Who orchestrated wheat, flour crises?

ISLAMABAD: Who played key role in wheat/flour crises? Whether the crisis is an outcome of mismanagement by Federal and Punjab government? Who are those half a dozen key players of flour mills association who manipulated the market for price hikes? Connecting the dots and answers to these questions can easily solve the puzzle of recent flour crisis in Pakistan.

Perusal of official documents, background briefings and discussions with officials in federal and Punjab government and members of flour mills associations reveal some startling facts about the 2019-20 wheat/flour crises.

Documentary correspondence, background briefingsand interviews of government officials and office-bearers of Pakistan Flour Mills Association (PFMA) prove that the recent flour crisis was the outcome of multiple factors. The federal government was well aware of the stocks and the procurement of wheat in 2019. Despite knowing the fact that the wheat production in 2019 was reduced, the federal government approved export of 0.5 million metric ton (MMT) wheat. Similarly, the Punjab government couldn’t meet the procurement target of 4 MMT wheat but even then it released 0.8 MMT to the poultry association. The flour mills association purchased 2 MMT wheat from the open market. Besides, they also succeeded to get the wheat quota doubled from the Punjab government. The bulk stock with the flour mills, according to Punjab government officials, resulted in creating monopoly in the market and resultantly the country had to face hike in flour prices.

Wheat situation and ECC

The federal government through the Economic Coordination Committee (ECC) was regularly informed about the available wheat stocks in the country. During last 16 months, there were at least 15 meetings when the ECC was briefed about the overall situation of wheat stocks in the country. Despite regular briefings, the committee could not predict the looming crisis. Surprisingly, in a period of one year, the ECC approved issuance of 0.2MMT wheat to the poultry association for feed, 0.5 million ton for export, and 0.65 million ton to provinces. Then within the same year after the wheat crises hit the country, the same ECC imposed ban on wheat export and decided to import 0.3 million ton wheat.

Role of Flour Mills Association: The Pakistan Flour Mills Association (PFMA) is another factor that played key role in the shortage of flour and price hikes.

The Association bought bulk stock from the open market. The PFMA purchased up to 2 MMT wheat besides the government quota during the 2019 wheat season. Despite this bulk purchases, the Punjab government after meeting with the representatives of flour mills association doubled their quota. The Punjab government had officially decided to release the quota to flour mills once they grind the already available stock.

However, the provincial government released the flour mills quota three months prior to the prescribed time period. Previously, the Punjab government issued the quota to flour mills in November every year but in 2019 they were given the quota (double than the preceding years) in August. This helped the flour mills to manipulate the market as they had the wheat/flour in bulk quantity.

Wheat quota for poultry feed: The ECC approved releasing wheat up to 0.2 MMT to poultry association in November 2018. However, according to PFMA office-bearers the Punjab and Sindh government issued 0.8 million ton and 0.4 million ton respectively to the poultry association. The flour mills association considers this decision as the root cause of wheat/flour crises and blames the Punjab government and its bureaucracy for it. However, the Punjab government and its bureaucracy shift the blame to the federal government as the ECC gave approval of releasing wheat to poultry association.

Who are the market manipulators? Officials in Punjab government claim there are only seven to eight key players in the flour mills association who are controlling the wheat/flour market. They are the one who are getting millions of dollars rebate on wheat export, they are the one who are involved in wheat/flour smuggling to Afghanistan and Iran, they are the one who are involved in bulk purchasing from the open market and they are the one who decides the flour prices by manipulating the market. They met Chief Minister Punjab Usman Buzdar on July 17, 2019 and subsequently the Punjab government decided to double the flour mills quota. After this meeting, the wheat/four crisis started surfacing in the country as the provincial government agreed to fulfill all the demands of flour mills association, claimed the officials. According to the officials in Punjab government, the key players who manipulate the market are the one who met the Chief Minister in July 2019.

Did Punjab govt fail to meet procurement target?

