THE two state-run trade bodies have been accused of failing to find export markets for surplus wheat due to ‘poor negotiation skills’, by a representative of the apex body of trade and industry.

He wondered why the federal government has stopped exploring different options to sell the stocks before the arrival of the next crop; that, however, may be one aspect of the problem.

Ahmad Jawad, head of a standing committee of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) says Trade Development Authority of Pakistan (TDAP) and Trading Corporation of Pakistan (TCP) could not rise to the occasion to meet the serious challenge despite the huge subsidy on exports.

Until now, Punjab and Sindh could export only 252,650 tonnes and 164,000 tonnes, respectively. Only 86 tonnes were shipped fetching just $29,000 in July 2016 as compared to zero exports in the same month of 2015. The fact remains that the world grain glut does not appear to be subsiding, but instead, is poised to extend into a fourth year.

Despite a huge subsidy, running into billions of rupees, being offered on wheat export, there is no encouraging signal from any country to import Pakistan’s commodity simply because of lower prices in the international market. In fact, it is because of stubborn lower prices that all of Pakistan’s strategies to sell the harvest have proved fruitless.

At present, Pakistan has a wheat stock of 9.923m tonnes lying with the provinces and in stores

of the Pakistan Agriculture Supplies and Services Corporation… If immediate measures are

not taken there are chances that much of the entire surplus stock may turn into waste

Pakistan’s wheat remains uncompetitive despite subsidies and rebates. At present, the finest quality of Russian and Ukrainian wheat is available at $170 per ton, while Pakistani wheat is tagged at $200 per ton (August prices). Since prices began falling in the international market preventing exports, a large quantity of surplus wheat has been lying in the country exposed to rains and inadequate storage facilities.

At present, Pakistan has a wheat stock of 9.923m tonnes lying with the provinces and stores of the Pakistan Agriculture Supplies and Services Corporation (Passco).

Some of the commodity has reportedly been infected and may not be fit for human consumption. This is the nub of the issue, says Jawad, after months of negotiations, as it looked certain to export the surplus commodity, Pakistan failed at the ‘final hurdle’ If immediate measures are not taken then there are chances that the entire surplus stock may turn into waste.

Since under the World Trade Organization (WTO) rules, a country cannot ban import of a commodity, the regulatory duty in such a situation becomes the only viable option to protect the local product. By raising the duty to a point where import becomes unfeasible, the government has managed to keep the wheat imports at zero, thus protecting the growers from being exploited by the middleman.

According to the Pakistan Bureau of Statistics (PBS), wheat imports remained at zero in 2015-16 as compared to 686,650 tonnes of imports worth $185m in 2014-15. The trend has not changed.

Pakistan Flour Millers Association (Sindh zone) says under the current circumstances, only Khyber Pakhtunkhwa can export some wheat as its territory borders with Afghanistan. Sindh has been unable to do so owing to low rates in the global market. Sindh Food Department’s reserves of wheat stocks are 1.4m tonnes of 2015-2016 crop plus 0.4m tonnes of the 2014-15 crop.

The Association has suggested the Sindh government extend $60 rebate (it is difficult to understand why the subsidy is being demanded in US currency since it is a matter of domestic trade) as a subsidy on the entire wheat stock, so that people can get flour at cheaper rates during this season and wheat stocks can be disposed of within the local market. However, flour millers and traders are wary of the wheat export scenario in coming months despite additional rebate on surplus wheat.

The country’s wheat production is projected at 25.13m tonnes this year against expected consumption of 24.5m tonnes, leaving a surplus of 0.7m tonnes. There is a leftover stock of around 0.8m tonnes of the last two years.

The government has allowed exports of 0.9m tonnes with subsidies, costing the exchequer a huge amount of around Rs11bn, to prevent the domestic price fall. Exporting the commodity via sea is not possible as this would make it even more uncompetitive. It seems that the only buyer at the moment is Afghanistan.

Currently, the EU and Black Sea countries are the most competitive in price terms, having freight and logistical advantages to the major growth markets of the Middle East and North Africa.

Since Pakistan does not have the required storage capacity for excess stocks, domestic prices will go down when the un-exported glut is finally transferred to the local markets. The government had allowed 1.2mn tonnes of wheat for export in January last year: 800,000 tonnes with a subsidy of $55 per tonne for Punjab and 400,000 tonnes at $45 per tonne rebate for Sindh out of the federal account. Though the two provinces also gave a rebate from their accounts, making it $90 per tonne in both cases. But it all turned out to be an exercise in futility.

Published in Dawn, Business & Finance weekly, September 26th, 2016