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by Geoffrey Quartermaine Bastin Sadia Sarwar Zain Asadullah Kazmi
Islamabad, September 2008
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan
Table of Contents
INTRODUCTION EXECUTIVE BRIEF Part I: Policies and Prices Part II: Supply and Processing Part III: Demand RECOMMENDATIONS PART I: POLICIES AND PRICES A. WHEAT POLICY 1. Outline of the 2008 wheat crisis 2. Main elements of policy 3. Instruments of policy B. PRICES 1. Domestic Price Trends 2. Trade . .4 . 7 ....7 ...8 ..9 .10 ...11 ..11 11 ...13 ....15 .. 21 . 21 .. 23 .24 .24 ..27 ..31 ..31 34 ..35 ..35 .. 36 . 37 43 ...43 ..43 .47 ..50 .50 ..52 .53 ..56 .57
PART II: SUPPLY AND PROCESSING A.THE WHEAT GRAIN INDUSTRY IN PAKISTAN B.WHEAT GRAIN COSTS OF PRODUCITION AND MARGINS C. WHEAT GRAIN LOGISTICS 1. Harvesting, threshing and primary transport 2. Primary storage D. GOVERNMENT PROCUREMENT AND STORAGE 1. Procurement 2. Public Storage E. FLOUR MILLING INDUSTRY PART III: DEMAND A. CONSUMPTION 1. Perspective on the demand for food in Pakistan 2. Demographics 3. Poverty 4. Summary of overall consumption patterns B. CONSUMPTION OF WHEAT FLOUR 1. Wheat requirement to satisfy demand 2. Balance of supply and demand PART IV: CONCLUSION AND RECOMMENDATIONS
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan
List of Tables
Table 1: WHEAT GRAIN PROCUREMENT AND ISSUE PRICES ........................ Table 2: WHEAT PROCUREMENT MECHANISM ................................................ Table 3:PRODUCTION BY PROVINCE ................................................................. Table 4: MAJOR CROP OUTPUTS ....................................................................... Table 5:PROPROTIONS OF MAJOR CROPS IN VALUE ADDED ........................ Table 6: WHEAT COSTS AND MARGINS ............................................................. Table 7: COMPARITIVE COSTS WHEAT PRODUCTION .................................... Table 8: THE COMPOSITION OF ATTA Table 9: MAIN DEMOGRAPHIC INDICATORS FOR PAKISTAN .......................... Table 10: CALCULATION OF DEMAND FOR CEREAL-BASED NUTRIENTS ..... Table 11: CALCULATION OF SUPPLY OF WHEAT GRAIN ................................. Table 12: CALCULATION OF WHEAT FLOUR PRODUCTION . Table 13: WHEAT FLOUR SUPPLY- DEMAND BALANCE ...................................
List of Charts
Chart 1: WHEAT GRAIN; GOVERNMENT PROCUREMENT AND ISSUE ........... Chart 2: PRICES OF WHEAT AND FLOUR........................................................... Chart 3: MAIN GROWING AREA FOR WHEAT ................................................... Chart 4: WHEAT AREAS AND YIELDS .................................................................
List of Figures
Figure 1: Soldiers guard a flour mill during the current wheat crisis ....................... Figure 2: Flour exports blocked at Chaman ........................................................... Figure 3: Manually harvesting wheat crop .............................................................. Figure 4: Sheaved wheat before threshing ............................................................ Figure 5: Transportatoin of Wheat.......................................................................... Figure 6:Field threshing in Punjab.......................................................................... Figure 7: Basic wheat grinding in the Tirah Valley neat Afghanistan...................... Figure 8: Small scale (les than 1 ton/day) commercial wheat mill .......................... Figure 9: Wheat flour loading ................................................................................. Figure 10: Pakistani roti ........................................................................................
This is a Discussion Paper and reflects the views of the authors, not the official views or policies of the Competitiveness Support Fund or its affiliated agencies and donors
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan
THE WHEAT- FLOUR INDUSTRY IN PAKISTAN1
The Competitiveness Support Fund (CSF) has a mandate to assist the Government of Pakistan (GoP) in re-positioning the economy against benchmarks of competitiveness established by the World Economic Forum (WEF). According the “Global Competitiveness Report” (2007-2008), Pakistan ranks 92nd out of 132 countries in competitiveness as determined by a broad range of factors ranging from health and Infrastructure to macroeconomic stability and technological readiness. A full analysis of the competitive situation of Pakistan is available in CSF’s recently released “State of Pakistan’s Competitiveness Report” 2008. One of the important pillars competitiveness includes is the productivity of labor. In its turn, labor productivity depends upon a number of factors including health and education. But, at a more fundamental level, and one pertinent to Pakistan, are the basic requirements for human life upon which all productivity related factors are dependent: clean water, shelter and a balanced diet. The widespread lack of these things both in terms of availability (supply) and access (acquisition via the market or through subsistence activities) could be a serious roadblock to Pakistan’s onward development, to which the government is committed. These three factors, often overlooked, are of such paramount importance that the shortfall of even one of them will result in a deceleration or nullification of a wide variety of developmental targets.
Paper by Geoffrey Quartermaine Bastin, Senior Advisor, Sadia Sarwar, Junior Economist and Zain Asadullah Kazmi, Management Trainee, .CSF September 2008. The views expressed here are those of the authors, not the official views or policies of the Competitiveness Support Fund or its affiliates..
