Streamlining wheat releases

In a seminal move, the federal government has reportedly decided to restructure its wheat release policy, by placing urban-based small grinding units under the provincial food departments so that they may be able to obtain wheat from the provincial governments, says a Recorder Report quoting official sources.
The overhaul of the policy is apparently a move in the right direction, to control the wheat and flour crisis that has been holding the country in its grip. Sources have informed Business Recorder privately that the Ministry of Food, Agriculture and Livestock (Minfal) has admitted that its wheat export policy at $200 per ton was mistaken; hence the proposed policy overhaul and the government now has to import the commodity at $400 per ton.
Many analysts have in fact been sceptical about the veracity of the official wheat production figure of 23.56 million tons, and maintain that the actual production was only about 21 million tons. (There is a perception that the production figure was hiked to justify the increase in the GDP growth rate).
However, at a recent meeting, the cabinet was informed that despite export of 0.365 million tons of wheat, sufficient stocks of the commodity were available to meet the country's requirements. However, as wheat is the principal staple food, its crop size, particularly any shortfall in production, can deeply influence the country's economy.
Therefore, the government needs to have reliable advance information concerning the status of the wheat crop ahead of the harvest so as to ensure food security in the country. This goal can be achieved by making forecasts of future crop area as well as the likely yield, and by undertaking timely corrective measures, as suggested by the results.
Inconsistency in wheat trading policy has been a regular feature in the country's agricultural management over the last several years, which has become more pronounced over the last four years or so. It will be recalled that in February last year the government had allowed the private sector to import one million tons of wheat without apparently taking into consideration the fact that the country had achieved wheat production of 21.612 million tons in the previous year, which was a record high.
THE QUESTION ARISES: if it was a record yield, then why was the private sector allowed to import one million tons of wheat, particularly when there was an acute storage problem as well? Obviously, such blunders are reflective of an unscientific approach to the issue. Secondly, hoarding and speculative trading by influential market players has made an already confusing situation worse confounded.
For instance, the government had announced a decision to clear its carryover wheat inventory of about 3.5 million tons by allowing export of half a million tons. However, it was soon found that the inventory cost (bank interest, storage charges and transportation cost) had rendered our wheat somewhat uncompetitive in the international market.
The authorities, instead of paying heed to the market trends, quietly increased wheat export quantity from 0.5 million tons to 0.8 million tons. When the harvest started coming in and there were reports of a bumper crop - over 23 million tons - the government allowed export of half a million tons from the new crop as well so that it could be marketed without any inventory cost.
Secondly, the malpractices of market forces have been fairly common in the absence of a regulatory authority. No sooner was wheat export initiated, hoarders, profiteers and speculators descended on the market to mint money.
SBP's report issued in December last year -about three months before the wheat harvest - had warned of speculators taking over control of the wheat market if export was allowed before the build-up of the strategic reserves, and proper assessment of the crop. That is exactly what happened. Within a month of what was claimed to be a record bumper crop, wheat and wheat flour prices in the open market had started going up.
We believe that there are basically two major causes of the problem: one, lack of adequate storage space; and two, absence of a foolproof crop assessment mechanism. The present storage capacity in the country stands at about 5.57 million metric tonnes in the public sector and 1.14 million metric tonnes in the private sector, which is patently insufficient to meet the needs of the whole agriculture sector.
(Indeed, storage capacity ought to have been made a part of the country's food security programme). Secondly, the problem has arisen largely due to application of an erratic and defective crop assessment methodology, despite the fact that Agriculture Research Council scientists have developed a model based on time-tested data of 28 years (1975-1976 to 2002-2003), collected from secondary sources. By using this model the policymakers can predict the exact yield of a particular crop or forecast area, which will be sown in the next crop season.
The technique used for crop forecasting is Ordinary Least Square (OLS) of regression analysis. Five equations (for the whole country and one each for the four provinces) are used for wheat area, and one equation to forecast the wheat yield in the country.
Crop production is estimated by multiplying the area and yield forecasts. This model can enable the policymakers to estimate the yield of wheat crop before harvest. Accurate forecasting of wheat area and production may enable policymakers and planners to make policy decisions regarding the supply, demand and import of wheat in the country.