Wheat policy — a success or failure?
To help achieve the production target and to improve incomes of the farmers, the wheat support price was increased by Rs15 to Rs415 per 40kg with the government procurement kept at around five million tons. It was assumed that the wheat price during post-harvest period would not fall below the support price.
But it was widely believed that this policy may not be able to attain the desired results because of the difference in cost of production and stipulated sale price of the crop. The average cost of wheat production, including land rent as worked out by the Agricultural Prices Commission (APCom) was Rs425 per 40kg in Punjab and Rs406 in Sindh. On the basis of this, APCom had recommended price at Rs425 per 40kg so that it should at least cover the cost of production of the Punjab’s cultivators whose share in national output is about 80 per cent and give a small margin of profit to farmers in Sindh.
However, the ministry of food and agriculture recommended Rs415 per 40kg which was approved by the ECC. So with such a price scenario, one would hardly believe that the expected targets would be realized. The wheat production cost, as worked out by APCom was based on the input prices that prevailed before it submitted its report to Minfal in July, 2005. By the time, the crop was sown in October–November, the prices of inputs like fertiliser, diesel and wages had gone up and resultantly, the cost of production exceeded Rs425 per 40kg as earlier worked out by APCom.
Minfal hoped to meet the target while at some stage the crop was estimated to surpass 22 million tons. The Punjab government too, was quoted as having a reserve stock of about 3.5 million tons which were more than the country would need during the crop year.
Similarly the Sindh government had fairly good stock available with them. Both these governments maintained that due to the available reserve stocks, any further procurement would put a serious constraint on their storage capacity. The plan, however, was that the Punjab government was to procure three million tons and the rest by other agencies including Passco.
Assuming a surplus that would enable Pakistan to export wheat, a proposal was considered that India would take wheat from Pakistan in exchange of sugar.
While the crop was still ripening, the government revised the target down to 20.5 million tons. The ‘targets’ are fixed before the crop is sown so that one could accomplish the same. But when the crop is sown there is ‘estimation’ of the likely area/yield or production while the target remains the same.
The wheat harvesting started in Sindh by the end of March, indicating a bumper crop. The price of wheat in Sindh started falling much below the support price. It was between Rs350–360 per 40kg. However, the government was not ready to procure wheat at the support price level. Taking advantage of this, the trade sucked in as much crop as it could at low rates. The farmers in a bid to meet their financial obligations suffered loss. They could not even meet the production cost.
In Punjab, the procurement target was reduced to about two million tons despite storage constraints but later on it was revised to 2.5 million tons against the three million tons earlier agreed.
The bumper crop information and delay in starting procurement by the Punjab Food Department set prices in the open market below the support price. This situation attracted the private trade to buy crop from market/farmer at Rs365-380 and not Rs415. Punjab farmers met the same fate as Sindh’s. The information as of third week of May was that the prevailing market prices have not yet reached the expected level and the farmers in the Central and South of the province are agitating against the non-payment of fixed price.
It appears that the government is unclear about its support price programme. It proclaims to purchase every grain, if price falls below the set level which however, is not implemented. The government seems to be under obligation, perhaps of international organizations like the Asian Development Bank and does not intervene and lets the private sector act freely. This dichotomy hurts farmers.
Let’s assume that if traders are allowed to buy from the open market they would gladly do so when prices are below the support price and would also export the commodity if international prices permit them, or would sell to mill-owners at the government’s price set for selling procurement stock.
All this happens at the farmer’s cost that lives below the poverty line. If the government intends having a support price programme then it should buy the produce from farmers when prices fall below the declared rates, immediately after harvest. If the government does not extend timely support, it should not announce the support price of a crop. The market mechanism then should be left to operate depending upon the demand/supply situation.
Wheat which is a strategic crop has now become a political one. One wonders if the government would take the ‘not-farmer-friendly’ policy. India resorted to this free-market policy in recent years to which one of their economists remarked that their government was repenting and wonders how long it can withstand the farmers’ pressure. There are reports of some suicides in that country. It’s a lesson for all.
The latest estimate of wheat production according to Minfal is 20.5 million tons of which 16.2 million tons is expected from Punjab and the remaining 4.3 million tons from the other three provinces. The information coming from Punjab is that yield per hectare this year will be less by 10-15 per cent while others report it to be 20-25 per cent lower than the last year.
The area sown this year is 6.32 million hectare while the yield per hectare in 2004-05 was 2.59 tons. Taking a more optimistic view, the yields would be 2.33 tons and 2.20 tons per hectare if it is less by 10-15 per cent, respectively. The production in the Punjab should, under these assumptions, be 14.73 million and 13.90 million tons.
Accepting the estimates of 4.3 million tons production in the other three provinces, the total production should be 18-19 million tons. If the reserves of about three million tons are added, the total would be 21-22 million tons.
No definite figure of per capita annual consumption of wheat is available, but generally it is believed that it varies between 110-120kg. Assuming 115kg as consumption, the need for 155 million people would be 17.83 million tons. Adding to it the likely seed, wastages and poultry feed, the total would be about 21.5 million tons.
If a minimum of 10 per cent is taken as reserves, the total need would add up to about 22.3 million tons against the production of 18-19 million tons and the availability between 21-22 million tons. These calculations don’t take into account informal trade with the neighbouring countries, which at times are estimated at 1.5 million tons. Any change(s) in the basic data would naturally alter the deficit situation and would impact the government’s decision with respect to export/import of the crop.
In view of the prevailing situation, following suggestions need to be addressed seriously:
i) Whether the government would want to continue with the support price of wheat? Does it indicate the government intentions to carry out this policy.
ii) If so, it should take concrete and effective steps to implement the same from day one, if the price structure needs such an action. This has not happened this year and so was the case in some previous years. Lack of effective implementation makes farmers suffer.
iii) The government fixed support price should not only cover the cost of production but should allow some margin of profit, thus helping the farmers in reducing their poverty. In this exercise, the government has to keep a close watch on input prices so that these are kept under control.
iv) Crop statistics needs to be drastically improved. The crop reporting services in provincial governments need an in-depth review to improve and strengthen their functioning.
The Federal Bureau of Statistics and Minfal should help in this exercise. There is definitely a large scope for the improvement of crop estimates, both in-terms of time and reliability. Let’s caution that the satellite method being adopted by Minfal would not be able to give data ‘in time’ and with ‘adequate reliability’. It is considered to be wastage of resources and could add to existing confusion about the crop area and production.
v) As final production estimates are not available until May and even thereafter in the case of wheat, the government should set up an independent committee as it did in May-June 2003. Such a committee should meet and visit fields as needed and give their likely estimates to the government.
The chairman and members of this committee should not be those who are directly concerned with the production process, and in any case not be a minister or secretary of the concerned ministry.
vi) National requirements should be carefully worked out. This would help in planning the steps required to be taken by the government to meet a surplus or a deficit situation.