The country is facing a horrible wheat crisis as its markets have run out of wheat flour and the scarcity of the commodity has been causing huge distress to the citizens and now, the condition has worsened to an extent that people are queuing up in huge numbers to get a bag of flour. The government is floundering to balance the demand and supply of wheat largely due to the deteriorating macroeconomic situation and climate impact.
The food crisis was erecting up in Pakistan for the past few months, while the mismanagement between the food department and flour mills has worsened it to a further extent. The prices of wheat flour have reached Rs140/160 per kg. In Islamabad and Karachi, a 10 kg wheat flour bag is being sold at Rs1500 to 1600 while a 20 kg bag is being sold at Rs2800 to 3000.
Amid an increase in flour prices, residents of Quetta blocked a crucial trace as they protested a delay in the provision of subsidized flour. Meanwhile, a man lost his life when a rush broke out in the Mirpurkhas district of Sindh, as crowds of buyers rushed to buy subsidized wheat from mini trucks. Moreover, there are reports that scuffles have taken place in several parts of the country after people failed to get a wheat bag indeed after standing in queues for hours.
Pakistan had set a target for producing 27 million tons of wheat in 2022, but water scarcity and redevelopment of agrarian lands made the production of wheat difficult. On top of that, a fragile economy and loss of agricultural lands because of the floods in June 2022 contributed hugely to the shortfall in wheat production. The severe floods extorted havoc in the southern parts of the country and destroyed large areas of cropland in Sindh and Balochistan provinces. The devastating floods that hit the country last summer washed down large swathes of agrarian lands, forcing the country to import wheat from Russia and other countries.
Deal with Russia
Pakistan signed a deal worth $112 million in November last year to import 300,000 tons of wheat from Russia, one of the world’s largest wheat producers and there are also agreements with other countries to import wheat.
A deal with Russia is on Government- to- Government (G2G) basis. The decision was taken during the meeting of the Economic Coordination Committee (ECC) of the Cabinet, chaired by the Finance Minister of Pakistan. A Memorandum of Understanding (MoU) in this regard was also signed between the Trading Corporation of Pakistan (TCP) and M/s Prodintorg, a state-possessed enterprise of the Russian Federation for the sake of bringing the terms and conditions to a conclusion or finalization.
This deal comes after earlier negotiations for the procurement of Russian wheat by Pakistan were unprofitable a couple of months ago. According to the agreement, M/s Prodintorg will export, 300,000 tons of wheat to Pakistan at the rate of US$372 per ton, making the entire deal worth roughly US$112 million.
Two cargo ships carrying, 300,000 tons of wheat, the first consignment from Russia, docked at Port Qasim. The remaining, 400,000 tons of the total, 700,000 tons of Russian wheat will reach Gwadar Port by March 30, 2023.
However, at this point, the federal government should ensure equal distribution of already imported wheat to all provinces and flour mills as per their assigned quantity.
According to reports, wheat stocks of 1.3 million metric tons have already arrived in Pakistan and are likely to be delivered within a month.
Floods impact
The impact of the 2022 floods on Pakistan’s rural communities and agriculture has been devastating, resulting in the loss of crops, livestock and essential infrastructure. The country is now facing an unprecedented food crisis. Drenching monsoon spells and apocalyptic floods have killed nearly 1,700 people across the country mainly in Sindh and Balochistan provinces, the two hardest hit regions, flattening hundreds of thousands of homes, schools and hospitals and swabbing out huge areas of agricultural lands.
The devastating floods damaged and destroyed millions of acres of food crops. Vast quantities of food crops were destroyed and are still under flood tide waters. The massive floods have damaged an estimated 8.3 million acres of crops, with over 3.4 million acres of crops being affected in Sindh alone. The floodwaters also wiped out particular grain stores, on which numerous families rely for food all time
Severe rains damaged around 1.6 million tons of wheat stock, stored in government warehouses in the Larkana division alone. The Sindh government failed in saving wheat stock during the recent rains and 600,000 tons of wheat stock, stored inside warehouses and 1 million tons of wheat lying openly under the skies in Larkana were damaged.
