The wheat woes

I would love to live in the utopian world of the neoliberal economist, where the market determines the exchange rate, market forces determine the prices of wheat, and consumers do not care whether they consume wheat that is imported or wheat that is produced domestically. Inputs such as fertilisers are freely available at market prices, free of the monopolies and hoarding that artificially raise prices.

On the other hand, the brutal reality that we are confronted with these days in the countryside of Punjab is completely different. For the poor small farmers, who make up the vast majority of the nearly 5.5 million rural households in the province with holdings of 12 acres or less, or for small tenant farmers, it is becoming increasingly apparent that the government has no intention of purchasing wheat at the support price of Rs3,900 per 40 kilograms. This is becoming clearer by the day.

As the impoverished farmer’s wife condemns him for not selling his crop (which is now lying out in the open) at Rs2,700, which is the going market price, which is even less than the current global price, the farmer’s hope is all but gone.

The unpredictable weather delivers rain and thunderstorms, and the farmer’s wife curses him for not selling his produce. However, if things continue as they are, he will suffer a significant loss, he begs. Even yet, there is no one there to listen.

Despite the fact that the farmer was relishing the expectation that his bountiful crop would finally offer decent returns and a living income, there were plans in the works to undercut the price that the government had declared prior to the harvest.

In spite of the fact that the interim administration was fully aware that a bumper crop was anticipated, it continued to permit the importation of approximately three million tons of wheat. This resulted in the loss of over one billion dollars in valuable foreign currency for the nation, which was incurred at global rates that were one-third lower than the published price.

In order to avoid confronting the issue, the newly elected administration that took office at the end of February decided to disregard it. The ECC prepared a plan that was only partially developed, and the government of Punjab purposefully chose not to participate in it. There is hardly any hope left for the impoverished farmer.

In contrast to the straightforward and idealistic world of the neoliberal, there is a substantial body of literature that traces the history of how the government ought to decide the pricing of wheat. The system that was created as a consequence had major problems with inefficiency and corruption, in addition to an enormous government subsidy that was expensive.

On the other hand, there was one aspect that was crystal clear: the farmer cannot be left to the mercy of the market and intermediaries, who would take advantage of him for their benefit. In the event that we were to allow wheat prices to be determined by the prices of the global market, as neoliberals have hypothesised, such a policy would need careful consideration, particularly with regard to the huge price variations, in the context of both ensuring the safety of food supplies and shielding small farmers from significant price drops.

Here is where the meat of the issue lies. After taking into account the exchange rate that was established by the market, the price of wheat on the global market was greater than the price that the government declared. At a time when the currency rate was very inflated, the price of grain throughout the globe was lower during the Ishaq Dar years. First things first: before we assume that domestic wheat prices should follow international prices, we need to examine whether or not the exchange rate that is used to determine this is reflective of the actual price of wheat.

Indeed, ever since the 1950s, Pakistani farmers have made a significant contribution to the financing of the expansion of the economy, particularly in the industrial sector. This is due to the fact that agricultural prices have been kept low by means of overvalued exchange rates and high protection to industry in order to encourage the growth of industry. This has resulted in a change in terms of trade that leans against agriculture and favours an industrial sector that is inefficient and lacks competitiveness. And we intend to go on with this course of action?

Now, since the government has behaved carelessly to enable prices to be set by market forces and has allowed huge imports at global rates, what options does the government have to address the present wheat crisis?

In the first place, in order to offer some relief to farmers who are still hanging on to their harvested wheat, the government should immediately begin the process of acquiring at least 3.5 million tons of grain at a price of Rs3,900, which is the price that it has committed to, and rapidly rent space to store the grain.

In the second place, the State Bank has to devise a strategy as soon as possible to obtain financial assistance from commercial banks so that it can provide small farmers with loans at interest rates lower than the market rate. This would allow the farmers to acquire the required inputs to prepare and plant their next crop.

The third and most crucial step is for the government to implement a well-thought-out strategy to ensure a better and more effective system of wheat procurement. This strategy should provide food security and a fair return to farmers, while steadily reducing the government’s role in determining minimum support prices and the costs associated with doing so.

This should be replaced with a role that the government can afford to continue playing. This will allow the government to make up for its tardiness and provide some respite to farmers who are experiencing anxiety for the time being.

Copyright Business Recorder, 2024