Wheat crisis

Ordinary people are sometimes made to suffer from mistaken policies of the government. The price of wheat, which is the main staple diet of all and sundry and largest grain crop of the country, is increasing day by day and nobody has a clue to when it is going to stabilise.
The problem seems to have originated from the zeal of government authorities to propagate their achievements that were not consistent with reality. Though the estimates were stated to be provisional, everybody was made to believe that the wheat crop during 2006-07 (to be largely consumed in 2007-08) was exceptionally good and would be more than sufficient for the consumption requirements of the country.
The crop was reported to have been cultivated on an area of 8494 thousand hectares, showing 1.0 percent increase over last year and 0.4 percent increase over the target. The size of the wheat crop was provisionally estimated at 23.52 million tons - highest wheat production in the country's history, which was higher by 10.5 percent than last year and 4.5 percent higher than the target.
Higher production, the government reasoned, was due to higher availability of certified seed and fertilisers, improvement in water availability, greater disbursement of agricultural credit and the release of three new high yielding wheat varieties.
The market, however, is generally wiser than the public officials and senses a crisis much earlier. In the wake of unanticipated continued surge in flour prices, the government agencies started to have second thoughts about the size of wheat crop.
According to fresh estimates reportedly presented by the Trading Corporation of Pakistan (TCP) to the Prime Minister, wheat output was actually 22.2 million tons, much lower than the original government estimate of 23.52 million tons. After accounting for 21.5 million tons of flour consumption and allowing for two million tons for local feed (cattle and poultry), the wheat deficit was expected in the vicinity of 1.3 million tons.
The magnitude of overall wheat shortage is, however, likely to be much higher due to the fact that 0.5 million tons of wheat was exported through legal means while 1.5 million tons were thought to have been smuggled out of the country. The belated decision of the government to import one million tons of wheat would only help to resolve the crisis only partly but not fully.
Wheat production estimates, according to some sources, were increased in the beginning to 23.5 million tons in order to substantiate the projection of seven percent GDP growth target for the year ending June 30, 2007. If the difference between the original estimates and TCP's estimates is taken into account, the growth rate would tumble down substantially.
Another very serious dimension of the problem is that Pakistan exported half a million tons of wheat at around $220 per ton earlier this year while it would be compelled to import one million tons at about $400 per ton.
The loss from this flawed policy approach, whether intentional or unintentional, is obviously quite huge. Besides the drain on the foreign exchange reserves of the country, the price impact in the domestic market could also be substantial.
The cheapest US soft wheat variety could be imported at $280 per ton FOB which would translate into a landed cost of Rs 22.50 per kg and sale price of about Rs 23.50 per kg. It is obvious that high the prices now prevailing in the international market would require the government to provide adequate subsidy to keep the domestic prices stable. The fiscal implications and the likely price impact of this strategy are too obvious to be recounted here.
The callous and complacent attitude (complicity is hard to prove) of the government functionaries in dealing with the situation has placed almost unbearable burden on the common man's budget. Roti in the market has not only shrunk in size but is now available at Rs 4.0 per piece as against Rs 2.50 only a few months back.
Wheat flour is either not available in certain areas or is being sold at around Rs 20 per kilogram. If the rise in wheat price persists for some time, the most basic commodity could go beyond the reach of poor people who constitute about one fourth of the total population of the country. On the other hand, many people believe that huge amounts of money are being made out of this crisis by some stakeholders and by the end of the day nobody would be held responsible and awarded due punishment.
Even ignoring the idea that this could be a crisis deliberately manufactured for self-serving ends, the fact cannot be denied that mismanagement and inefficiency on the part of government planners and other functionaries have largely contributed to the creation of this ugly situation. Responsibility, therefore, must be fixed for this unprecedented negligence of the concerned authorities.
NAB could be involved to trace the people who profited from this crisis and devastated the poor financially. It is strange that the blame game has already started. The Federal Government is accusing the Punjab government for the crisis, while the Punjab government has blamed the Federal Government in a tit for tat manner.
The officials of the Ministries of Food and Industries in a meeting with the Prime Minister have also blamed district administrations for the price hike owing to their failure to lay hands on hoarders and smugglers.
Another area which needs to be looked into carefully is the lack of proper assessment of the size of the wheat crop and timely planning to export or import the commodity in order to stabilise the price in the domestic market. The bungling, so obvious this year, needs to be avoided at all costs in future. If the suggestion of deliberately fudging of output figures for some ulterior motives is correct, it is a very serious matter.
Smuggling of the commodity needs to be reduced to the minimum by taking stringent administrative measures. Certain decisions have also to be made without losing more time. Whether TCP would be the only agency to import wheat or private sector should also be involved and how much subsidy would be offered, etc to keep the wheat price within affordable limits, are some of the issues which need immediate attention.
In short, not only the present crisis has to be dealt with effectively but a proper mechanism has to be instituted to check the possibility of such occurrences in future.
Prime Minister Shaukat Aziz has repeatedly said (and this newspaper has endorsed it) that it is not the job of Government to be in business. At the same time, he has added that allowing free market forces to control prices does not mean that the government must not regulate the market forces.
Expanding the utility store network from 350 to 6000 outlets is not the answer as this can take care of only 10 percent of the population. This untargeted subsidy for the poor and exploitation by the powerful functionaries soon become the norm.
A more effective targeted approach for the poor - as is the norm in developed countries - is food stamps. A mechanism to issue them in a cascading fashion where the poorest get the largest subsidy with lesser subsidy for the comparatively better off would be far more effective.