EDITORIAL: Wheat procurement, or the lack thereof, has recently become a significant political and economic issue, particularly for the Punjab government. The supply glut, caused by imports and falling international prices, has led to a sharp decline in domestic prices.
Consequently, the government is not procuring the usual amount of stock at the higher support price. The question is whether there should be a support price at all.
Ideally, the sector should be left to the private sector, with the government only ensuring the timely and affordable supply of inputs. However, there are successful examples of a support price mechanism in neighbouring India, where the government ensures support for 20 to 22 crops, and things are going well.
In Pakistan, some form of support price mechanism has historically been in place for wheat, sugar, and cotton since the 1970s, with the most significant support provided to wheat, the staple crop.
However, over the past five decades, there has been little or no success in wheat and cotton production. The issue lies more in policy inconsistency and poor governance that have eroded the likely potential benefits for farmers and consumers. These benefits are being pocketed by rent-seekers (middlemen referred to as aarthis) and lost in governmental inefficiencies.
This story is similar in many other sectors, especially energy. The recommendation is simple: the government should reduce its footprint in procurement and move away from deciding which crops should be grown in specific areas.
There has been a silent revolution in the maize crop, which has performed exceptionally well over the last two decades without any government involvement. This success started with a private player providing technical and financial support to farmers for its own needs, ensuring the right standards and adequate supply of maize. Biotech companies then introduced hybrid seeds without controversy, and growing poultry demand further boosted maize demand as poultry feed.
In contrast, the cotton sector resisted hybrid seeds, and large private textile groups (the main buyers of cotton) did not invest in building the cotton value chain. There was no support from the private sector, and textile companies were content with using locally produced short staple cotton for low value-added exports while importing long staple cotton. Consequently, Pakistan has lost its competitive advantage in cotton for textiles.
The sugar industry tells a different story. Here, the big sugar tycoons did invest in the value chain and produced value-added products. While rent-seeking was prevalent, these big players used their scale to grow the industry. Interestingly, many big players in the sugar industry were formerly bottlers for two top American cola brands, which helped them grow the sugar industry to ensure their cola business supply chain.
In the case of rice, however, there was no support price, yet the industry is thriving due to its export potential. However, no major global private player has stepped in to move towards value-added products like rice cereals.
A global multinational is working with potato farmers to grow a specific type of potato for chips, and another MNC is considering building a tomato value chain. Similar support might be seen from pulp and juice makers for fruit farmers.
However, there is nothing comparable in wheat. Despite the presence of big local and foreign players in the confectionery business, they have not developed flour mills or the overall wheat chain. Technical and financial support has been solely provided by the government, which has ensured prices and covered the working capital needs of flour mills by procuring wheat and maintaining inventories. Consequently, Punjab’s wheat commodity price circular debt alone has surpassed one trillion rupees.
One reason for the lack of private interest in developing the wheat supply chain is perhaps the political sensitivity of the crop that facilitates big players to enjoy government subsidies while remaining on the side-lines.
Now the era of wheat support prices is likely ending, barring any natural calamity or significant rise in international commodity prices. Let it be, and wait for the private sector’s innovation if the crop truly has potential.
Copyright Business Recorder, 2024
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