Rising flour prices in Pakistan prompted its government to build up buffer stocks to limit shortages in the domestic market. Photo: Ravi flour mills
Tenders for wheat in PAKISTAN have been steady in recent months, but his government’s international sourcing campaign increased a notch in September, despite the country’s farmers harvesting a record harvest. early in the year.
Wheat is one of Pakistan’s four major agricultural crops and is the most important crop by area, occupying about 40 percent of the country’s total cultivated land area. The other main crops are rice, cotton and sugar cane. Wheat is grown during the “rabi” or winter season, with a planting from October to December and a harvest from March to the end of May.
The area planted to wheat at the end of last year increased 4.2% from 2019 to 9.2 million hectares, and weather conditions throughout the growing season were generally favorable . Fertilizer applications to crops were higher than usual, with urea sales increasing 17% year over year. Disease damage was relatively limited and no locusts were reported. As a result, production increased 9.6%, from 24.9 million tonnes (Mt) to a record 27.3 Mt.
About 60pc of the wheat produced is saved by farmers for home consumption and seeds for the next harvest. The government buys 23 to 25 percent of the crop, with private traders taking care of the rest of the production.
The government has increased the support price for wheat for this year’s production to Rs 1,800 per 40 kilogram bag (US $ 271 / t) from Rs 1,400 per bag (US $ 209 / t) last year.
The Pakistani government has approved the import of up to 3 million tonnes of wheat duty-free in MY 2021-22 to close the gap between production and consumption.
According to the latest USDA forecast, Pakistan forecast 2.5 million tonnes after more than 3.6 million tonnes were imported the previous year. The government also plans to increase domestic reserves to 4 million tonnes during the current year in order to contain inflationary pressures caused by rising domestic prices.
Flour prices rise
However, the government’s import program has failed to curb the alarming rise in the domestic price of wheat flour. The increase in imports in an environment of high world prices and when the rupee loses ground against the US dollar, has compounded the problem.
Wheat prices in Pakistan have been relatively high since 2020 due to high production costs and lower-than-expected production years from 2018 to 2020, which has tightened domestic supply. The country has prioritized building and sustaining a large wheat reserve after demand spikes in the COVID-19 pandemic, and the threat of a locust invasion last year has made increase the internal values of wheat.
Wheat flour is a staple in the Pakistani diet, and hoarding and then profiting from the resulting supply disruptions has been a market problem for years. Buffer stocks will be used to limit domestic wheat and wheat flour shortages by smoothing supply to millers and domestic consumers when stocks tighten.
Another challenge for Pakistan has been the export of wheat by private traders and dishonest merchants who in turn profit from the tight domestic supply. This forced the government to increase imports to meet demand and control prices and inflation. Exports reached nearly 2 Mt in 2018-19, but have been much lower in recent years. However, Pakistan was a notable exporter following its harvest earlier this year.
The Trading Corporation of Pakistan (TCP) put out a tender in the middle of last week for the purchase of 640,000 t of wheat to be shipped in January and February 2022. Bids are solicited in a minimum of 100,000 t of optional sending, and the deadline for submission to the call for tenders is September 29. As is customary with most international tenders, TCP reserves the right to purchase more or less than the specified tender volume. .
The bids for the previous tender of 500,000 t of shipment from 11 November to 30 December were only closed on Monday of last week. Reports emerged at the weekend that TCP had purchased 575,000 t, exercising its right to purchase more than the quantity bid. The price is estimated at $ 383.50 / t, including cost and freight (c and f), after several global exporters agreed to match the lowest price offered in the first tender. The Cargill, Agrocorp, Falconbridge and CHS trading houses were said to have been the successful sellers. The previous call for tenders for 550,000 t for shipment from October 1 to November 30 had closed just 10 days earlier, on September 10. Reports suggest that TCP settled 405,000 t of facultative origin wheat at $ 369.50 / tc and f, with Cargill and CHS winning. participants in the call for tenders.
Indian surplus without aid
The irony of the situation for Pakistan is that its eastern neighbor India is an active wheat exporter this year. While India exports to other countries around the Indian Ocean and Southeast Asia, Pakistan spends large sums of money importing from major global exporters at prices far above those offered by India. India to other countries in the region.
Article 370, which deals with the autonomy of the regions of Jammu and Kashmir, is the sticking point. The Economic Coordination Committee (CEC) is responsible for the country’s economic security. In April of this year, the Pakistani cabinet overturned an ECC decision to allow imports of agricultural products from India “until Section 370 is reinstated” by India.
The TCP wave of wheat tenders in September put Pakistan on track to exceed both the USDA’s import estimate and the country’s duty-free import threshold. ECC. The overt nature of Pakistan’s import program is an apparent attempt to appease its people, instead of tackling the realities on the ground regarding stocks in factories and warehouses, better pricing mechanisms in the market domestic and the hoarding and continued profits of stakeholders, not to mention the precious foreign reserves are consumed by such an expansive import program.