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan
For example, Pakistan has an alarmingly high number of people with a woefully inadequate level of iodine consumption. The Micronutrients Initiative website shows the following data for Total Goiter Rate (TGR) as a percent of the population: Iran 9%, Bangladesh 18%, India 26%, and Pakistan 38%. This figure is even more shocking when we consider that it understates the prevalence of sub-clinical Iodine Deficiency Disease (IDD), which is linked to inhibited brain function leading to low performances in vocational skills and IQ tests2. Currently, the most salient threat to labor productivity and forward progress is the rapid degeneration of the wheat and flour industry, this will be the focus of the current paper. Wheat is Pakistan’s most important staple food and forms the foundation of the national diet. The aim of the paper is to understand in a simple way the major parameters of the wheat and flour industries in order to see whether by and large Pakistan suffers from a long-term wheat crisis or whether the current situation of rising prices and lack of physical availability is a short-term phenomenon; as well as lay the groundwork for further analysis of other important dietary items (e.g., sugar, meat, fruits and vegetables and oils/fats). The approach taken by the authors is uncomplicated and utilizes widely available information and simple computations to arrive at informative and revealing results. The outcomes have been so robust and elegant that even where statistics are said to have been manipulated by “interested parties” the conclusions of this document still convey tangible information on which the foundations of policy can be formed. Despite the simplicity of the approach the authors believe that the methodology used in this report will nevertheless provide useful insights into the current dysfunctional state of the wheat and flour market, and as such provide a
It could be that half the population of Pakistan suffers to some degree from IDD which is found to be directly correlated with inhibited brain function. http://www.micronutrient.org
Pakistan’s current economic and political climate requires a serious discussion of the instability in the wheat market and the obvious shortages and rising prices across the nation. 6 . the spiraling escalation of which provides the newly elected government with a real incentive to change.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan useful platform to begin a more serious normative and prescriptive discussion of the issues at hand. In its most basic formulation the report’s argument is that if the mass of the population is short of the most important staple food – flour – then many or most of the other efforts to improve the competitiveness of the economy will come to naught.
given the complex nature of the security situation. factors which the government has the power and authority to address with well considered policy implementation. the government has attempted to enhance household food security. Yet. as well as supporting farmer incomes. Until recently the GoP’s policy had kept prices relatively stable. The high cost of wheat in Afghanistan coupled with the breakdown of border security has made smuggling wheat not only profitable but easy. Though the GoP’s pricing policy maintained a low price for wheat in Pakistan. On the consumption side. however an upward trend in prices has undermined the capacity of the Central government to maintain price stability. Increased wheat production has also been seen as part of an overall national food security strategy of reducing dependence on food imports. this report will show that even while assuming the continuation of wheat smuggling in the long term there are other more significant factors within Pakistan that contribute to the current wheat crisis. it was only recently that a significant increase in the world wheat prices and the price differential between Pakistan’s prices and the cost of wheat for Pakistan’s neighbors made the export of wheat remarkably profitable. 7 . Though part of the price increase is undoubtedly due to a national inflationary trend the surging price of wheat also reflects the fact that overall supply has not kept pace with increasing demand.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan EXECUTIVE BRIEF Part I: Policies and Prices The wheat policy of the GoP is aimed at increasing wheat productivity (yields) and output. particularly through ensuring availability of wheat flour at affordable prices and maintaining price stability through subsidies and price controls.
mismanaged and/or under invested to such an extent that they also result in similarly high losses. It provides upwards of 60 8 . and even the small scale mills that are extant are producing below their capacity due to the quota allocation and subsidy system operated by the GoP. The implementation of a procurement policy is the responsibility of the provincial governments and PASSCO (Pakistan Agricultural Storage and Supplies Corporation). as mentioned above.) is Pakistan's largest food grain crop. The commercial flour mills are neither optimally located close to the wheat grain supply. often at the field out in open which leads to high losses. Flour and bread (roti) plays a critical role in people’s lives. Government intervention in the industry is ineffective and inefficient. nor of a sufficient size to take advantage of economies of scale. Most other primary storage methods utilized in Pakistan are either primitive. but these are still low by world standards. Production has averaged 20 million tons in the last decade and has increased somewhat over time. Part III: Demand Wheat based products are a major part of the diet in Pakistan. A large proportion of the available grain is milled in rural areas where it has been produced and never enters the cash market. very inefficient and leads to unnecessary losses. Over 30% (though it may be as high as 50%) of total wheat produced is stored at the farm. It will be shown in the main body of the report that a wide array of market distortions such as these play a significant part in the current wheat crisis.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Part II: Supply and Processing Wheat (Triticum aestivum L. The physical handling and storage by these government agencies is. Farming technology is very primitive and generally the small plots and fields on which farming is done do not permit mechanization. mainly because of improved yields.
To restate the finding in another way the problem does not lie in the inability to grow more wheat. Moreover. according to our calculations 2007-08 has not been a particularly unusual year and indeed the supply deficit appears to be on the low side of the range.g.. If the supply is adequate why would prices skyrocket now when they had not done so earlier? It is a major finding of this paper that food insecurity arises more from the general features of economic growth. World Food Programme. at the mills. low incomes and their inability to use the food adequately for proper nutrition. potable water than from agricultural difficulties. but this deficit could be met easily by improving the supply chain.. as well as in economic factors somewhat independent of issues related to agriculture such as economic growth and income distribution. consumers are constrained by poverty. although these do exist. 3 E. Food Security Analysis 2003. Various surveys3 have measured food security according to three simple measures: • • • Physical access to food (availability) Economic access to food Biological utilization of food (food absorption) Findings suggest that whereas physical availability of food (including wheat flour) is not an issue. in the agricultural planning and the provincial government. rather. 2004 9 . of which Pakistan has adequate supplies and has over the course of its history demonstrated a slow but steady improvement in method. Using measurements for the (typical daily) requirements of protein and carbohydrate from cereals to calculate the wheat and flour supply/demand balance does indicates that there is a longstanding deficit in supply. from the mismanagement of the supply chain and the lack of access to e.g. despite the small plots and limited land. Without delving into applicable but peripheral issues such as increases in oil prices. the current problems for wheat begin as soon as it has been harvested in the supply chain.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan percent of the protein and carbohydrate in the average Pakistani diet.
