Wheat export increases prices in local market
25 September, 2007
By Muhammad Rizwan
Wheat, the more eatable and an essential food item, has once again become expensive despite the achievement of 23.5 million tons of bumper crop against the consumption of 21 million tons.
However, once again wheat hoarders and bureaucracy have shown their strengths by creating shortage of wheat grain in the local market, which has caused its prices to peak at historical level.
The story starts from last December, when the federal government allowed export of 0.8 million tons of wheat ahead of its expected bumper crop in the country. The wheat export started in January 2007.
The federal government instructed the exporters to purchase wheat from different government departments including 50,000 tons from Sindh food department, 400,000 tons from the Punjab food department and 50,000 tons from the open market, and 300,000 tons from Pakistan Agriculture Storage and Supply Corporation (Passco) for export purpose. At that time some traders criticized the government`s wheat export decision and demanded a ban on it. As they were of the view that wheat export decision was too early and the government should wait for the final statistics of wheat production.
However, later in the first week of May 2007 the government further allowed 0.3 million tons purchase of wheat for export purposes from the open market. As a result prices of the commodity started to increase in the local market, as the exporters were doing huge buying of the commodity for export. Later taking an action on the wheat grain price hike the Economic Coordination Committee suddenly imposed ban on wheat export on May 23, 2007 aimed at controlling the soaring prices of the commodity. However the traders believed that the government`s decision was too late as the local market and consumers are still facing negative impact of wheat export decision.
Wheat prices in the domestic market have increased by Rs500 per 100-kg bag to historical level of Rs1,600 per 100-kg bag in the domestic market during the last four months. Previously it was being sold at Rs 1,100 per 10-kg bag in the local market "I have never seen wheat grain price at this peak of over Rs1,600 per 100-kg bag during the last 20 years in the domestic market," said Hashim Sharjawala, a leading wheat trader.
All government measures including ban on wheat and flour export and announcement of wheat on low prices have remained unsuccessful and have not been able to lower wheat price in the local market ahead of Ramazan, he added On the other hand, after the increase in grain prices, the flour millers have also raised wheat flour prices by Rs400 per 80-kg bag, he said.
At present, the Chaki wheat flour ex-mill price has reached Rs1,400-Rs1,425 per 80-kg bag from Rs1,100 per 80-kg bag in May 2007, while fine wheat flour ex-mill prices have touched Rs1,475-1,500 from Rs1,150 per 80-kg bag. The prices of refined flour (Medda) have gone up to Rs1,480 per 80-kg bag from Rs1,150 per 80-kg bag.
Economic experts believe that it was early to withdraw ban on wheat export and the bureaucracy misguided government officials about the country`s wheat stock and crop production.
Local trader on several occasions had intimated the government officials and showed their reservation on wheat export, however the bureaucracy continued to convince the government officials to export wheat by ensuring them that the country would get a bumper crop, and there would be no price-hike in the local market.
Therefore, the government in the first week of May 2007, allowed a further 0.5 million ton export, besides the 0.8 million tons permitted in January 2007. However in the last week of May 2007 the government suddenly imposed ban on its export. Traders said the wheat exporters and millers had hoarded over three million tons of wheat and presently they are selling this commodity on high prices of Rs1,600 per 100-kg bag, which they bought at Rs1,100 per 100-kg bag in the April-May period.
"Exporters had bought hefty wheat stocks from Sindh and shipped or hoarded them because their deals with the foreign buyers were going on till last month, creating a shortage like situation in the domestic markets," they elaborated. They added that exporters were badly hit by the government move of suspension of wheat export, as they failed to assess the domestic
They said that majority of wheat exporters belonged to Karachi and they had purchased over 0.3 million tons wheat from open market on high rates of Rs450 per maund compared to Rs425 per maund announced by the government for procurement. Still the government failed to take action against them, as some government officials are also involved in the hoarding of wheat, traders said.
Despite bumper crop, the country has also missed its wheat procurement target by around 0.2 million metric tons due to insufficient wheat stocks, besides its high prices in the local markets.Passco`s wheat procurement target was 1.3 million tons, Punjab 2.5 million tons and Sindh`s target was 0.7 million tons and despite bumper crop of 23 million tons Sindh and Passco have failed to achieve the wheat procurement target by 0.2 million tons during the current season.
Sindh food department has failed to achieve the wheat target by 0.14 million tons against the set target of 0.7 million tons. "Sindh will definitely miss its wheat procurement target as it has hardly managed to bag some 560,000 tons wheat at the eleventh hour," said a senior official of the Sindh agriculture ministry. "Passco has missed its target by 60,000 as it has procured around 1.240 million tons wheat." Punjab has achieved its target by procuring 2.5 million tons wheat, as it had started procurement on time and procured wheat ndiscriminately.
Processes of wheat procurement were going on in normal routine till last week of April, but later in the first week of May the federal government allowed the private sector to acquire further 0.5 million tons wheat from the open market, creating hurdles in procurement as exporters started buying wheat, the traders informed.
Last Saturday, Prime Minister Shukat Aziz ordered import of one million tons of wheat to meet the local demand and bring the prices down. Traders said the import of wheat grain would not bring the prices to its previous level as the wheat grain prices in the international market had reached its peak of $425 per ton compared to $225 per ton in May 2007.
Earlier, the federal government in the first week of September slapped a ban on wheat flour and other wheat products export via sea in order to stem its skyrocketing domestic prices ahead of Ramazan. Ban on flour export was imposed through a letter by Prime Minister Shaukat Aziz to the chief ministers of the four provinces and the ban has been imposed on the export of wheat flour, refined wheat flour and other wheat grains products via sea, however exports of these commodities through land routes will continue. All Pakistan Flour Mills Association (APFMA) condemned the government`s decision, saying that ban on sea shipments of the commodity was a discriminatory action.
"Wheat export via sea is only 5-10 per cent and the major export is being made through land routes," said Ansar Jaweed, chairman APFMA. This step would not have any positive impact on the price of the flour, as the export of commodity would continue to Afghanistan- the largest importer of Pakistani wheat, he added. He demanded that the government should review its decision and allow export of wheat and other wheat products via sea. He said the government had failed to take stern action to ensure price stability of the commodity in the local market, as prices of wheat grain were on constant increase. He added that the "government has still failed to take action against the hoarding culprits to check price hike".
Akthar Hussian, senior member of APFMA, said last year some 0.7-0.8 million tons of wheat were exported to the neighbouring country Afghanistan, while this year expected export is around over one million tons due to cheap and easy availability of wheat from Pakistan. "If the government does not take immediate action to arrest the soaring prices of wheat, the prices of commodity would cross Rs1,650 100-kg bag," he said.
He said flour mills were demanding action against the culprits involved in wheat hoarding, however, the government had still not taken any serious notice in this regard. "Lifting of wheat export ban in December last was an immense blunder by the government officials, which resulted in the country facing shortage of wheat gain in the local market," he said. Wheat prices in the international market have touched a new peak of $400 per ton, while in January-May, Pakistan exported wheat at $200-220 per ton, he added.He said it was also expected that in the near future Punjab would also slap a ban on inter-provisional transportation of wheat, which also put negative effect on wheat prices in Sindh.
"If the government does not slap ban on the export of wheat grain and flour to Afghanistan the prices of wheat flour in the local market could reach Rs30 per kg," he said.