It has been reported in Business Recorder that wheat exporters are on a buying spree as domestic price of wheat is considerably lower than the international price resulting in a significant profit margin. Global wheat price has risen by 21 percent to reach 347 dollars per ton (32,965 rupees at today's market exchange rate) on dry and hot weather conditions in the US and the Russian Federation particularly the Black Sea region - prices that are 13 percent higher than in July 2011. The rising trend is expected to continue.
Thus Pakistani exporters expect even higher profits than those applicable today. Market sources revealed that commodity exporters are expecting massive orders from abroad and are therefore aggressively pursuing wheat to fulfil these requirements. The result has been a rise in domestic wheat price from 26,500 rupees per ton a week ago to 27,500 to 27,750 rupees per ton today.
The situation brings to mind what occurred during the Musharraf-Shaukat Aziz era when exporters were allowed to buy wheat cheaply in the domestic market and sell at a higher rate abroad raking in profits. In the absence of appropriate checks and balances that would have guaranteed that domestic demand was first met and allowing only surplus wheat to be exported, the expected happened: a severe shortage of the commodity in the country which necessitated buying wheat from abroad at a rate that was higher than the rate at which the local rate had been exported earlier. One would hope that the federal government takes effective measures to ensure that there is no recurrence of what happened previously.
The government can initiate two possible actions. First, it must immediately mandate all wheat exporters to register with the State Bank of Pakistan as a prerequisite to entering into a legally binding contract with a foreign party. In other words, failure to register with the SBP should imply that the contract between the exporter and the buyer is not deemed to have been fully entered into. This would ensure that should the government decide to ban the exports at some point in future it would be possible to do so with the least amount of dislocation and problems to exporters and loss of international confidence in the country's ability to meet its contractual obligations. This step is critical and must be taken as soon as possible.
The other option is to consider imposing a duty on exports and this would remain in place till such a time as domestic demand is fully met. This option would enable the government to generate some revenue from this economic activity.
At the present juncture, the government of Pakistan is trying to convince Iran to approve a barter deal where Pakistan would export one million tons of wheat in exchange for 600,000 tons of urea and 200,000 tons of iron ore. Pakistan's offer of 350 dollars per ton has been rejected by the Iranians and their counter offer is 255 dollars per ton - almost a 100 dollars per ton lower than the international price which cannot be justified from an economic point of view until the price offered for urea and iron ore is comparably less as well. One would hope that the government has done its homework on this count.