A privatesector operated and financed storage and supply system must be built. • Inefficiencies in the supply and value chain must be reduced. it will be convincingly demonstrated that the GoP and the provincial governments themselves caused the crisis. 10 . • The “subsidy”-quota system in the flour milling industry must be abolished and this sector of the industry rationalized.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan insecure borders and for example monetary and fiscal policy. • Intervention by federal and provincial agencies should be reduced as far as possible as consistent with a fact-based calculation of food security. • Physical restrictions on the movement of wheat and flour should be reduced as a first step to removing the distortions in the market. BROAD RECOMMENDATIONS • The Government of Pakistan must urgently review the structure of the wheat industry.
with domestic production accounting for about 90 percent of availability. Some market liberalization took place in the late 1980s with the abolition of wheat ration shops and liberalization of private wheat imports (which were subsequently disallowed). Crop shortfalls from 2001-02 through 2003-04. This estimate was driven more by political considerations than a realistic assessment of the crop. The 11 . Throughout the 1990s. Similar restrictions were imposed in 2007-08 in response to the current wheat-flour crisis. Pakistan was a net importer of wheat. the GoP predicted a bumper crop of 23. which in actuality could not have even been made at that time in the growing season. reflecting a 10 percent rise in production. 1. however there has always been a strong element of government intervention. rising market prices. WHEAT POLICY Wheat policies in Pakistan have varied over time. A bumper wheat harvest in early 2000 (i. Analysis of the area and possible yield would have suggested the estimate was wildly optimistic.e. problems with government import tenders in early 2004. and low quantities of domestic procurement led the Punjab government to place restrictions on transport of wheat across district and provincial boundaries in 2004. some of which were subsequently exported (with an export subsidy). Outline of the 2008 wheat crisis In January 2007.5 million tons the highest ever production of wheat in Pakistan’s history.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan PART I: POLICY AND PRICES A. the 1999-2000 crop year) led to a record procurement of 8.6 million tons (compared with an average of 5 million tons) and a large increase in stocks.
000 tons of wheat to India.000 tons – 500. stating that this action was necessary to “maintain a reasonable buffer stock for the future. In September 2007. Most smuggling is organized and carried out by influential groups. 2007. Traders exported 500. If a rational and systematic process of wheat production. because businessmen have less incentive to distort the figures of their own bottom lines. storage and demand were maintained then Pakistan’s wheat would not have been exported in the first place reducing the import bill dramatically. The government then reinstated the export ban on May 25. this assumes that the revenue and the loss are a direct benefit and/or cost to the GoP alone. the government said it would import 1 million tons of wheat. at least 1 million tons of wheat and wheat flour (perhaps more) were smuggled into neighboring countries due to the favorable price differentials.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan actual crop production in 2007 was at least a million tons lower than the estimates.000 in losses.000. exclusive of transportation.000 tons) = $87. To make matters worse.and for December 2007 delivery. The total unnecessary losses from this fiasco calculated as: ((revenue from one ton of exports) – (cost from one ton of imports)) x (total import tons – total exports tons) = unnecessary expenditure or ($225 – $400) x (1.500. Coincidentally. But. If a more liberal market environment free from government intervention were adopted gross miscalculations of wheat crop would be less likely. 2007 also saw the greatest shortage of world wheat stocks in 26 years. the import price of wheat from Australia and Russia was $380-400 per ton. That knowledge determined GoP’s decision in April 2007 to lift its four-year ban on wheat exports to take advantage of a perceived price differential.” The export price for Pakistani wheat during the April-May export window was approximately $225-232 per ton . And in actual fact the revenue from exports totaling 12 .
who bore none of the subsequent loss.000 tons of wheat so that the traders could make a risk free $112.g. • Figure 1: Soldiers guard a flour mill during the 2008 wheat crisis 2. the policy is aimed at increasing wheat productivity (yields) and output. and needs to enhance regulatory procedures to increase stockpiles so that even if a crisis arises there is an adequate buffer to counter spiraling costs. Increased wheat production has also been seen as part of an overall national food security strategy of reducing dependence on food imports.. • The GoP needs to rationalize it’s method for estimating agricultural production. Main elements of policy Government wheat policy in Pakistan attempts to balance the competing interests of producers and consumers. as well as supporting farmer incomes. 13 .Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan $112. storage and stockpiling.5 million went to the traders. The traders and mill owners need to shoulder more risks and ought to be held directly accountable by regulatory procedures to meet food security targets e.5 million. On the production side. thus the GoP took a $200 million loss for 500.
g. however in the current situation clearly the policy has failed since there are food riots in various places around the country. the procurement price has remained below the market price. neither the urban poor (rioters). The current policy was formulated at a time when wheat commanded a low price on the world market. who are seeing diminished household security. who are seeing decreasing incomes.. thus the costs of “subsidy” are shifted to the farmers and shouldered only incidentally by the GOP. On the consumption side. Admittedly food policy options are limited by overall fiscal constraints. This policy may or may not have been successful over the long term. biscuits. particularly through ensuring availability of wheat flour at affordable prices and maintaining price stability. Thus. the wheat procurement price has been seen as a major determinant of overall inflation because of its role as a wage good and an indicator of overall government price 14 . nor the rural poor (farmers). • Though yields are an important part of any wheat policy. If the original purpose of the wheat policy has been nullified by market conditions then it seems that the continuation of the policy ought to be reexamined in the light of new facts. are benefiting from the current policy. Moreover. by paying them more than what their crop was worth. without proper regulation of the post harvest phase there will be spiraling costs due to inefficiency and lost opportunity costs. Now that wheat has become dear. the government has attempted to enhance household food security. and to encourage the production of wheat so that they could stave off poverty and continue to supply Pakistan with its staple crop. thus it was necessary to support farmer’s incomes.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Even though there is a policy to increase yields it has been systematically nullified by massive post-harvest losses. as well as a desire to minimize fiscal subsidies on food. it is only the first of a long chain of regulations and procedures encompassing simple food security and ultimately value-added products e.
If the government lacks the mandate or financial clout that price regulation necessitates then it ought to consider procuring and selling at the market rate. Doing this will boost its available supplies. Provincial governments have generally set procurement targets aimed at securing enough grain for planned distributions and stock build-ups.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan policy. Thus. as was the case in Pakistan in the recent past. wheat policy is to some degree constrained by inflation targets and inflation policy. finally. although this probably does not reflect the true meaning of the word “subsidy” which normally reflects a fiscal amount within the tax structure. 3. be they farmers. then it ought to take into account all incidental charges and sell the wheat to the mills at open market rates. The systemic failure to benefit anyone. because more people will then sell directly to the GoP. ought to indicate that a radical change in policy is necessary. The difference between the procurement price and the issue price is held to be a subsidy. Wheat grain is provided to the flour millers at a so-called “issue price” which is often lower than the private market price and indeed does not reflect the carrying (storage) charges for the wheat grain. or consumption subsidies to ensure the cheap availability of an essential produce. it should buy flour from mills at the going rate and if need be distribute the wheat at utility stores where 15 . Instruments of policy The federal and provincial governments employ public procurement and a “procurement price” for intervening in domestic production and wheat farmers’ incomes. But the GoP wishes to subsidize consumers without internalizing the costs of the subsidy. mill owner or consumers. Subsidies often come in the form of financial support for producers to produce higher volumes and support their incomes. which is an often unconsidered addition to the subsidy. thus it is burdening the farmers with the cost of the subsidy and pressuring them with force to comply.