The inquiry committee on wheat/flour crises as well as the members of flour mills association believe that former secretary food Naseem Sadiq is one of the persons who are responsible for wheat/flour crisis. They believed that he had failed to meet the procurement target and gave tacit approval of releasing wheat to poultry association. However, the documentary evidences which Naseem Sadiq annexed with his reply to these allegations are contrary to what the inquiry committee claims. According to former secretary food, the wheat procurement campaign 2019-20 was a huge success which it actually was despite crop failure as it procured sufficient quantities of wheat available and attained its objectives to give fair return to the farmers and enabled the Punjab Food Department to continue to meet all of the "exaggerated/ excess releases" afterwards throughout the year so much so 630,000 tones are still lying with Punjab Food Department as of today i.e. on 08.04.2020, when the new wheat procurement campaign has just been started.

Early warning of wheat/flour crisis:

On July 07, 2019 former Secretary Food Naseem Sadiq briefed the cabinet meeting on wheat procurement operations and warned the provincial government of a possible wheat crisis if proper measure were not taken. However, despite a timely intimation, the federal as well as Punjab government failed to handle the crises.

According to the minutes of July 07th 2019 meeting, secretary food said, “In order to ensure Food Security of the Punjab Province, 15.6 million MMT is the estimated total requirement of the province. The estimated production projections by the concerned department remain 19 MMT. For the last 18 years, the average release per annum by the Food Department remained 3.24 MMT. The devaluation of PKR, and international prices of wheat, which has jumped from 196 to 206 USD/ T within a week requires to be closely monitored and reviewed at federal level, as it can directly affect the depletion of the field stocks i.e. other than the public stocks. Afghanistan factor, production in the Central Asian States, and usage of wheat in other provinces etc. require a policy decision by the federal government in the contextual background of exports, smuggling, and other supplies. Any one of the above mentioned factors can solely disturb the private stocks, placing extra/ unforeseen load on the public stocks.

The Cabinet meeting decided that food department shall keep a vigilant eye on the exiting stocks owned by flour mills and new release may be done carefully.

“The dynamics highlighted need a professional input. It was decided that the Food Department shall take up the matter with the Federal Ministry of National Food Security & Research, especially to study the impact of changes in international market, currency fluctuation and the climatic conditions on wheat crop in Pakistan. This will be in furtherance to the earlier communications of the Punjab Government. Keeping in view the quality issues, especially the shriveled

gains, a technical feedback would be required, indicating the proportionate yield of wheat products and measures to counter the undesirable effects. The Industries and Agriculture Departments shall spearhead this analysis with the technical expertise available with different governments”, say the minutes of the meeting.

Illegal and unauthorized proceedings in wheat export Similarly, the former secretary wrote a letter to Chief Secretary on June 18 which says, “A letter for release of withheld amount, out of total markup payable to UBL, was received in the Department (Annex-A) that, on perusal, revealed existence of some illegal and unauthorized proceedings through some deliberate criminal concealment of fact, in connection ‘with claims of rebate regarding export of wheat. The nature and scale of the same needs to be seriously enquired upon. However, provision of relevant record has been avoided by the Director Food Punjab despite directions to that effect in writing vide letter dated 10-06-2019. Keeping in View, the above mentioned, the matter may be referred to some appropriate forum for unearthing the details to ascertain the nature and scale of the alleged export and rebate thereof. No money trail in foreign exchange (USD) through banking channel could be traced. Use of locally purchased USD for obtaining the rebate poses a serious question mark on the genuineness of the whole process. This may be a situation in many of the cases”.

How much Govt pays to wheat/flour exporters?

It is pertinent to mention here that the federal and provincial governments are paying hefty amounts as rebate on wheat export.

On February 17, 2015, Punjab government issued a notification No. SOF(I)3-47/2014-15 and approved export of 400,000 metric ton wheat/flour in pursuance of the ECC decision dated February 16, 2015.

According to this notification, the federal government approved an export rebate of US$55-per metric ton against the export of wheat/flour. Besides, the Punjab government also approved an additional subsidy of Rs3,500 per metric ton which is included in the cost of wheat. The rate of export rebate on wheat is almost the same as of today.

Not only Punjab, but federal government was also well aware of the situation of wheat stock in the country. From November 2018 to February 2020, the Economic Coordination Committee (ECC) held at least 16 such meetings where the Ministry of National Food Security & Research briefed the committee about wheat stocks in the country. However, despite these regular meetings, the federal government could not see what’s coming.

The following are the details of ECC meetings when the ministry briefed the committee about the overall situation of wheat in the country.

