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Pakistan To Correct Her Wheat Market

For the last few decades, Pakistan’s agriculture sector has become the happiest hunting ground for crises. Going from one crisis to the next, the entire sector is operating in a firefighting mode and that too without any policy or regulatory effort on the part of the government, allowing the market to determine and extract its windfall.

The latest example is of fertiliser. In the last few years, all kinds of fertilisers have gone beyond the farmers’ reach for one reason or another. Of three major fertilisers, potash was the first to fall out of farmers’ favour when its price soared beyond a whopping Rs16,000 per bag two years ago. The squeezed supply deprived the soil of three primary micronutrients — nitrogen, phosphorus and potassium (NPK).

The next one was Di-ammonium Phosphate (DAP). Its prices tripled in a year (beyond Rs14,000 per bag), and the soil dried up, deprived of nitrogenous and phosphatic supplies, robbing plant health and compromising yield.

Market watchers have calculated a 37 per cent drop in its usage this year so far, compared with the last year.

Pakistan pays $2bn a year on average for the import of a crop that it can grow easily and has been doing so for thousands of years

This year, it was Urea’s turn, which had become farmers’ last hope. That hope is dwindling as Urea demand rises (due to a fall in NPK and DAP), production drops, prices climb, and smuggling continues.

As far as production is concerned, four months of data explain the origin of the present crisis. In August, the industry reported production of 540,847 tonnes which dropped to 530,961 tonnes in September and 468,026 tonnes in October as two plants shut off. In November, it went further down to 446,970 tonnes while demand rose because of the wheat crop.

Though the industry is processing December figures, the numbers may not be any better as the government has stopped gas supplies to two plants, with cumulative production of 77,000 tonnes per month. So, the squeeze will only tighten.

As dealers sense an increase in shortage during peak demand, the prices have already risen to Rs2,800-2,900 against the official price of Rs2,200 per bag. As the fall in production translates into actual shortages, prices may go up further — by Rs500, if the market analysts’ fears come true.

Should that happen, the soil’s calamity will complete its circle as it would run out of all primary raw materials: nitrogen, potash, phosphate, and natural gas.

The government response to this crisis will be, as has always been, administrative — with a huge cost. It would now activate district administration and start nabbing defaulting dealers, which, in turn, burden courts, jack up rates of bribe and end up adding to the crisis — as Urea would disappear to the black market, and both farmers and crops would continue suffering.

This is the cost the government has always paid for waking up to the crisis late, which could have easily been preempted with on-time policy steps. All decisive factors of the Urea market are known: consumption and, more importantly, its pattern and production capacity. They can be and should have been, planned and regulated. In the presence of this market knowledge, it takes extreme stupidity to end up in crisis. The government seems to be guilty of it.

Wheat (read food security) would be a major sufferer of this crisis. For the last many years, Pakistan has turned into a wheat-importing country. According to the Pakistan Bureau of Statistics (PBS), it imported over six million tonnes of wheat in the last three years at the cost of $6 billion — or $2bn a year on average.

In 2021, 3.162m tonnes were imported, valuing $983m. The previous year, 2.2m tonnes costing $795m came to Pakistan. This fiscal year, over a million tonnes have been imported so far at the cost of $500m, and the process continues.

It is a painful fact that Pakistan, with a 70pc agricultural population base, is now a wheat-importing nation. The next agonising point is: how much wheat will need to be imported in the future? Its requirement will multiply because the population is increasing, and the domestic crop is failing. .

Can Pakistan pay over $2bn a year for wheat import and risk adding to it yearly? Wheat is something it can grow easily and has been doing so for thousands of years.

Wheat needs only small steps to be taken for it to grow and expand to a level where imports can end. This would involve its availability and pricing.

For the availability side, the government only has to regulate its seed sector and ensure the supply of inputs, and the farmers will do the rest. However, the wheat seed sector, as with some other crops like cotton, is in total chaos.

Over 50 seed varieties are doing rounds in the market. Some seed varieties expand to 60-70pc of the crop areas before losing strength and disappearing from the market. There has been a proper check neither at the entry point of the seed market nor at the exit doors. This has to stop.

Only seeds with proper biological and field performance data should be allowed to be sold. As far as major fertilisers are concerned, growers start experimenting with different organic nutrients and compromise yield when the prices are too expensive to be affordable. Both steps can ensure yield and availability in the national market.

As for pricing, it is directly linked with the cost of inputs, general inflation and international parity. Out of these three factors, the first two are directly in government control. If the official check fails, the government cannot cap the prices. Though government cannot influence the world market, it can, to some extent, insulate the domestic one if it takes proper care of the first two factors.

In the entire exercise, administrative control has a minimal role to play in correcting the market, but it certainly can distort it. Unfortunately, the government’s dependence on market-distorting steps is heavier than the correcting ones, and the results are for everyone to see.

Source: https://www.dawn.com/news/1731792/agriculture-correcting-the-wheat-market

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