• 16 . and in addition it would be a huge benefit to farmers whose costs of living. This would work well to decrease profits from smuggling subsidized wheat.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan the poverty stricken can obtain it by means of a voucher. thus encouraging rent-seeking behavior. will be able to segment the market by sending some flour to the utility stores and selling the rest in the open market. The costs of doing this still need to be calculated. are going up with everyone else’s. In addition the GoP. Then distribute wheat to its utility stores where the poor can “purchase” it with monthly food vouchers. the GoP ought to buy flour from mill owners at the market rate. • The GoP ought to “procure” and “issue” at the market price to minimize market distortions. but generally speaking the price differential between selling wheat and buying flour are small. Instead of manipulating prices. discourage hoarding. it must be remembered.
Wheat Section Table 1: WHEAT GRAIN PROCUREMENT AND ISSUE PRICES Procurement Price (PKR/40 kg) Year 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 300 300 350 400 415 425 Sep-Oct 330 330 330 380 Issue Price Nov -Dec Jan-Feb 335 335 335 380 425 430 625 340 340 340 392 Mar-Apr 345 345 345 398 2007-08 625 Source: MinFAL. Wheat Section 17 .Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Delving further into the Procurement and issue Mechanisms: Chart 1: WHEAT GRAIN. GOVERNMENT PROCUREMENT AND ISSUE PRICES. 250 200 150 $/TON Real Procurement/ support prices ($/ton) 100 Real Issue Prices ($/ton) 50 0 19 95 6 -9 19 8 1 2 3 5 6 9 4 7 7 0 8 -9 -0 -0 -0 -0 -0 -9 -0 -0 -9 -0 -0 96 97 98 00 01 02 03 04 05 06 07 99 19 19 19 20 20 20 20 20 20 20 20 Year Source: MinFAL.
79 $4. 18 .71 $178. losses from spoilt grain and transport costs.000 PKR 11.93 $7.64 $121.36 PKR 625 $9 $5 PKR 8750 $125 Per Metric Ton PKR 400 PKR 450 PKR 500 PKR 550 $5.14 $73.21 $196.29 $2.86 $160.57 $53.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 2: WHEAT PROCUREMENT MECHANISM Per 40 kg Bag Procurement Price: Set by GoP PKR 350 Incidental Charges: Monthly Costs^ PKR 25 Actual Basis Price: Procurement + Charges Sept / Oct Nov / Dec Jan / Feb March / April Quota to Flour Mills: Sept to April 2004 Sept / Oct Nov / Dec Jan / Feb March / April Subsidy: Basis Price .57 $196.43 PKR 330 PKR 335 PKR 340 PKR 345 $4.250 PKR 13.21 PKR 70 PKR 115 PKR 160 PKR 205 PKR 550 $1 $1.500 PKR 3750 $178.14 $7.5% own consumption + losses. **Open market Price minus the Procurement Price not including input costs.86 $119.71 $4.85 $4.750 $267.92 PKR 8250 PKR 8375 PKR 8500 PKR 8625 $117.14 PKR 12.43 Open Market Price: PKR 500 Loss to Farmer** PKR 150 $7.86 PKR 10.57 5 Tons *** Total Loss to Average Farmer PKR 18.43 $7.750 PKR 13. *Sum of all the months multiplied by the overall volume of wheat grain issued.750 $142.07 $57.43 $123.14 $2.5 ton/ha and an average 33.86 PKR 1750 PKR 2875 PKR 4000 PKR 5125 PKR 13.71 $6.64 $2.750 $25 $41.85 ^ A rough estimate of storage costs. ***With an average of 3 ha of land and average yield of 2.Quota Sept / Oct Nov / Dec Jan / Feb March / April Loss to GoP* $0.
However. then we cannot take this calculation forwards.e. The calculation above also accounts for the reluctance of Punjab to allow grain they have purchased to move outside the province. The “subsidy” from the GoPunjab calculated in the above way could be very large. If it were not for smuggling and non-government regulated trade on the open markets. intra-national trade barriers would have presented a significant threat to the health and livelihood of many ordinary Pakistani and this merely for the sake of attaining procurement targets that themselves have been shown to be grossly miscalculated. 19 .. Whether this is a rational way of considering this subject in a country where individual province GDPs are not calculated is yet another question . By issuing the flour to mills situated. if the principle of the calculation is correct. then it suggests that the so-called subsidy could be higher than individual agencies (i.. There has been little action from the GoP to address the issue of these intra-national trade barriers (even though they are unconstitutional) which amounts to a very damaging precedent for the wider economy. Most recently there has been a panicked imposition of restrictions as provincial governments became convinced that a serious shortfall of wheat flour was occurring. Restrictions on the transport of wheat are introduced periodically to ensure that district officials of the provincial Departments of Food can meet their procurement targets and for financial reasons. Neither have we verified it in discussions with the GoP except through the one person in the Wheat Section of Federal MinFAL.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Since no detailed information is available to us about the amount of grain issued per month. especially if a large proportion of the grain was issued in the later part of the year (i. say. the GoPunjab carrying storage for several months). the GoPunjab absorbs the costs but gains nothing from value added. in Sindh. the Food Departments of the provinces. especially Punjab) might expect. .e.
