Wheat shortfall set to snowball into full-blown flour crisis in FY23

LAHORE: Wheat economy in an agrarian country like Pakistan has regrettably been in tatters for the last several years, forcing average annual imports in excess of 3.1 million tonnes, valuing around $1.1 billion on average during three years (2020-23).

Import of wheat has never been on such a high trajectory in the past several decades. The last two years imports have already gone through the roof. And the fiscal year 2022-23 will be no different as three million tonnes of wheat is being imported in the upcoming fiscal starting from July 01, 2022.

Without addressing the underlying cause of constant deficiency in wheat production, the policymakers have been focusing on making it affordable through artificial means of subsidy, involving billions of rupees annually.

As dependence on grain imports tends to increase, Pakistan’s wheat import has been pegged at over $3.5 billion during 2020-23 period, putting additional burden on the national economy. In addition to this, the federal and provincial governments spend in excess of Rs200 billion every year on wheat storage and subsequently selling at subsidised rates.

Instead, the policymakers have never opted to spend the required amount on increasing production of wheat, which is a staple food. The dismal results in stagnating yield of wheat are accordingly reflected in the total output, which has been hovering around 25 to 27 million tonnes in the last decade.

Similar was the case with 2021-22, Pakistan’s wheat production decreased to 26.4 million tonnes from 27.5 million tonnes. The annual consumption has been stated to be 29.5 million tonnes.

With already scarce stocks in hand, the Punjab province, which is the biggest producer and consumer of wheat in the country, wrongfully started early release of grain to the wheat milling industry from the month of May when harvesting had just concluded. Normally, the issuance of wheat used to be launched every year in September-October. However, flour millers successfully trapped food managers through various tactics and now enjoy tonnes of highly subsidised wheat.

The flour millers have allegedly been involved in illegally selling grain out of official quota in the open market instead of grinding it. Not only this, most of them are habitually said to be involved in compromising the quality of wheat flour intentionally in order to make money at the expense of consumers’ health. However, the provincial government did not pay heed to such malpractices and lavishly started releasing wheat to them much earlier. Hence, it is feared that wheat shortfall and its unwise use are set to snowball into a full-blown flour crisis in 2022-23.

Presently, the flour industry is getting about 40 percent of wheat from the provincial government. The rest of the flour is being sold in 15kg packing from wheat being purchased from open market at Rs2,600-2,700/40kg against official support price of Rs2,200.

The provincial government is going to gradually increase the daily issue of wheat from 16,000 tonnes to 25,000 tonnes with a view to bringing flour at lower rates under an across the board subsidy regime. But, the growing fear is that official stocks of wheat will soon start thinning as the government has started releasing official wheat when the new crop will take 10-11 months to arrive.

To bridge the gap between demand and supply of grain, the present government is left with no option but to import wheat as soon as possible. But, this is not an easy bet in the upcoming fiscal. According to an official assessment about availability of wheat in the international market and impact of the conflict between Russia-Ukraine on food and agriculture markets in Pakistan, in the last several years, Pakistan imports significant amounts of wheat, pulses, and oilseeds from Russia and Ukraine.

Last year, imports from Russia and Ukraine contributed for 77.3 percent of total wheat imports, 19.3 percent of total pulses imports, and 10.4 percent of total oilseed imports into the country. Moreover, although Pakistan is not primarily dependent on these two countries for fertilizers and fossil fuels, it is likely to bear the brunt of rising international prices of fertilisers and energy.

Due to high fertiliser prices and drought in some parts of the country, Pakistan has missed its wheat production target of 28.90 million metric tonnes (MMT) for 2021-22 season. Therefore, Pakistan will most likely need to import 3.0 MMT of wheat in the next few months. Wheat prices were already rising to historic levels, but with the ongoing conflict between Russia and Ukraine, international wheat prices are now at their highest level in the last few decades. The increased cost of production domestically, due to increased fertiliser and energy prices, are expected to raise the price of wheat in the Pakistani market.

It may be noted that wheat is the staple crop and it ensures food security of the country. Wheat is cultivated over 22 million acres and accounts for 7.8 percent of the value added in agriculture and 1.8 percent of GDP. Self-sufficiency in wheat has been an objective of every government and thus always remains a challenge for the agriculture experts and policymakers.

Wheat is a strategic crop and any shortfall in its production can create an awkward situation leading to political uncertainty, significant drainage of foreign reserves, rise in prices of wheat flour and pocket-shortages in vulnerable areas. During 2021-22, area sown decreased to 8,976 thousand hectares (2.1 percent) against last year’s 9,168 thousand hectares.

The production of wheat declined to 26.394 million tonnes (3.9 percent) compared to 27.464 million tonnes production of last year.