PAKISTAN is sitting on a stockpile of surplus in three major commodities thanks to years of tilted agricultural and export policies and lower international prices but struggling to offload them.
Surplus stocks of wheat, sugar and rice are now creating numerous problems like lack of storage, liquidity crunch, increasing financial charges and price crash that are worrying for the farmers, exporters, the governments and the banking sector in the short term.
In the long term, all these issues together could potentially impact the country’s poverty situation and lead to crop switching. And yet, there seemed to be little coordination among the stakeholders — federal and provincial governments, farmers, banking and sectoral institutions — to have a balanced, holistic approach on resolving the crisis.
The government interventions have mostly been inspired by political lobbies close to one government or the other
The government interventions have mostly been inspired by political lobbies close to one government or the other.
The rice farmers and industries have been crying for more than 18 months for government intervention without any response but stakeholders in wheat, sugard are provided support prices, subsidies and Kissan packages. But the end result for sugar, wheat and rice remains more or less the same — bumper crops and glut.
As a consequence, exports of these commodities are either stagnant or going down despite these surpluses. The exports of rice have fallen over 11pc in first six months of current fiscal year and that of Basmati by about 28pc. Sugar exports have also reduced by about 91pc while wheat exports have improved, but its value stood at a paltry $66,000 so far.
The country’s wheat stock currently stands over 5.5m tonnes and wheat harvest in both Punjab and Sindh is just around the corner with over 25m tonnes output. Official record put the Punjab’s wheat stocks at about 3.5m tonnes, followed by 1.6m tonnes with Pakistan Agricultural Storage and Services Corporation (Passco) and 0.5m tonnes with Sindh.
After setting aside compulsory 1m tonnes of strategic reserves, the total exportable surplus stood at about 4.5m tonnes. The total value of the carryover stock is estimated at around $2.5bn.
With these stocks having financial costs, the provinces would have to arrange additional liquidity to lift fresh produce from the farmers at support prices already fixed by the government.
Requests by some exporters for allowing subsidised exports to Afghanistan were declined by the ECC as some quarters thought subsidised commodity would be dumped home after enjoying fiscal benefits. Afghanistan, traditionally a Pakistan market was, therefore, taken over by India.
But despite this glut, the wheat and flour prices did not benefit the local consumer as the provincial governments remained steadfast to hold on to their stocks. A belated decision by the ECC in January to export 1.2m tonnes of wheat at $45 subsidy for Sindh and $55/tonne freight subsidy for exports from Punjab resulted in export of only 274 tonnes against Punjab’s 0.8m tonne quota and Sindh’s 0.4m tonnes.
The sugar situation is no different. The government decided in December to allow export of 0.5m tonnes of sugar with Rs7bn (Rs13/kg) export subsidy in a phased manner, with first export target of 200,000 tonnes by December 31, 2015. It was decided at the time that the export subsidy would be withdrawn if the local price increased by more than 10pc in the domestic market because some participants of the ECC insisted the surplus sugar be diverted to the poor population through Utility Stores.
The domestic market at the time stood around Rs53-55/kg. A recent meeting at the ministry of commerce noted the sugar price had increased from Rs57/kg to Rs62/kg and hence it was within the price range allowed by the ECC even though retail prices have already gone beyond Rs65/kg. Despite this, official data suggest the total sugar exports stood at around 20,000 tonnes by end December against a target of 200,000 tonnes.
While the sugar industry has been estimating surplus quantities at about 1.4m tonnes after domestic consumption, fresh estimates are putting 2016 production at more than 5m tonnes against domestic consumption of around 4.8m tonnes.
Rice exports have also been facing challenges. In first half of current fiscal year, total rice exports dropped by 11pc to $869m even though its quantities increased by almost 15pc to 2.03m tonnes.
Basmati exports suffered both in terms of quantities and export earnings. This could have serious repercussions for rice producers because of their comparatively smaller land holdings. Basmati exports dropped 27pc in dollar terms to $223m while quantities reduced almost 7pc to 238,000 tonnes.
From annual export earning of about $2bn, basmati exports are now struggling at around $500m as Indian basmati exports replace Pakistan. Traditional interventions by Passco, Trading Corporation of Pakistan and Trade Development Authority of Pakistan have not been forthcoming this year.
A half-hearted tender by TCP for 25,000 tonnes of rice export to Cuba was scrapped only recently for unknown reasons but was helpful in boosting domestic prices a bit. The rice exporters have been asking the government to allow zero rating status to rice exports on the pattern of textile, leather, carpets, sports and surgical goods but to now avail.