Large-scale procurement and subsidized sales creates the possibility of substantial economic rents. benefit from increases in procurement prices and quantities. The government (and private sector contractors) also exported wheat officially in the 2000-04 following record levels of procurement in 2000 and again (as we have seen) in 2007 with the disastrous results seen above. Sales of grain (at the issue price) from the surplus provinces (typically Punjab) to other provincial food departments involve an implicit cross-subsidization to the receiving provinces since issue prices do not cover the full costs of procurement.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Figure 2: Flour exports blocked at Chamnan (Balochistan-Afghan border) -Al Jazeera photo 17th January 2008 Imports of wheat. who account for about 80 percent of Pakistan’s population. undertaken by the federal government. have been used to supplement provincial food stocks and enable sufficient wheat sales to keep domestic price levels from rising too high. Provincial food departments make great efforts to achieve domestic procurement targets which provide most of the grain for subsequent distribution. Farmers. particularly those with net sales. Various groups of stakeholders are affected by and often attempt to influence these policies. storage and distribution. Flour millers gain from low issue (sales) prices of wheat that are typically below open market prices. The provincial and federal governments are also concerned with 20 . Low market prices for wheat and wheat flour benefit net consumers.
In the longer term. the GoP ought to pass the costs of storage and transport onto the flour mill owners. It will be seen that the trend is constantly upwards with minor fluctuations around the trend line indicating that GoP policy at least has kept prices relatively stable (except recently). to minimize the profits from the smuggling and redirection of subsidized wheat to the open market. donors have generally pushed for reductions in food subsidies and an increased role of the private sector in wheat marketing. procurement rates and targets should be eliminated and a liberal market for grain should be established to minimize the market distortions. • In the short term. A liberalized market would promote a more accurate wheat census because it would discourage politically motivated over-estimations of yields at the national and local government levels. • • B.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan minimizing fiscal subsidies and overall inflation. This would discourage individuals from smuggling and dissuade the provincial governments from impressing their authority illegally upon the populace. The upward trend in prices also reflects increasing demand and the fact that overall supply has probably not kept pace 21 . On the producer side it would help to disincentivize under-reporting by farmers who can sell unreported surpluses on the open-market. Finally. it ought to raise the price at which the grain is acquired from farmers so as to support farmer incomes. Secondly. Domestic price trends The Chart shows real wheat and wheat flour prices from 1996 to the first quarter of 2008. PRICES 1.
input costs have increased in this same period.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan with demand at least in the cash part of the wheat economy. the premium fell in 2007 to 8 percent and then to 4 percent in the first quarter of 2008. But. The relationship is as expected averaging a flour premium over wheat of 13 percent in 1996-2007. There is no available data (as yet – we will be researching this aspect) on farm gross margins. Indeed yields appear to have increased with prices suggesting a conventional farm level response. it is possible that government involvement in the wheat economy (especially in the area of large wheat related infrastructure) is discouraging the private upgradation of the market. However. Increasing wheat prices should in principle have increased farm incomes and encouraged efficiency and expansion of the industry. the price data shows the very close relationship between the raw material and the product of milling. Part of the reason for the low premium is that mills are working at 22 . 2008 In the case of wheat flour. Chart 2: PRICES OF WHEAT AND FLOUR Real Wheat and Flour Prices (prices at the mill) 700 600 500 400 300 200 100 0 M ar -0 8 19 96 19 98 20 00 20 02 20 04 20 06 Rupees/40kg Wheat Grain Flour (Atta) Source: MinFAL. but it is possible that the sluggish farm-level response to better prices indicates that the full price increase has not reached the farm. That said. With the subsidies and possibilities of selling subsidized flour at a full market price this premium would permit flour millers to make a good business.
After self-sufficiency was achieved in 2000 with a consequent rise in stocks. The mills that have stayed in business can only do so because they export (illegally) to neighboring countries. not least because they often find it hard to obtain wheat for milling. in times of shortage. domestic price levels would be determined by the international price adjusted for tariffs. This situation was dramatically reversed in 2007 with the rise in world prices and especially strong price incentives for exports arising in India and Afghanistan. however. In the 1990s Pakistan’s domestic wheat prices were below import parity price levels because subsidized sales of government commercial imports added to domestic supplies and reduced market prices. GoP intervention in the market has severely distorted the prices that apply. private sector imports would easily supply the shortfall. Pakistan (and especially Punjab) can and should see itself as the primary grain supplier for at least a regional market and manage the possibility of risk of crop failure or a reduced harvest with positions taken in the international market. transport and marketing costs (the import parity price). in times of surplus relative to neighboring markets. prices continued to remain below import parity. Pakistan is well-placed to export either by sea or road. With the relatively poor harvests in 2004 and 2005. domestic prices rose substantially and remained at about 18 percent above import parity levels in 2004-05. However. In principle. Trade If Pakistan applied a free trade regime to the wheat industry. 23 . At this low premium of flour over wheat there is no possibility that flour millers can mill profitably and sell to the local market and indeed many mills have closed. 2. • If trade were permitted with no GoP intervention.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan significantly under capacity. this has lead to a dramatic increase in the profits from smuggling of wheat.
The country ranks within the top-10 (about seventh) of the world’s wheat producers with the majority of wheat grown in the Punjab. and accounts for a large proportion of the total area under cultivation (about 40%). The small plot sizes do not permit any degree of cohesion in the industry or the use of any mechanization. THE WHEAT GRAIN INDUSTRY IN PAKISTAN Wheat (Triticum aestivum L. Chart 3: MAIN GROWING AREA FOR WHEAT 24 . In many respects it would be difficult to find better growing conditions.) is Pakistan's largest food grain crop.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan PART I: SUPPLY AND PROCESSING A. Probably 80% of farmers in Pakistan cultivate wheat. That said. This is the best agricultural land in Pakistan and the location of the world’s largest irrigation system. individual plots are small – probably on average about 2-3 hectares and the type of cultivation in the main growing area has been described as “wheat gardening”.