Hoarders as mafias
The Government of Pakistan has vowed to take stern action against elements involved in hoarding wheat avowing that no one would be allowed to produce an artificial shortage of wheat flour and indulge in profiteering. At the same time, the government, constantly, denied that there was no similar thing as a shortage of wheat.
The government claimed that the country had adequate stocks of wheat and businesses should use their reserves, as well as those held by PASSCO (Pakistan Agriculture Supplies and Storage Corporation), to ensure a well-timed supply to flour mills.
The provincial governments have been unable to clamp down on wheat hoarders and have been unable to strengthen the market supply with already available stocks. Though the governments have made attempts and efforts to sell bags through sale points and utility stores, nonetheless, people’s reach, especially the poor to these dedicated places, is limited due to long distances and heavy traveling costs that render the low prices unveiled.
Regardless of claims of the government, the prices of wheat have shot up unbearably over the last three months.
Powerful hoarders have illegally stockpiled the wheat. The hoarding of wheat was a major concern during this harvesting season. An estimated 5 million metric tons of wheat is being kept unlawfully moreover by influential middlemen, businessmen or flour mill owners.
Dwindling economy
Pakistan’s economy is in a shamble after it was hit by the floods of 2022 that led to unknown damage to the country. The infrastructure and supply of food were badly hit in the country, and millions have been displaced. As per the estimates shared by the Pakistan government, the floods simply caused more than $30 billion in damage.
Pakistan now is facing severe daunting challenges in dealing with the economic crisis to meet its balance of payments needs and avoid economic default.
Government is in a delicate situation since it has to pay $21 billion to the transnational creditors for external debt servicing during the coming fiscal year (FY23). The country is facing a serious economic crisis in a terrain of political fermentation and uncertainty. However, there are fears that the country to face severe crisis and even default like Sri Lanka,
It’s an extremely intimidating situation, with no sign of any fundamental change in the economic outlook. It isn’t just external debt, but also a paragliding internal debt that has brought the country close to bankruptcy.
Pakistan is now among the most vulnerable countries. Inflation has hit a new high, and our incapability to open letters of credit (LCs) has oppressively affected our industrial production; numerous manufacturing units have closed down or are working incompletely.
Some external factors, such as the rise in petroleum and commodity prices, have also contributed to worsening our troubles, but it’s substantial policy flaws that are now coming back to hang the country.
The ministers in government continuously claimed that there are no absolute chances of default of the country though seemingly the situation is worsening with every passing day. All this has created severe chaos among the people and with no reach to food and commodities specifically wheat (even at high rates), the fear of default is imminent.
Some solutions
The wheat flour crisis in the country is a multifaceted crisis that requires short-term, medium-term, and long-term policies. The federal government should develop and update the mechanisms for provincial crops reporting data at the provincial levels so that accurate and relevant information can be available for anticipated consumption to maintain and keep a balance between demand and supply.
On the other hand, to control the prevailing economic crisis, Pakistan needs to renew IMF backing by enforcing profitable reforms to restore its credibility in the markets. Reforms to reduce high trade and current account deficits would bear major cutbacks in expenditures and imports, but without contrarily impacting the cost of living of low-income families whose lives have come to misery due to persistently high inflation over the last many years.
The government’s profitable reform program must include a reduction in fiscal and current account deficits by half over the coming year by reducing the fiscal deficit and unnecessary imports to a level consumed by the rich people, notably.
Import reduction must be achieved in the first three months to avoid an economic collapse and stop the free fall of the Pakistani rupee against USD. The lending and deposit interest rates should be depleted by reducing discount rates. This will reduce the cost of borrowing for the firms and push up the GDP growth and employment rates.
Finally, the country would have to impose a one-year embargo on all imported cars, phones, non-essential food and all manufactured home-use products to reduce imports in the coming fiscal year (FY23), which would reduce current account deficits, strengthen domestic currency against USD and will accelerate growth and more employment opportunities.
The Author is in Department of Mass Communication, University of Karachi.