The government's decision to levy 10 percent regulatory duty on import of wheat is apparently a last-ditch attempt to force the private sector to buy local wheat at the support price of Rs 415 per 40-kg, to ensure reasonable financial return to the farmers.
The move is a compromise on a proposal made by the Food and Agriculture Ministry last week seeking levy of 20 percent duty on wheat imports. Another proposal had sought withdrawal of export duty on wheat to facilitate export of the commodity to Afghanistan.
What is rather intriguing is that the Agriculture Ministry, which has projected this year's wheat crop at 20.5 million tons - 1.5 million tons short of the target of 22 million tons - at the same time sought to discourage wheat imports. The final decision to clamp import duty has been taken despite the Finance Ministry's apprehension that this would only further fuel inflation in the country.
The government had last year allowed duty - and tax-free import of wheat to tide over the growing shortage of the commodity. The government has fixed procurement target for this year at five million tons. The Punjab Food Department will buy three million tons, and Sindh 700,000 tons, while Passco will purchase 1.3 million tons of wheat.
The country's total wheat production this year is estimated at 20.5 million tons against its annual consumption of 21 million tons. When asked how the shortfall of 500,000 tons would be met, the Federal Food Minister said that it would be done from the government's carry-over wheat stocks, which are available in abundance.
The decision to levy 10 percent duty on wheat import has been taken at a time when many importers would have opened LCs for wheat import. In fact, according to news reports, the private sector has already contracted one million tons of wheat import from various sources, out of which 816,000 tons has arrived at Karachi.
Further, the government under a recent decision has also revoked 15% duty on import of wheat flour to ensure better financial return to growers as well as to stabilise flour prices.
According to market watchers, the main problem is the availability of over two million tons of wheat in carryover stocks. This means that the total availability of wheat would be in excess of 22 million tons even if the current year's crop production remains 20.5 million tons.
In a related move, the government has removed 15 percent regulatory duty on wheat exports because sufficient stocks are available in the country. The decision is clearly designed to discourage excessive wheat exports to Afghanistan.
Meanwhile, the government had allowed the private sector to import one million tons of wheat without taking into consideration last year's wheat production of 21.612 tons, which was a record high. The availability of carryover stocks of 800,000 and 1,00,000 tons in Punjab and Sindh respectively, is threatening to lead to a serious storage problem.
The problem has arisen from the government's failure to build adequate storage capacity, and the unscientific crop assessment methodology it has been pursuing over the past years.
For instance, the permission to the private sector to import one million tons of wheat, particularly when last year's production of 21,612 tons was an all-time high, is also reflective of this unscientific approach.
The levy of 10 percent duty on wheat import will provide the requisite cushion and incentive to the growers who have lately gone in for more profitable cash crops like cotton, sugarcane and rice. Any imbalance in the traditional crop cultivation ratio can lead to serious complications.
Next, there should be consistency in pursuit of policies. Stop-gap arrangements cannot serve as a substitute for long-term policies. Thirdly, scientific methodologies should be adopted for crop assessment, which alone can give a composite picture of agriculture sector to the planners.