The ban on wheat export and its by-products, which was imposed in 2007 following wheat crisis in the country, was finally lifted by the government when a summary moved by the Ministry of Food and Agriculture was approved by the Economic Co-ordination Committee of the Cabinet (ECC) on 7th December, 2010.
The measure was approved without any recourse to subsidy. To make the matter palatable, ECC was informed that wheat price in the international market was hovering around Rs 1020 per maund and export at this stage would mean "no loss, no gain" to exporters. Ministry of Commerce, Federal Board of Revenue and the State Bank were directed to monitor the wheat export from the country. According to certain sources, Punjab government, which currently holds over 5.7 million tons of wheat stocks, was told to facilitate export of wheat through the private sector, with a clear message that the Federal government would not shoulder the subsidy.
The decision of the ECC tells us a lot about poor economic management by various governments and their inability to understand the fundamental principles, governing the working of an economy. Their constant urge to intervene in every sphere and please certain groups and sectors by providing subsidy from the budget has distorted the economy to an extent that it is hard to stabilise the present situation without complete reversal of the past policy framework.
The irony is that even now, instead of making a bold departure from the past policies, the government is still tinkering with the old framework, with the result that gains to the economy from the lifting of ban on wheat export, if any, would only be insignificant and temporary. For instance, one fails to understand how wheat export could be a feasible option at this stage in the absence of subsidy.
At present, international price of wheat works out at Rs 990 per 40kg whereas the domestic release price was Rs 1000. Transportation and incidental expenses of about Rs 70 per 40kg are in addition to the release price. This virtually means that export of wheat is impossible even if we assume that price of wheat was Rs 1020 per 40kg in the international market and our exporters are gracious enough to take the trouble of exporting the commodity without earning any profits.
There is no room for providing further subsidies is stating the obvious. Simply put, the decision of the ECC at this late stage is not going to make any difference so far as the level of wheat stocks with the procuring agencies or its export prospects is concerned. Australian wheat was expected to hit the international market later this month and depress its price further, ensuring virtually that our stocks would continue to gather dust in their present silos.
Another huge dimension of the problem is its adverse impact on monetary policy formulation. It is hard to believe but outstanding loans against commodity procurement at the end of June, 2010 were over Rs 414 billion. Out of this, Punjab, Sindh, PASSCO and TCP owed Rs 191 billion, Rs 41 billion, Rs 59 billion and Rs 27 billion to the banks respectively against holding of wheat stocks.
Weak repayment capacities of procurement agencies due to higher support prices and their inability to unload the stocks in the market has resulted in the continuous increase in the amount of credit locked in commodity operations. Such an adverse development is partly responsible for the increase in interest rates in the economy and depriving the private sector of its due share in credit.
As the present policies with regard to the procurement of agricultural commodities have obviously severe implications for the conduct of monetary and fiscal policies of the government and also impact negatively the free movement of goods across the borders and optimal utilisation of productive resources of the country, there is urgent need to revisit the whole policy framework with a view to giving more room to market forces to play their role.
It would be better for the government to reduce and ultimately eliminate its direct intervention in the market and concentrate more on building of infrastructure, efficient regulation and proper governance to facilitate the private sector. If the government fails to take a sensible route on the above lines, similar problems will continue to emerge in one form or the other.