Ban maize exports?

Over the past 12 months, world maize (corn) prices have increased by almost 50 percent, with dramatic rise witnessed since the outbreak of Russian invasion of Ukraine. During the same period, Pakistan’s corn exports have increased by 10 times (!) in value, growing from about $15 million in FY21 to $120 million in 10MFY22! As a global commodity super cycle sinks its teeth in prices of food commodities, are opportunistic exporters taking undue advantage?

Pakistan Poultry Association certainly seems to think so. Over the past week, appeals have been published in this and several other newspapers by the association, requesting the government to not put Pakistan’s food security at risk and impose an immediate ban on export of maize. The appeal notes that “maize is the main ingredient of poultry feed with an inclusion rate of 65 percent”. At a time when Pakistan is already facing a significant shortfall of wheat (a partial substitute of maize as feedstock), while other commodity exporting nations such as India (wheat) and Indonesia (palm oil) are fast imposing protectionist bans to fight inflationary pressures back home, PPA’s warning appeals to common sense. But do facts add up?

According to Finance ministry’s website, Pakistan’s maize output during FY22 is estimated at 9.7 MMT (million metric tons), up 9 percent or 0.8MMT over the previous year. But this single digit growth hides the tremendous performance posted by maize crop in recent years. In less than a decade, Pakistan has doubled its maize crop output, with spring maize productivity now at par with top yielding nations such as US and Canada. But unless local consumption has outpaced output growth atCAGR 8.4 percent, should Pakistan not have generated ‘some’ exportable surplus?

In absence of data on quantity exported for the ongoing fiscal year, the extent of exports is left to conjecture. According to PBS, until FY21 Pakistan’s annual maize export volume averaged below 0.1MMT, insignificant enough for GoP to leave the trade unregulated. However, the quantum jump in export earnings during the ongoing fiscal indicates Pakistan may have exported as much as 0.4MMT during 10MFY22. But this is still well below 5 percent of total annual output. An export ban may have made sense had domestic crop performed poorly. Surely the country can afford to export 5 percent of its output when its production is growing at nearly 10 percent per annum?

However, that only presents partial picture. Poultry producers believe that export orders are being received for high quality grain produced during spring season which has low moisture content and low aflatoxin levels compared to the autumn crop, and is preferred for use in poultry feed preparation. Moreover, considering the current trajectory of global prices, export orders may witness a significant jump unless banned immediately. But have local prices grown fast enough to justify a ban already?

According to data from Punjab Agriculture Marketing Services, maize prices in local grain market increased by only 14 percent between May 2021 and May 2022, compared to 27 percent and 23 percent rise in wheat and basmati (new) prices respectively during the same period. Similarly, WPI data from PBS indicates that maize prices remained flatlined between April 2021 and 2022 (although stale). Remember, this at a time when maize prices have risen by 50 percent in international market, while Pak Rupee has also depreciated by 30 percent between May 2021 and May 2022.

Allowing a blanket ban on exports will ensure that local prices remain rangebound, especially when domestic crop has performed well. Surely local farmers and grain traders must also be allowed to reap benefitsof a rally in global prices, if they are to remain incentivized to invest in improving crop productivity and competitiveness?

Yes, and no. Remember, the ongoing volatility in the international market has made supply situation extremely tight.Moreover, government of Pakistan is oft slow to act and is prone to get its crop estimates wrong (until last month, Finance Minister had insisted that wheat crop has performed well and Pakistan may not need to import after all!). But most importantly, maize imports face an extremely prohibitive 40 percent regulatory duty and 11 percent custom duty on import. The poultry association may very well be demanding regressive measures to protect its commercial interests. But does it truly also face an equally competitive access to imported raw materials?

If government of Pakistan seeks to allow farmers the profits of maize export, it must immediately remove regressive tariffs on import of poultry and feed raw materials.