November 2018

On November 22, 2018 Finance Minister Asad Umar chaired a meeting of the Economic Coordination Committee of the Cabinet (ECC).

The committee accorded approval for sale of 200,000 tons of wheat from the surplus stocks available with PASSCO to the Poultry Association of Pakistan (PPA).

January 01, 2019

The ECC under the chair of Finance Minister Asad Umar was briefed by the Ministry of National Food Security & Research. The ministry submitted an update to the committee on export of public sector’s surplus wheat/wheat products.

January 29, 2019

Finance Minister Asad Umar chaired an ECC meeting on January 29, 2019. The committee approved Ministry of National Food Security’s proposal for allowing the export of 0.5 million tons of surplus wheat/ wheat products by PASSCO for which it had received tenders.

The decision was made keeping in view the rising prices of wheat in the international markets, sufficient available stocks (1.7 million tons) and the predictions of a good crop in the current crop season.

May 2019

On May 15, 2019, the ECC under the chair of Adviser to PM on Finance approved the proposed procurement target of wheat crop for the year 2018-19 to the tune of 5.15 million tons with financial limit of Rs.158.5 billion.

July 2019

Adviser to PM on Finance chaired a meeting of ECC on July 03, 2019. Ministry of National Food Security and Research updated the Committee about wheat stock position in the country.

July 17, 2019

The ECC under the chair of Adviser to PM on Finance and Revenue on July 17 was briefed that adequate stocks of wheat are available in the country to cater for the needs of the population.

It was also highlighted that the procured quantity of wheat during this year is 33% less than the procured quantities of wheat during the corresponding periods of last year. The ECC decided to impose a ban on export of wheat/wheat flour.

August 08 2019

Adviser to the PM on Finance and Revenue chaired a meeting of ECC on August 08, 2019.

The Ministry of National Food Security and Research briefed the ECC on the wheat situation in the country by saying that PASSCO and provincial food departments had reported wheat stocks at the level of 7.519 million tones as on 2nd August 2019 as compared to 11.183 million tons of the corresponding period last year.

August 28, 2019

On August 28, 2019, the ECC was briefed by the Ministry of National Food Security and Research on the wheat situation in the country.

The committee was told that the wheat stocks in the country were 7.516 million tons as on 16-08-2019 as compared to 10.950 million tons of the corresponding period of last year.

Similarly, around 0.369 million tons of wheat and 0.198 million tons of wheat flour had been exported through sea and land route from the period 01-07-2018 to 16-08-2019.

September 18, 2019

The ECC thoroughly discussed the wheat situation in the country and in the light of a briefing by the Ministry of National Food Security and Research decided to continue ban on export of wheat and wheat flour and further decided to propose to provincial governments to undertake a fresh stock-taking of wheat in godowns to ensure adequate supplies were available in the winter months.

October 30, 2019

On October 30, 2019, the ECC directs release of 650,000 tonnes wheat to KP, Sindh and Balochistan. The committee gave a go-ahead for release of 650,000 tonnes of wheat from PASSCO stocks to the provincial governments of Khyber Pakhtunkhwa (KP), Sindh (300,000 tonnes each) and 50,000 tonnes to Balochistan to ease out the demand and supply equilibrium in the local market.

The ECC was informed that the PASSCO and Provincial Food Departments had reported their stocks at the level of 6.444 million tonnes as compared to 10.093 million tonnes of the corresponding period of the last year. However, despite the fact that the total availability of wheat was estimated at the level of 28.256 million tonnes, including the leftover stock of 3.777 million tons as compared to the national requirement of 26.91 million tons of the country, the prices of wheat and flour still showed an upward trend in the local market, the ECC was told.

November 13, 2019

The ECC hiked minimum support price for wheat to Rs1350 per 40kg. The committee increased the minimum support price of wheat from the current Rs1300 per 40 kg to Rs1350 per 40 kg to safeguard the interests of the growers and ensure food security for the masses.

November 28, 2019

On November 28, 2019, the ECC fixed minimum support price for wheat at Rs1365 per 40kg. The committee raised the minimum support price of wheat from the previously announced Rs1350 per 40 kg to Rs1365 per 40 kg in view of representations from various farmers and growers’ associations as well as the Federal Cabinet and the National Assembly Special Committee on Agricultural Products which had proposed a reconsideration of the minimum support price in order to compensate the farmers in areas where the cost of wheat production had increased to Rs1349.57 per 40 kg.

