Wheat is an important staple food crop and has great significance in Pakistan’s economy in terms of food security. It accounts for 7.8 percent of the value added in agriculture and 1.8 percent of GDP. Nearly 10 percent of the total population is involved in the production, distribution, and processing activities of wheat. Wheat is a strategic crop and any shortfall in its production can lead to political uncertainty, drainage of foreign reserves, rise in flour prices, and shortages in vulnerable areas.
Successive governments in Pakistan have designed and implemented different policy instruments over time aimed to protect low-income consumers, attain food self-sufficiency and ensure a reasonable wheat supply. This was mainly done by control of trading (public procurement and storage), price support, input subsidies, and macroeconomic policy interventions (over-valuation of the exchange rate). Support price policy was considered an important tool to increase wheat production. The purpose of the price support policy was to encourage production so that consumer needs are met from local supply. However, support price policy has played a limited role in increasing wheat output, rather unprecedented increases in wheat support price have caused huge welfare efficiency losses and worsened income distribution in the rural economy.
In the current wheat marketing system, the private and public sectors co-exist in Pakistan. The private sector is allowed to market wheat at free market prices. Instead of bringing wheat directly to public procurement centers, most farmers sell to middlemen. Such as village shopkeepers and beoparies (middlemen). These traders sell wheat to the public procurement center or to other private traders. Primary wholesale markets (mandies) are well-developed in Pakistan, especially in Punjab. Farmers and middlemen bring wheat to these markets and sell through commission agents (arthies) who are registered in the market committees.
The government procures wheat from producers directly; it releases wheat to flour mills directly and wheat flour consumers through publicly owned utility stores. Before the 18th constitutional amendment, the practice of fixing support prices was with the federal government (now provinces are free to fix their support price).
Provincial food departments and PASSCO procure wheat in harvest months at the government’s announced price. The provincial food departments release wheat in lean months at the ‘issue price’. Until recently issue price was the same throughout the year and now the government has introduced cascading price mechanism to smooth out seasonal variation and cover the transaction cost. The public sector procures on average about six million tons of wheat or nearly 24 percent of total production.
Thus, approximately three-quarters of the total marketed wheat does not enter the public marketing chain at all. A substantial portion of the remaining two-thirds also enters the private marketing chain. The government procurement of marketed surplus at support price has caused a financial burden on the public exchequer (See Table). Over the last seventeen years in sum wheat procurement costs the government Rs. 3018 billion. This does not include incidental costs i.e., transportation, storage, handling etc. The Table gives us some thought-provoking insights:
- The question arises that if 76 percent of wheat is marketed through the private sector, then why not the remaining 24 percent? The logic put forward that government procures wheat to maintain strategic reserves for food security or to avoid any unwanted situation. This logic is not placed with other agricultural commodities. Strategic reserves can easily be maintained by the private sector. Because of state intervention in wheat markets, the private sector was not able to develop state-of-the-art storage facilities for the wheat crop. There is a need to encourage storage at the household level. Banks can provide small loans to households for wheat storage. The warehouse receipt financing scheme recently launched by banks and the private sector is a good example to quote.
- This support for wheat comes at the cost of winter pulses and oil seeds for which government spends billions of rupees on the import of pulses and cooking oil. Support drawn from wheat will promote competition among these winter crops and this will lead to more efficient resource allocation among alternative crops.
- Money saved from wheat procurement can be used to promote R&D in agriculture and allied sectors. The example quoted might be the high protein-rich fisheries sector.
- This will also release the burden on the government exchequer, at first government departments procure wheat at support prices and then sell it to flour mills at release prices which are less than the support and market prices just to safeguard the urban consumers. The benefits remain with the flour industry at the expense of taxpayers’ money.
Final words:Â The state should come out of the wheat procurement process and leave it to the private sector. This will save meager monetary resources; promote competition in the market; more efficient resource allocations at the farm level; and will save consumers and the state from the exploitation of the flour industry.
| Wheat Production, Procurement, and Procurement Cost | |||||
|---|---|---|---|---|---|
| Years | Production (Million Tons) | Procurement Quantity (Million Tons) | Procurement Quantity (Percent) | Price (Rs/ton) | Procurement Cost (Billion Rs) |
| 2005-06 | 21.28 | 4.51 | 21 | 10,375 | 47 |
| 2006-07 | 23.30 | 4.42 | 19 | 10,625 | 47 |
| 2007-08 | 20.96 | 3.92 | 19 | 15,625 | 61 |
| 2008-09 | 24.03 | 9.23 | 38 | 23,750 | 219 |
| 2009-10 | 23.31 | 6.72 | 29 | 23,750 | 159 |
| 2010-11 | 25.21 | 6.15 | 24 | 23,750 | 146 |
| 2011-12 | 23.47 | 5.95 | 25 | 26,250 | 156 |
| 2012-13 | 24.21 | 7.91 | 33 | 30,000 | 237 |
| 2013-14 | 25.98 | 5.95 | 23 | 30,000 | 178 |
| 2014-15 | 25.09 | 6.14 | 24 | 32,500 | 200 |
| 2015-16 | 25.63 | 5.81 | 23 | 32,500 | 189 |
| 2016-17 | 26.67 | 6.52 | 24 | 32,500 | 212 |
| 2017-18 | 25.08 | 5.99 | 24 | 32,500 | 195 |
| 2018-19 | 24.35 | 4.03 | 17 | 32,500 | 131 |
| 2019-20 | 25.25 | 6.60 | 26 | 35,000 | 231 |
| 2020-21 | 27.46 | 5.81 | 21 | 45,000 | 261 |
| 2021-22 | 26.39 | 6.33 | 24 | 55,000 | 348 |
| Average | Â | 6.00 | 24 | 28,919 | 178 |
| Total Procurement Cost (Billion Rs.) | 3018 | ||||
The writer is a Director Institute of Agricultural & Resource Economics, University of Agriculture Faisalabad- khalidmushtaq@uaf.edu.pk