Although the government allowed the export of wheat and then reneged on its decision under public pressure due to the rise in its prices in the domestic market, whether this proposition was in the larger economic interest of the country can be argued with equal force either way.
As the data indicates, major crops posted a strong recovery from the negative 4.1 percent last year to a positive 7.6 percent this year, due mainly to higher production of wheat and sugarcane. The size of the wheat crop was estimated at 23.52 million tons - highest wheat production in the country's history, 10.5 percent higher than last year and 4.5 percent higher than the target.
Domestic annual consumption, on the other hand, is estimated at around 22.5 million tons, clearly leaving an exportable surplus of around one million tons if all other factors, including stock position, are assumed to remain unchanged. Against this backdrop, the government set an export target of 1.3 million tons, but only 0.4 million tons could be exported before the Economic Coordination Committee (ECC) of the cabinet suspended exports on massive buying by those having storage facilities and the Sindh government showed its inability to meet its procurement target.
The target for wheat procurement in the public sector was fixed at five million tons, out of which Punjab was assigned to purchase three million tons, Sindh was to procure 0.7 million tons, and the Pakistan Agriculture Storage and Supplies Corporation (Passco) was given the target of 1.3 million tons. According to a spokesman of the Federal Food and Agriculture Ministry, 90 percent of the target has so far been achieved and the process is still continuing.
As far as the prices are concerned, the government had fixed a support price for the farmers and could intervene only in case of a fall in the price below Rs 425 per 40 kg.
It usually does not feel the need to influence the market when the price rules somewhat above the procurement level. The procurement of wheat in the public sector, as in the past, was meant for use as strategic reserve for release in the market in case of a surge in flour prices. The speculators and hoarders in their eagerness to make a quick buck in anticipation of wheat exports had purchased in bulk from the market but are now facing losses and trying to offload their stocks.
According to reliable sources, about 1.5-2.0 million tons of wheat is still in the hands of speculators. They, in all probability, are going to suffer because the export ban is expected to remain in place for another six months or so and their borrowing and storage cost would hurt them.
The botched exercise of first allowing and then banning the export of wheat, in our view, could have been avoided if government authorities had planned carefully. The price of wheat in Pakistan is a very touchy subject because it is the main staple diet of the country's population and largest grain crop of the country. For reasons obvious to everybody, its price has to be kept at a reasonable level keeping in view the interests of both the farmers and the consumers.
The level of poverty in the country being what it is, an increase in wheat prices will force many people to stay hungry and lead to social chaos. A drop in wheat prices, on the other hand, would hit the ordinary farmers badly and be a source of income transfer from rural to urban areas. Of course, the government prescribes support prices every year, but the experience of agriculturists suggests that when the crop is above expectations and the prices drop, only powerful landlords benefit from such an exercise while ordinary farmers are forced to sell their produce at a lower price to the middlemen.
In order to benefit all the growers, it would perhaps be more prudent to allow the export of a surplus agricultural commodity. This would not only induce the growers to maintain the production level next year but would also enable the country to earn foreign exchange. Hindsight suggests that the timing of the government to allow the export of wheat was particularly inappropriate.
The crop size was still provisional and, therefore, the decision was too early to give a reasonable level of comfort to the policy makers and other stakeholders. Another important lesson from this year's wheat export policy is, that the government must first perfect the art of holding and using strategic reserves of commodities for price stabilisation.
Failure to do so leads to speculators and hoarders making windfall profits at the cost of consumers or causes excessive suffering to consumers in case of a sudden change in policy. The decision was quickly reversed in the instant case because wheat is the most basic necessity of life in Pakistan and this is an election year.
Seen from all angles, the issue of wheat export, in our view, was not a failure of policy as such but became problematic because of the way it was handled and managed. The increasing globalisation trend and freer international trade regime would even call for more thorough analysis of the situation for devising appropriate trade policies.
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