January 20, 2020

The ECC allowed import of 0.3 million tonnes of wheat. The decision of allowing the import of 0.3 million tonnes of wheat was taken to decrease the local wheat price and meet the domestic requirement.

March 12, 2020

The ECC fixed minimum support price for wheat at Rs1,400 per 40kg. The Economic Coordination Committee (ECC) of the Cabinet on Thursday fixed the minimum support price of wheat at Rs1,400 per 40 kg to ensure parity in wheat prices throughout the country.

Earlier, the ECC was given a detailed presentation on the arrangements made for procurement of enhanced target of 1.8 million tonnes by the PASSCO which also shared with the ECC an enhanced efficiency model in procuring increased target and mechanism to rationalise the incidental charges.

Secretary National Food Security and Research Hashim Populzai on May 20, 2019 wrote an official letter and updated the wheat stock position.

According to this letter, the available wheat, as reported by the provinces and PASSCO, is well above our national requirement of around 25.84 million Tons. Wheat procurement is as per target by the Provincial Food Department (Punjab) and PASSCO. There is no need to put an immediate ban on the export of wheat rather the situation should be closely monitored.

Chairman PFMA point of view on flour crisis

Chairman PFMA Asim Raza Ahmed believes the flour mills are not responsible for the recent flour crisis. The government’s decision of releasing wheat for poultry feed is one of the main reasons for flour crisis in the country.

About Naseem Sadiq’s letter of June 2019 regarding discrepancies in the rebate on wheat/flour export, the chairman PFMA said he was not aware of any such letter but the PFMA had already won a case related to rebate from the LHC.

The previous government had stopped exporters’ security amount but the LHC ordered to release it. The exporters have claimed the rebate in accordance with the rules of SBP, he said.

“Naseem Sadiq’s claim that the decision of releasing wheat to poultry association was taken before his appointment is wrong. In a meeting with Chief Secretary (CS) Punjab, I proved it to CS in presence of former food secretary Naseem Sadiq that the decision of releasing wheat to poultry association was taken by Naseem Sadiq. The then secretary food (Naseem Sadiq) was about to issue written orders for releasing the wheat to poultry association but the flour mills association threatened to challenge it in the court.

After which he gave verbal orders for releasing the wheat to poultry association”, claimed Asim Raza.

About purchasing 2 MMT wheat from the open market, the chairman PFMA said it was a routine practice of the flour mills to purchase 1.8 to 2.2 MMT wheat annually from the farmers for the last five to six years.

Had the Punjab government not released 0.8 MMT wheat to the poultry association, the flour mills would never have approached the provincial government for early release of the quota.

Asked whether the allegation of former food secretary that a certain group in the PFMA was allegedly involved in fake rebate invoices, the chairman PFMA said Naseem Sadiq had the right to level allegations but ‘I have already given my opinion and the reasons behind the wheat/flour crisis’.

Talking to The News, Chaudhry Iftikhar, one of the key member, of PFMA, says around 80 percent rebate amount has been paid to the wheat/flour exporters while the remaining amount is in the pipeline which will be paid soon.

This year the exporters didn’t export the wheat and only Maida was sent abroad, he said.

About Naseem Sadiq’s allegation, he said these were mere accusations.

“The flour mills have genuinely exported wheat to Afghanistan and Iran. If the wheat wasn’t exported then why the country faced shortage? This is nothing but mere blame game. There might be some issues or shortcomings in the wheat export on part of some exporters but it is not more than 5 to 10 percent”.

The root cause of recent flour crisis is the release of 0.8 MMT wheat to the poultry association. The government’s decision of releasing wheat for the poultry feed put pressure on the local market which resulted in wheat/flour crisis.

About lack of banking transactions in export bills, Ch Iftikhar said it was true that the exporters purchased dollars from the local market and deposited it in the State Bank of Pakistan (SBP).

“We have no options because there is no banking system in trade between Afghanistan and Pakistan. Even there is no banking transaction between Iran and Pakistan,” he said.