AS the new wheat procurement season begins, it is time for all governments — provincial and federal, especially Punjab — to wake up to the emerging crop surplus crisis.

The causes of concern, as listed by wheat watchers, are: the quantum of carry over stocks, continuous increase in support price rendering wheat non-competitive in the world market, paucity of funds for procurement and political compulsions of an election year with politicians eying short-term political gains regardless of its long-term financial cost.

At present, the country is holding huge wheat stocks, with new crop due in a matter of days. The Punjab Food Department is holding around three million tons and Pakistan Agriculture Services and Storage Corporation (Passco) another 1.7 million tons. Sindh might be able to clear its stocks during March, but others cannot.

Thus, Pakistan will, most probably, start next season with a carry over of more than four million tons. At the present market rate, these stocks cost around Rs120 billion. Add interest and subsidy payments – Punjab has already paid around Rs30 billion this year on both these heads, and is still paying – and cost skyrockets. If Punjab procures another 3.5 million tons, it would need over Rs100 billion more.

The Passco and Sindh would purchase another three million tons and need Rs90 billion. The entire food debt by the end of the current season would swell between Rs300 and Rs350 billion – costing national and provincial exchequers around Rs150 million a day.

Where would this money come from? The State Bank of Pakistan has warned the provincial governments that they would get as much loans as they would retire as food circular debt has already become a drain on the banking system.

Unfortunately, the federal government has already taken the first step in the wrong direction. On February 14, four months after a formal announcement, it notified 11 per cent increase in support price, making its wheat further non-competitive in international market and its export difficult.

It also failed to realise that it took three years for exporters to find market since its last increase in 2008. With barely six months of beginning of fragile export process, it has increased price once again.

Secondly, it notified increase without developing consensus in the Council of Common Interest (CCI) as agriculture and its pricing are now provincial subjects.

It did so to put provinces politically on the back foot. Instead of taking the centre to task for an unconstitutional step, they will have to bear the consequences of wrong federal decision.

Punjab must persuade the centre that increasing support price would only make Pakistan wheat internationally irrelevant and benefit no one. If politicians have to compete for farmers vote, they can do so by providing relief on inputs – making them cheap and easily available.

Such relief can come from three sources - lowering taxes on farm inputs, providing targeted subsidies and improving governance. At present, cartelisation of input trade is hurting farmers as much as the heavy tax regime, if not more. So, both the centre and provincial governments need to make a paradigm shift in farming policy.

Competing on price increase only becomes an incentive for high input price cartels; they keep increasing prices of input on the plea that farmers are making good money. The recent increase in fertiliser price is one example, where increase in support price of wheat and good cotton market prices were cited as a reason to jack up fertiliser prices.

Secondly, Punjab, which is carrying two million tons of federal wheat, must convince the federation to pay subsidy (around Rs13 billion so far) and also clear stocks through exports even if it has to subsidise it. The federation has a few options, as the recent Iranian offer of bartering wheat with oil.

On the third plank, Punjab needs to limit its role in developing storage facilities. It has already chalked out a plan to promote storage in the private sector. They need to be followed up. It should also explore option of subsidised loans to the private sector.