100 8.50 2.) Yeild (ton/hec) Year 4 Note: There are minor differences in the volumes reported owing to different data sources.) for irrigated wheat. most wheat production is in the irrigated production area (see map) and so remains high cost relative to yields that average about 2.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Year 2000-07 Average Table 3: PRODUCTION BY PROVINCE Punjab Sindh NWFP Balochistan 16. * Source MinFal 25 .200 8.500 Area ('000 hectares) 8.) Area (Million Ha.300 8.075 (100%) Source: Agriculture Statistics of Pakistan Wheat production has increased somewhat over the last decade due mainly to improved yields which have trended upwards. There have been improvements in critical factors such as better seed and more fertilizer. Unfortunately there is no consistency in the statistical data in Pakistan.00 1.00 0.5 tons for rain-fed wheat. area under production has been more volatile and not increased at the same rate as yields. That said.003 602 (80%) (12%) (5%) (3%) 4 Pakistan 20.000 7.400 8.600 8.5 tons per hectare (world average 4 tons per ha.00 2. Production (based on official statistics) averages about 20 million tons of grain.060 2. However the differences are small and make little difference to the overall outcome from a policy viewpoint.800 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 3. yields of course remained high because the land area in production during this period was irrigated. 1.50 1. The reason for the drop in area under production in the early part of this decade is because of drought.409 1.900 7.50 Yield (Tons/Ha. Chart 4: WHEAT AREA AND YIELDS* PAKISTAN WHEAT CULTIVATION 8.
547 4.353 4.042 52.426 2.333 4.244 44.495 1.805 1.079 19.478 4.156 4.025 5.500 21.848 5.819 16.709 2.226 19.651 18.803 3.700 19.606 48.674 5.191 46.419 47.612 21.694 17.737 1.705 Source: Economic Survey of Pakistan 2005-06 26 .562 1.594 1.333 43.882 4.056 53.858 21.305 4.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 4: MAJOR CROP OUTPUT (‘000 tons) Year 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Average Wheat Rice Sugarcane 41.104 55.122 1.183 19.024 18.530 Cotton 1.912 1.996 53.826 1.312 48.
e. it is important to emphasize that these numbers are a rough estimate although they seem to reflect the real situation – i.00 Source: Economic Survey of Pakistan.57 9.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 5: PROPORTIONS OF MAJOR CROPS IN TOTAL AGRICULTURAL VALUE ADDED CROP Commodity crops Rice Wheat Subtotal Industrial crops Sugarcane Cotton Subtotal Other crops TOTAL CROP VALUE-ADDED 1999-00 % 2005-06 % 15.30 17.40 100.66 24..00 24.00 8.34 55.30 56.70 11. that margins are quite low: 27 .00 35.37 34. In this case we have prepared our own estimates of these costs and from these have calculated a Gross Margin.23 38. 2005-06 B.40 41.00 100. WHEAT GRAIN COSTS OF PRODUCTION AND GROSS MARGINS As far as we can determine there is no consistent collection of data related to the costs of producing wheat.03 10.
876 1. 2.621 270 Private margin Combined margin 28 .625 18.4 4.000 2.752 2.2 2.4 1.280 7.4 Irrigated Unit input 1 20 2.564 168 13.5 tons tons PKR/40 kgs PKR/40 kgs Rainfed 18.280 3.000 1. Costs Land Labour Seed Fertilizer Unit cost 69 950 3.976 130 12.976 4.832 374 Ha.250 670 Revenue Govt Private PKR USD PKR USD PKR/per ha.2 2.231 192 20.4 PKR USD 600 1.750 272 22.440 9.426 180 11. Persons Bags DAP Urea Irrigation Fee Fuel Litre Harvest Fee TOTAL COST PER HA.418 296 18.535 975 Cost amount 2.4 2.4 2.200 322 Rainfed Unit input 1 10 2.063 566 46.774 142 Government margin PKR USD PKR USD PKR USD 8.684 2.230 620 Cost amount 690 2.800 3.340 25.4 Price GOP Private 625 740 15.4 2.500 PKR/ton PKR/ton 226 268 USD/ton USD/ton Irrigated 39.230 620 2.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 6: WHEAT COSTS AND MARGINS Area Yield hectare Rainfed Irrigated 1 1.8 2.488 Unit cost 100 950 3.
Rain fed wheat uses smaller amounts of all inputs and returns a gross margin (in our model) of $168/ha. Irrigated wheat uses fertilizer in relatively large amounts and also incurs costs of water (though to what extent these are actually paid if the water is gravity-fed from the canal is not known. possibly closer to 4 tons/ha. the reasons for this are not within the scope of this report but is a worthy subject for further investigation. The assumptions we have used here are that the farmer keeps half the crop for on-farm and family use.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Source: Author’s calculations based on field enquiries Notes on the Table: Seed Fertilizer Average price /50kg bag = PKR 950 Requirement per acre = 1 bag For P content: DAP PKR 3. In fact. tube well water costs have to be paid. yields in both areas are assumed to be low since average yields in Pakistan are inferior by world standards.000/acre calculated from 1 tubewell per 60acre farm average 20. The margin turns out to be $270/ha. 25% sold to private traders We have calculated two sets of costs and margins.and one for the irrigated area -. We have assumed an opportunity cost of this wheat to be the same as if it was sold to the private trade (note: we are using 29 .We have used a combined price to calculate these figures. However.high cost-high(er) yield.230/50 kg bag For N content: Urea PKR 620/50 kg bag ! Bag DAP at sowing/acre 2 bags Urea (1 sowing.low cost-low yield -. one for the rain fed area -.000 PKR/farm PKR 307 per cultivation/acre Total cost cultivation per acre at 5 cultivations/acre = 1535 Includes threshing = 975/acre in Punjab irrigated area Irrigation Fuel Harvest Combined margin is 50% kept for on-farm use equivalent to private sale 25% sold to GOP. the official data suggests otherwise. It should be the case that with irrigated wheat using these inputs that yields would be higher. 1 growing) Tube well bill 2.
The remaining half of the crop we assume to be sold half to the private trade at a higher price and half to the government procurers (see below) at a lower. The mechanics of GoP procurement are discussed in detail below.)* USA Uzbekistan Pakistan Turkey Pakistan 475 315 374 240 142 average 2000-06.630) represents a daily income of about 74 cents/day. Production costs per hectare are high. 30 . This cash income of $270 (PKR 18. 2005 crop irrigated Authors’ calculation rainfed Press reports rainfed Authors’ calculation 2. The return on wheat farming is very small.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan current prices in the calculation). it is probable that Uzbek wheat costs are in fact higher than in Pakistan if water charges are included. We have compared these costs with data from neighboring countries (and as a benchmark: the USA) and these data are presented in the next table. Table 7: COMPARATIVE COSTS OF WHEAT PRODUCTION (US$/HA. Note that land costs are NOT included in these calculations. At the least this is more than is available from any official source. Nevertheless we think that the calculations capture the essential elements of farm production. so-called “procurement price”). revenues and margins. The conclusion to be derived is that for an average small farmer with perhaps 2 hectares of land. The combined result gives us the farm revenue per hectare5. especially in the irrigated area where water costs are included. well below the We understand very well that these are rough and ready calculations and that the assumptions are not based on any survey data. There are two important conclusions to be derived from this analysis: 1. Two hectares returns a gross margin of $540 of which half is received in cash (with the remaining wheat stored on farm for family use). 5 * Note: that Uzbekistan’s costs understate water charges. all winter wheat irrigated GOU.
