AS paddy prices drop by almost 50pc over last year, the federal government is considering a relief package for basmati farmers. As per different projections being prepared so far, the farmers may get a monetary relief of Rs5,000-7,000 per acre. A noble cause indeed!

But beyond this temporary handout, if and when it comes, lies the bigger question mark; would this money solve the farmers’ problem? Probably not! Especially, if considered in the backdrop of the genesis of the problem.

This year’s price drop has not hit the farmers out of the blue; the situation was built up in the last few years due to a number of factors including: the government’s policies, gross neglect of basmati rice, dropping exports, cartelisation of domestic market by a few big players and ejection of farmers from the rice trade. Unless the government sees all this in the bigger picture, this one-off compensation would not help much.

The basic basmati statistics make the problem and its causes clear. Pakistan has been producing around 2m tonnes of basmati rice; out of which, 1m tonnes are consumed domestically and the rest are supposed to be exported. Till 2011, the exports were above that figure and domestic stocks were exhausted each year. From that year onwards, the exports started dropping for a number of reasons.

In 2012, exports dropped to 968,941 tonnes. Next year, they went down to 630,035 tonnes — leaving a domestic glut of around 350,000 tonnes. Last year, they touched 733,860 tonnes — adding over 250,000 tonnes to the glut.

Right now, the country is holding a carry-over of 600,000 tonnes, and fresh crop of 2m has arrived. The prices have dropped because there is no disposal. The traders and exporters are overwhelmed — both financially and humanly — by carry-over stocks.

The country is holding a carry-over of 600,000 tonnes, and fresh crop of 2m tonnes has arrived. The prices have dropped because of tardy disposal. The traders and exporters are financially overwhelmed by carry-over stocks

Second and the immediate factor this season was added when one of the biggest rice processing units defaulted on bank payments and was driven out of business. The other units either got scared or saw an opportunity for making money, and went slower than normal on procurement. The farmers, on their part, don’t have holding capacity and are only increasing glut in the market and driving prices further down.

While these conditions now define the market, the government is trying to intervene in the market with a paltry package. The economic irrelevance of the official package, if and when it materialises, can also be gauged from another angle.

With average yield around 30 maunds per acre and the price falling by almost Rs1,000 per maund — from Rs2,500 per maund to Rs1,500 per maund in some areas; the drop is more in other areas — each farmer, on average, has suffered a potential loss of Rs30,000 per acre.

What sense this Rs5,000-7,000 amount per acre would make to the farmers?

Even if the government thinks that compensation to farmers is necessary, it should initiate a process of concessional loans to traders and freight subsidy to exporters. The Trading Development Authority of Pakistan and the federal ministry of commerce should step in to help exports.

Luckily, the Iranian government has very recently allowed its private sector to import rice and the Iranian importers are currently in Pakistan for inspecting rice processing units What makes rice, especially basmati, unique, is the fact it is essentially an export crop.

If India can jump from 1.2m tonnes of export to 3.2m tonnes in the last few years, there is no reason why cannot Pakistani exporters catch up with their Indians colleagues with a right set of policies.

Published in Dawn, Economic & Business, December 1st , 2014