by Ahmad Fraz Khan in Dawn, The Business and Finance Weekly, October 24th, 2022
Politics seems to have gotten the better of the wheat market in Pakistan. Political preferences have been ruling pricing policy for the last two months, and of late, even the position of stocks is interpreted through a political prism. The rulers, impervious to market consequences and beholden to their party politics, are playing an acrimonious blame game that is adding fuel to the flour price fire.
The politics, however, goes on. The latest example came last week when Chief Minister Parvez Elahi publicly took on Prime Minister Shehbaz Sharif during a media talk in Lahore. He criticised the federal failure to supply or grant import permission for wheat, terming this act as (political) enmity against the people of Punjab. In the next 48 hours, he wrote a formal letter to the prime minister and demanded one million tonnes of wheat, one-third immediately, and the rest spread over the next few months.
Interestingly, the chief minister’s latest demand for a million tonnes contradicts the stand taken by his Food Department in the last few weeks. In a number of correspondences, which the chief minister mentioned in the letter as well, the department had asked for only half of it. Why the chief minister doubled the demand?
“Only to stretch a stressful situation to disastrous proportions, wail over it, blame the federal government and draw political mileage,” claim some analysts. This kind of politics impacts the already explosive wheat market; instead of assuring the market, the chief minister’s letter has psychologically raised the level of crisis, deepened uncertainty and may have dangerous consequences, they opine.
Let’s first take a view of the pricing policy. With the political snake hissing and spitting permanently in Pakistan, Punjab was the first to start releasing official wheat in May at a rate of Rs1,765 (subsidy of Rs500 per 40kg) to keep a lid on flour prices. It was done because the PML-N government had just taken over and the new chief minister, Hamza Sharif, wanted to maximise the political benefit of his short stay.
Sindh overdid it when it raised procurement price from Rs2,200 per 40kg to Rs4,000 — a whopping increase of 45 per cent — on September 10. Punjab followed the folly and raised the bar: from Rs2,200 per 40kg to Rs3,000 — an increase of 26.67pc — just three days after the Sindh decision.
When both provinces — producers of the entire national produce — realised where politics had led them to in the urban areas where flour prices skyrocketed, both got together to negotiate a middle path. Sindh reduced the price by Rs500 and Punjab increased the price by the same amount, agreeing at around Rs3,500 per maund or an increase of 37.14pc.
In marketing terms, such decisions meant four different operational prices: from Rs1,765 (subsidised price) per 40kg to Rs2,300 (for routine releases) to fixing procurement prices to Rs4,000 and Rs3,000 for next year to finally negotiating the federal proposal of setting it at Rs3,500.
Naturally, the highest one set the benchmark and took over. Each decision sent shock waves into the market. But, interestingly, no one asked, and no one bothered to explain, what mathematical calculations went into the earlier decisions and on what basis they were contemplating revision.
In a number of letters, Punjab had been demanding wheat because it started releasing early. It was promised 1m tonnes when the import decision (of 3m tonnes) was taken in April. Punjab began releasing official wheat in mid-May when wheat prices started rising. Till August, it was demanding 1m tonnes.
However, after the revision of stocks position and comparative analysis of the last two years, the provincial wheat managers concluded that the province would be more than comfortable if it received 500,000 tonnes. Their fresh demand was based on the provincial stock situation and consumption pattern for the last three years.
Last week, the province held around 3m tonnes of the commodity. Against 3m tonnes this year, Punjab had 2.6m tonnes on the same day last year. With that quantity, it can not only see the season through comfortably but also save 350,000 tonnes to carry over next year. In 2020, it held 2.9m tonnes and had a stock of 250,000 tonnes when the season ended.
Punjab holds more stocks than it has in the last two years, but it is still painting a picture of panic. Why? Blame politics; with the centre and the province pitted against each other because of politics, exaggeration has become the order of the day.
Punjab does need some wheat, but for other than its acclaimed reason — an immediate food crisis. The official wheat watchers must consider three factors that generate uncertainty for the end months of the wheat season.
Punjab needs some additional wheat to outwit hoarders and keep initiative with itself in any situation rather than let hoarders dictate terms. Secondly, devastating floods have delayed wheat sowing in Sindh, which initially feeds the national market during March and April.
With sowing delayed for more than a month in Sindh and still counting, Punjab might have to supply additional wheat for an extended period. And finally, what if the climatic conditions delay crops in Punjab by another fortnight?
However, these fears would culminate at the end of the season, not now — as claimed by the chief ministerial letter through an immediate demand of 300,000 tonnes. The immediate demand for wheat and the 1m tonnes quantity are certainly politics, which Punjab is guilty of playing at this stage. It would add to the already prevailing instability in the national staple market. https://www.dawn.com/news/1716665/wheats-political-blame-game
