LAHORE, April 19: Wheat price has started declining as the State Bank of Pakistan delays procurement finance facility and commercial banks increase interest rates. Both factors have started hurting wheat trade, with farmers crying foul on the part of the government and financial institutions.

The government had recently announced a cash margin limit of 50 per cent for investors and 25 per cent for millers. The SBP is yet to intimate the decision to commercial banks which have to lend money.

The delay in SBP instructions to other commercial banks have left the government as the sole buyer in the open market, triggering a slight decline in wheat price. Wheat is reportedly being sold between Rs385 and Rs395 in the province against support price of Rs400 per 40kg.

The situation got further complicated when the SBP raised the benchmark interest rate by 1.5 per cent (total of nine per cent) to check inflation, which has entered double digit.

Market observers maintained that private sector would not be as aggressive a buyer, even after getting loans, as it was last year, because the banks, against last year’s four to five per cent, were now offering loans at 8.5 to 9 per cent interest.

Even the Punjab Food Department got credit line at 7.5 per cent against 4.25 per cent of last year. All these factors have started biting wheat trade and prices are on the slide.

About decreasing wheat prices, Ibrahim Mughal of the Kissan Board Pakistan said: “The State Bank has created a financial crunch in the market and direct beneficiary would be the food department.”

Government organizations —- the Punjab Food Department and Passco —- had monopoly over procurement and they found it easy to find faults with wheat and exploit farmers, he added.

He said this was an ideal setting for the lower staff of the food department, who could buy wheat at low price from farmers and sell it to the department at fixed support price and mint money.

The government was expecting a record crop of 22 million tons, and look at the arrangements it had made to procure the same, laments an official of the Farmers Associates Pakistan (FAP). It had cut its procurement target down to 4.73 million ton against 5.3 million ton last year, he said, adding it had almost doubled interest rates for private investors and millers and was delaying loans and triggering a price crash in the

market.

The government, he said, was delaying finance facility to procure as much wheat as possible before money started flowing in the market. Absence of a competitor also provided the food department staff with an opportunity to raise undue objections to the quality of wheat and

cut prices further down, he added.

However, some farmers are of the view that the government should remain cautious about allowing free-for-all wheat procurement campaign. Quoting last year’s experience, when the government policy of deregulation attracted a large number of speculators and hoarders, who subsequently destabilized the market, a farmer from Okara said the policy did not pay off. The government while involving the private sector should keep a vigilant eye on hoarders, he said, adding that the failure in doing so might hurt the urban consumer and create problems in the country.

The actual wheat production would be around 21 million ton instead of 22 million ton, as expected by official circles, and it would only meet food needs of 150 million population. Around 10 per cent of the produce would be used for seed and feed and some of it be wasted, while over 300,000 ton would be required for export to Afghanistan, they said, adding that these figures hardly justified a laissez-faire approach on the part of the government.

Khaliq Arshad of the Pakistan Flour Mills Association thinks that the government was creating a difficult situation for millers by delaying issuance of loans. It had already doubled the cost of loans compared to last year’s and still holding bank credit for procurement, he added.

A prospective investor thinks that the cost of finance may neutralize advantages of a bumper crop. “The government has started discouraging the private sector out of the market this year,” he said, adding that it would only allow the private sector when its own targets would be met and so-called food security ensured.