Understanding why yields are low. Harvesting. which are left in the field for one to three days to dry.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan poverty line.15 bundles. indeed the industry can be considered as essentially subsistence farming with some related secondary cash income rather than commercial farming of a commodity cash crop. to move away from subsistence farming C. threshing and primary transport Methods and timing of harvesting are important factors to total crop yield. • Increasing “cash in hand” for farmers by increasing or eliminating the procurement rate. WHEAT GRAIN LOGISTICS 1. At this level of return. there seems no cash incentive at all to cultivate wheat. then the approach to agricultural development has to be very different from countries where wheat is grown entirely commercially. and • 3. Manually harvested wheat crop is tied into small bundles and stacked in bunches of 10 . This will not only improve the lives of the farmers but could help alleviate the mass migration of labor to the cities.Encouraging specialization and cash crops. many of whom end up as the “urban poor”. 31 . 2. A major proportion (70 percent) of the wheat crop in Pakistan (like the rest of Asia) is harvested manually using sickles.Decreasing costs by centralization rationalization of wheat infrastructure. If this is a correct picture of the majority of wheat farmers (and we test our conclusion). The next three essential components would be: 1.
these costs are not far different from manual labor. Machines are generally not used because of the associated cost. However. The main reason machines 32 .Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Figure 3: Manually harvesting wheat crop Figure 4: Sheaved wheat before threshing Threshing is usually undertaken in the field where the sheaves have been left.
In some situations. Thus. and barges between farm and mill. The resulting grain is left in the same field covered by a tarpaulin. • The various steps in the supply chain ought to be minimized and centralized to the greatest extent possible. trucks. bagged wheat may be loaded on and off vehicles ten times manually before it is milled. so that spoilage of grain and supply chain inefficiencies can be reduced. Most wheat is manually loaded and unloaded from wagons. Figure 5: Transportation of Wheat 33 . railroad cars.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan are not used is that it is said that local threshing machines destroy the outer husk of the grain which is used for animal feed. • The GoP ought to make widely available (possibly subsidize) an improved threshing technology at a rate which is roughly akin to that of manual labor. time saved by laborers can be used in other cash generating or cost saving activities.
Overall bout 30 percent of wheat production is retained for own-consumption7. Abdul Pakistan Institute of Development Economics 2006 http://mpra. Paul and Salam. note the moveable thresher 2. Primary Storage It is estimated that over 50 percent of total wheat produced In Pakistan is stored at the farm.uni-muenchen.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Figure 6: Field threshing in Punjab. often in the field in the open.5 ha in size is negligible6. These facts further illustrate the point that much of wheat farming is essentially subsistence. Pakistan Agricultural Research Council.pdf 7 6 34 .de/2244/1/MPRA_paper_2244.ub. It is estimated that the quantity of wheat entering commercial channels from farms below 4. Smaller farms generally keep most of their grain for consumption. Umar Baloch Wheat Markets and Price Stabilisation in Pakistan: An Analysis of Policy Options Dorosh.
More than half of farm households regard insect infestation as a major problem. al . CAB. Ed Highley. In some years the procurement from Punjab has been as much as 90 percent of the total. There are significant losses due to insects. International. Loss Assessment and Loss Prevention in Wheat Storage . in Stored Product Protection ed. metal bins. 1994. et. 8 Baloch. inside the house or in the open courtyard. in Pakistan. A four-member committee comprising an MPA (member of provincial assembly) of the area. a farmer and official of the procurement agency supervises the procurement drive and growers are paid a guaranteed minimum price. protected by a cover. Wheat may also be stored as a heap covered by straw. Procurement The government has been involved in wheat grain procurement since Independence9.5 percent8. birds and rats. Currently the Federal Government has fixed a target of 3 million tons of wheat procurement for Punjab from a total requirement of 5 million tons (60 percent). loose in a room. or in bags. Pp 906-10 9 Wheat Markets and Price Stabilisation in Pakistan: An Analysis of Policy Options. As of 2008 there are 375 purchase centers in Punjab. baskets and pots. mud and dung plastered. particularly the government of Punjab... The procurement agencies distribute jute gunny sacks and tarpaulins to the farmers to assist the procurement process. GOVERNMENT PROCUREMENT AND STORAGE 1. Losses in public sector managed storage facilities may be higher. op cit. 35 . U. D. intervene heavily in wheat markets. Provincial governments. The national procurement price and procurement quantity targets are set at the federal level. a district government official.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan The major food grains are usually stored at the farm in specially constructed mud bins. K. Wheat grain is often stored for more than 5 months with losses estimates at 3. in consultation with provincial governments. though the implementation of procurement policy is the responsibility of provincial governments and PASSCO (Pakistan Agricultural Storage and Supplies Corporation). moulds.
If the community wishes to sell more grain than it was contracted for it could sell it to the GoP at the prevailing market rate at the time of harvesting. Basic quality parameters affecting storage such as moisture content of grains. contracts with communities of farmers ought to be signed with which the GoP guarantees that a certain percentage or amount of grain will be bought at the expected future open market price. Taking into account deterioration of the grain and inefficient harvesting (by hand) a conservative immediate post-harvest loss would be about 5 percent. Modern central silos staffed by trained employees are needed to minimize losses. There are probably no modern storage systems in the public sector and consequently losses in public sector godowns are due to inadequate covered storage space as well as shortage of trained manpower to manage proper procurement.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan 2. hexagonal bins and a few silos. 36 • • • . Public storage Grain storage facilities in the country are mostly horizontal sheds called house type godowns. Instead of procurement requirements. segregation of lots according to the age of the stocks and biological cleanliness of the warehouse are not followed. A communication mechanism is needed so that the GoP is in contact with the farming communities so that as soon as the wheat is ready the government can pick it up. • A transportation mechanism is needed so that when the wheat is cut and threshed it can be delivered by truck to a central location. warehousing and the pest control operations. There are also binishells (temporary emergency stores about 70 percent of capacity). The result is that serious losses take place quite often.
