Wheat export ban

ECC's decision to suspend wheat export after a review of the commodity's availability in the country is positively reflective of the government's resolve to keep wheat and flour prices stable in the domestic market. Prime Minister Shaukat Aziz, while presiding over the ECC session, is reported to have remarked that as the country has had a record wheat crop this year an increase in prices will be totally unacceptable, and the government will not tolerate hoarding and manipulation of the market.
These are indeed encouraging words, which should be translated into concrete action on the ground. The decision to suspend wheat export has come in the wake of representations by the Sindh government and the flourmill owners over a spurt in prices in the local market, largely blamed on "hoarders and speculators."
The Sindh government had earlier alleged that exporters had begun large-scale wheat purchases from the local market, thereby pushing the prices of the new crop to between Rs 1,155 and Rs 1,175 per 100 kg. There are also reports that flour prices have gone up by Rs 80 to Rs 100 per 100-kg bag in Karachi.
The federal government had then rejected a Sindh government request for a ban on wheat export, arguing that vast stocks of the commodity were available in the country for local consumption and, therefore, its export would not push up prices in the domestic market.
Even now it has been asserted that the ECC has ordered "suspension" and not a "ban" on wheat export. It will be recalled that only last January the government had lifted a two-and-a-half year wheat export ban, intended to protect domestic supplies, and had allowed private traders to export 800,000 tonnes of wheat. Later it had also removed 15 percent duty on export, and then last month allowed export of a further 500,000 tonnes of wheat to India.
However, but as soon as wheat export was allowed, local flourmills had increased wheat and flour prices and started hoarding the commodity. The current carryover stocks of wheat in the country stand at five million tonnes, while the new crop is expected to be more than 23 million tonnes. This means that there will be an overall surplus of 1.5 million tonnes this year.
The government has already procured approximately 600,000 tonnes of wheat from the farmers, and another 100,000 tonnes will be procured soon. Meanwhile, there is a perception that the sudden suspension of wheat export will generate many procedural and legal complications for the exporters, as the government has yet to come out with a clear-cut decision on some 1,100 containers left stranded at the ports after the ECC decision.
Obviously, wheat exporters are under a contractual obligation to make shipments L/cs for which have been already opened, and failing that to pay the prescribed penalties. We believe that the embarrassing mix-up is a result not only of a lack of inter-departmental coordination but also of a paucity of consistency in policy formulation and implementation.
The decision to ban wheat exports seems to have been taken at the spur of the moment, as until only two days before it the federal government was resisting attempts by the Sindh government to have wheat exports banned to protect domestic consumers. Was the federal government really unaware of the upward trend in local wheat and flour prices?
Not only did it refuse to heed the provincial government's advice on the issue, but hastily issued guidelines for wheat export. Now all of a sudden the government has suspended wheat exports, but again without clearly specifying its policy on the export orders already in the pipeline.
Now that a decision has been taken, the government should allow export of the already booked orders to protect its own and the exporters' credibility. As far as hoarding is concerned, the government can always check it after collecting credit data from the banks and other financial institutions with the help of the State Bank of Pakistan.
We believe that the whole problem has arisen from inadequacy of storage capacity in the country, which at present stands at about 5.57 million metric tonnes in the public sector and 1.14 million metric tonnes in the private sector. Many analysts believe that storage capacity should have been made an integral part of the government's food security plan, which was never done.
While the private sector is making investment in augmenting storage capacity for sugar, potato, fruit and vegetable production, the foodgrain and seed stocks have failed to attract worthwhile investment. There is therefore an urgent need for public and private sectors to develop modern storage facilities in the country, keeping in view the requirements of a rapidly growing population and a fast-track economy.
Living from one crop year to the next, and disposing of the surplus produce not only to earn additional dollars but also to save ourselves the effort to build additional storage, does not speak of scientific planning, at least in the agriculture sector.
The government should encourage investment in this sector by providing low-interest loans and liberal tax rebates to anyone willing to invest. In this way the government will not be under pressure all the time to dispose of surplus produce each crop year, and will also be able to build up sufficient food stocks to tide over lean years. Meanwhile, the government should ensure that wheat and flour prices in the domestic market do not rise beyond the common man's purchasing power.