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Of
the many hardships that the Establishment creates for citizens in
Pakistan, one has become quite acute for us poor column writers. It
is the uncanny ability to create simultaneous crisis that makes choosing
between current hot issues confounding at times.
Take the past month, for example. We had five concurrent crisis unfolding
- Wheat, Wana, NFC, Shahbaz Shareef and the unification of Muslim
Leagues into one happy family. It was a hard choice since each one
of the subjects is portentous in its own dimension and prospects.
Some readers may question my judgement of including the unification
of Muslim League in the list of crisis but I would leave the explanation
for another column with the hint that it is not the unification per
se but the motivation and mechanics behind the action that promises
trouble to come.
I am taking up the wheat fiasco that the government (Punjab government
leading) has created out of its own policy with such swiftness and
ease. Let us begin with its fascinating genesis starting in the fifties.
For over three thousand years, the subcontinent had been self-sufficient
in wheat. Barring the occasional famine caused by natural droughts,
the region grew enough grains to feed itself. In the fifties, Ayub
khan's government instituted controls over wheat prices and started
providing wheat to the masses at subsidised prices. Exactly then the
shortages began to appear for which wheat had to be imported for the
first time in the history of the region - 1958 to be exact - and the
imports never stopped there after. Shortly after - the sixties - was
a period when the 'green revolution' was taking place in the country
and Pakistan earned the unique distinction of doubling its wheat production
in a short period of six years. But the imports of wheat grew progressively
at the same time.
Amazingly a region that had been self-sufficient for 3000 years on
subsistence farming became deficient with rapid expansion of water
resources, mechanisation, introduction of high yielding varieties
and rapid growth in production. When questioned by keen observers,
the Establishment put the onus of shortages on population explosion.
When shown numbers that indicated that wheat production had grown
faster than population, then we were told that leakages due to smuggling
were the cause. Two logical questions were never answered. First,
could covert smuggling through porous borders in the darkness of night
on animals be extensive enough to create a significant deficit? That
didn't make sense. Obviously smuggling was occurring with the connivance
of border officials on mechanised transport. Carting over ten million
or so tons of wheat across Rajputana desert or Afghan mountains or
desolate Iranian landscape was not possible on camels and donkey.
Remember, in 1978 eight million tons of imported wheat could not be
transported from Karachi port upcountry by the Railways and all the
road transport of the country. NLC had to be created with a fleet
of 10,000 trucks.
Second and more profound question: If smuggling was taking place in
such high volumes, then it must be driven by economic motive. i.e.
price differentials across borders were making smuggling lucrative.
In this case, wasn't smuggling being subsidised by the State, by importing
expensive wheat and selling it cheap to the smugglers? Government's
policy to subsidise wheat across the board for all citizens was benefiting
the smugglers as much as the domestic poor. Why wasn't a more targeted
subsidy scheme introduced? I will not insult the readers' intelligence
in answering that one.
The other, more real, dimension of wheat shortages was never taken
into consideration. In 1958, the government put controls on wheat
and flour prices but not on other course grains like sorghum, bajra
and maize, which rose with general inflation index. Traditionally
wheat was the staple grain for only a small portion of urban rich
in the subcontinent. Majority of people consumed wheat as a luxury
for a few months or special occasions. Rural communities and urban
poor subsisted on cheaper course grain flour. Hence the per capita
consumption of wheat was in equilibrium with production. With the
introduction of subsidised wheat and flour, the whole populace shifted
to wheat as their staple food grain. It would take a very foolish
person to consume expensive course grains in preference to cheaper
wheat flour. In the next twenty odd years the eating habits of the
following generation was altered for good. Per capita consumption
of wheat rose exponentially for which domestic production could not
keep pace, especially with leakages of smuggling in local reserves.
Let's not forget that course grains are grown in summer months when
there are ample rains and irrigation water, and they take shorter
period to grow. Pakistan has a skewed grain market where course grains
are higher priced than wheat, thanks to the wisdom of government policy
to subsidise wheat for everyone.
The market operated through a support price system whereby the food
departments and PASCO procured disposable surplus wheat from the farm
gate for urban consumption. Out of the 17 to 19 million tons, government
was purchasing up to 6 million tons of wheat as strategic reserves
for urban consumption and inter-provincial supplies - Punjab being
in surplus and the other three provinces in deficit. Government would
release wheat to flour mills on 'Issue price' that was kept lower
than the actual price of procured and stored wheat, thereby incurring
a subsidy for wheat, which went up to seven billion Rupees in some
years during the nineties.
Then came the global push for free markets. Donor conditionalities
dictated dismantling subsidy regimes. First the subsidy on agricultural
inputs was progressively withdrawn and subsequently it was decided
to dismantle state controlled commodity markets. Cotton Export Corporation
and Rice Export Corporation were de-commissioned after they had managed
to run up scores of billions of Rupees in trading losses. PASCO and
provincial food departments were the last dinosaurs grazing on billions
of storage and trading losses in the name of national food security.
Three years ago the federal government decided to phase out the support
price mechanism and open the wheat trade to free markets. International
prices were at a ten-year low at the time and it felt safe to let
private sector enter the trade. State Bank allowed commodity advances
for wheat to the private sector for the first time and that too at
subsidised interest rates. Board of Investment announced generous
incentives for setting up grain storage silos. Higher support prices
in recent years had provided a boost to domestic wheat production.
In year 2001-2002 Pakistan had a wheat surplus, which it could not
export for lack of quality standards and laboratory facilities. Hence,
letting the private sector enter the sacred domain of PASCO and Food
Departments made eminent sense.
Last year the private sector geared up to purchase wheat from the
farmers who received decent prices with less hassles than what they
had been receiving from the rent-seeking intermediaries. However,
regulations for private sector were not put in place. The old Food
Grains Act was not amended for privatisation. Other intermediary mechanisms
like Warehousing Laws and Commodity Exchanges were not created. Wheat
shortages occurred by end of last year and private sector storage
made large profits. Wheat had to be imported from Australia but strangely
the assignment was refused as being unfit for human consumption, although
the same wheat found a market in the Middle East subsequently. Someone
gained from this refusal which has caused considerable diplomatic
tension with the government of Australia.
This year the private sector, supported by free for all commodities
financing, came in with a vengeance and picked up wheat from the farmers
so rapidly that PASCO and the Food Department are left grappling the
air. Farmers received prices well over the announced support price.
With no regulation for commodity markets except antiquated Food Grain
Act laws of licensing, every entrepreneur jumped into wheat storage.
International prices have risen again and import parity price is higher
than domestic price. Suddenly the government has made U-turn in policy.
Restrictions on movement of wheat were imposed stringently; State
Bank reversed the incentives for wheat financing, coercive buying
by Food Department started, almost like a witch hunt against all conditions
signed with donors. There is total confusion as to the official policy
status at this time.
In the next column we will review the options available but one thing
is certain: Government should, in all fairness, put a warning sign
on all its files, "Caution: U-Turns Ahead in All Policy Matters."
If cigarettes have to carry health warning, why not government policy
documents.
Iqbal Mustafa
1450 words
22 May 2004
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