethics of one of their own. In such a case, it would not be difficult for them to obtain the co-operation of the major international commodity traders, who, it should be remembered, have big profit stakes in the agricultural produce of these three countries.
The determination of the Anglo-Saxon wheat exporters to protect their reputation and especially their market control should not be underestimated.
From their viewpoint, the Pakistani action, if allowed to go unchallenged, might encourage other sovereign importers to attempt loosening of the tight control maintained by this handful of countries on the supply of a vital commodity to food deficient nations.
Nor should we underestimate the damage caused by the Pakistani rejection. Australian concern is evident in a recent letter written by the Australian High Commissioner, declining an invitation to address the Federation of Pakistan Chambers of Commerce and Industry, in which he has not minced words in regard to the anger aroused among his country's policy-makers by the wheat incident.
Paradoxically, these countries are enabled in their task of exerting pressure not only by Pakistan's self-imposed stipulation regarding the sourcing of the wheat but also by the uncertainty surrounding the actual position of wheat stocks in Pakistan.
An ill-timed official handout in late July, attempting to explain revision of the original inspection terms, made a pointed reference to Pakistan's "urgent and expeditious requirement of wheat." Not only was this at variance with the Prime Minister's contention that the imported wheat was required for supplementing buffer stocks, such a statement would surely have encouraged any seller, irrespective of political consideration, to up the price and stiffen the terms in the belief that the buyer, being vulnerable also on account of the delivery period, would have little room for negotiation.
Unfortunately, at a time when fresh bids are awaited, there is further confusion in the demand situation by the Sindh Food Minister's announcement that TCP will in fact be importing a total of 1.5 million tons (not one million as stated by the Federal Government) and that Sindh alone is short by 1.8 million tons of wheat.
This new information is likely to further harden the sellers' position, especially as TCP continues to remain restricted in its sourcing options. Surely, for Pakistan to have the best bargaining position, it would be good if government officials, at all levels, co-ordinated their figures and spoke with one voice.
In a recent newspaper article "Review of Agro-mismanagement," it is stated that "the projection of wheat production (in Pakistan) shows annual shortfall of 8 million tons by 2013 and 11 million tons by 2025." Even assuming that this is a worst-case scenario, expert opinion agrees that, after accounting for best-case yield and land-usage projections, the import of wheat will very shortly become once again a regular factor of Pakistan's food economy.
To prepare for this eventuality, it is necessary that the country should establish professional procurement procedures that ensure transparency and address supplier concerns. Re-involving the private sector in the import process could be a first step. But most importantly, Pakistan must diversify its sources of supply, opening up its doors to the European wheat mountain.
In doing so it will benefit from purchasing at the best prices, on its own terms, without being subject to the pressures and blackmail of producer-trader cartels.
Comments
Comments are closed.