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Uncompetitive wheat stocks

International wheat prices are down to $70 per tonne as Australia — the second largest producer and exporter —floods the market.

With each passing day, unused wheat stocks negatively impact the national and provincial kitty. To add to the scenario, the next crop is due in only four (Sindh starts early) months, which could lead to an increase in stocks of about 50 to 60pc.

Pakistan is currently holding around 8m tonnes of stocks: Punjab with 5.4m tonnes, Sindh 1.2m tonnes and Passco around 1.4m tonnes. These stocks cost around $350 per tonne – more than double the selling price in the world market.

The price differential has, naturally, put the country in an uncompetitive situation in the international market.
With each passing day, unused wheat stocks negatively impact the national and provincial kitty

During June, the federal government decided to export one million tonnes and offered a subsidy of $120 per ton, which, given the pre-Australian scenario made sense; the world market demand was at $215.

The subsidy was to be shared by the federal and provincial governments on a 50-50 basis. Unfortunately, establishment of the subsidy-sharing mechanism took three crucial months by which time the international market started sliding and the export initiative was almost lost.

Only 250,000 tonnes could be exported to Afghanistan. However, even the Afghan market closed when the Kazak flour’s price declined and Pakistan’s flour lost the market.

Now exporters are asking that in addition to $120 per tonne already committed, export subsidy be increased by another $60 per tonne to provide them with the potential to send another million tonnes of wheat out to African and some Arab countries. Punjab is seriously pursuing the case with the federal government.

In all, the subsidy would cost the exchequer over Rs18bn.

Pakistan’s wheat woes stem from three sources. The first is the fact that the country cannot ignore the procurement process for social and political reasons.

Second is wheat pricing. Ever since the PPP government doubled its procurement price six years ago, Pakistan has never been able to balance its production and exports, resulting in an annual increase in stocks therefore spending billions on procurement, stocking and selling at subsidised rates.

Third is international price, which the country cannot control. Some small and short duration windows do open where it can export part of its stocks at a relatively small subsidy but the opportunities are mostly lost due to poor planning. Pakistan does not have any institution that watches wheat trends and informs about opportunities on the world stage. The fluctuations thus are either not noted or pass by quickly.

The situation leaves the country forced to deal with rising wheat stocks and their massive cost.

Even if Punjab — because it’s mainly holding additional stocks — is able to send one million tonnes of wheat at a cost of Rs9bn, it would still be holding over two million tonnes when the fresh crop arrives.

The entire fresh purchase would then be in stocked out in the open; doubling the risk, both for the crop and the exchequer.

courtesy: dawn news



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