Of course wheat grain can be sold outside Pakistan just as crude oil is exported. which itself is an intermediate product to be made into bread. Pakistan is not to be congratulated when it exports wheat or indeed flour. This statement may be surprising for the non-agribusiness specialist. a barrel of crude must be changed into useable elements before it achieves a real value to the consumer.000/ton (which includes the cost of sugar. The point is obvious.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan E. Wheat grain is analogous to crude petroleum oil. Similarly. so doughs made out of Atta are strong and can be rolled out very thin as in chapati and. 10 March 2008 ex-farm price 37 . wheat grain must be milled into flour. The reason for this is that the value to weight ratio alters dramatically as one progresses along the value chain – a ton of wheat costs about (2008 prices!) about $214/ton10. THE FLOUR MILLING INDUSTRY It must be repeatedly stated that wheat grain in and of itself is of no use. roti. for every ton of flour exported the country loses against the value added elsewhere. other additives. The wheat flour produced in Pakistan is known as Atta. a ton of flour costs $223 and a ton of cookies or biscuits has a cost about $2. Hard wheats have a high protein content. It is a whole wheat flour made from hard wheat. In principle. cakes and other consumable items. agricultural raw materials should be processed close to where they are grown. packaging and manufacturing and marketing overhead). however in this case the value-added by milling is transferred to other economies. This is the Hindi word for wheat flour commonly used in South Asian cooking.
As for small and medium flour mills there maybe 700 or more with a capacity of 5 – 20 tons/ day . It is said that most consumers prefer to use their own wheat after getting it milled individually. These technical features are important to note by policy-makers. Ninety percent of the mini mills are located in rural areas. The number of “mini flour mills” grinding atta at capacity of less than 5 tons /day is estimated to be 8. a process that imparts a characteristic aroma and taste to the bread.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan The composition of Atta is shown below: Table 8: THE COMPOSITION OF ATTA Energy Protein Fat Carbohydrates Moisture content Others (fibres. The high bran content of Atta makes it a fiber-rich food and a healthy and essential part of the diet. Pakistani wheat cultivars developed locally are similar to Hard Red Winter Wheat — hard. 11 38 . and neither is the flour11. flour from a different grain source will not produce roti to the required taste. mellow high protein wheat used for bread. hard baked goods and as an adjunct in other flours to increase protein in pastry flour for pie crusts. Pakistani hard wheat is not easily replaced by any wheat from just any origin. brownish. etc) 340 kcal 12 g 2g 70 g 12 g 5g Traditionally Atta is made by stone grinding.000 or more. Atta from Pakistani wheat has a unique taste and consistency.
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Figure 7: Basic wheat grinding in the Tirah Valley near Afghanistan – Photo BBC Figure 8: Small-scale (less than 1 ton/day) commercial wheat mill 39 .
e. Mumbai is closer to the wheat growing areas of Maharashtra than Karachi is to Punjab. has only 22 flour mills. There are 20 mills in Islamabad. Since wheat flour produced from government wheat is According to the Chairman. These rents appear to accrue mainly to wheat millers who receive government wheat and perhaps to those involved in these transfers.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan The fewer large-scale mills have capacitities of perhaps 200 tons/day (also quite small by US or European standards). The Islamabad location remains a mystery. the lower the cost of production)13. Provincial food subsidies in 2002-03 totaled 12 percent more than total Public Sector Development Programme budget for the Health Division. All-Pakistan Flour Mills Association Sheikh Mohammad Shabbir (“Dawn” newspaper. 12 40 . Although there may be a stipulated sales price of flour (i.. in which case a location near the Karachi port might make sense. Wheat issue prices (the price of wheat sales to flour mills) do not cover the full cost of procurement (domestic or imported). Compared to Karachi. September 2007) 13 Mumbai. there is no effective enforcement mechanism. The location of these mills is puzzling. All these mills operate at between 35 and 50 percent of their capacity which by normal standards means that their production would not be financially viable. There are 80 mills in Karachi. There are major fiscal subsidies and economic rents involved in the sales of wheat to flour mills at below-market rates. quite some way from the major growing areas (again. storage and handling. a very significant distance from the growing areas. There are a total of 950 commercial flour mills in Pakistan with a total grinding capacity four times the wheat flour requirement of the country12. The location of the Karachi mills may be explained by the fact that for much of the recent past. with population almost equal to Karachi if not more. The companies that manage these mills are located close to major cities or towns. the weight/value ratio suggests that the shorter distance the raw material is transported.. Pakistan has been an importer of wheat. a price that flour millers should sell to consumers to reflect the subsidized input price).
and there are many wheat mills that operate only in the November-April period and mill only government-supplied wheat. Profits from sales of mills using government issued wheat are thus substantial despite the low capacity utilization. • Rather than establishing complicated. by selling subsidized wheat on the open market or smuggling wheat out of the country to sell at an even higher profit. their prices are the same. and most likely ineffective. The blame for this rampant corruption does not lie. yet it is willing to allow the closure of provincial borders and contribute to the wholesale degeneration of farmers’ household incomes to get the wheat to the mills. with the rent-seekers but with the GoP which for unexplainable reasons refuses to enforce the final mechanism to guarantee that wheat be subsidized for the common consumer. upon receiving the wheat sell to whomever they wish at the highest price they can get for it often across international borders. the best solution is to eliminate the possibility of collecting economic rents by abolishing subsides to mill owners completely. And the mill owners.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan not distinguishable from wheat flour produced from market wheat. 41 . procedures to regulate mill owners. The fact that mills are far below their profitable output yet are still extant all over the country is a direct indication that they are collecting sizeable economic rents. in this case.
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Figure 9: Wheat flour loading – courtesy of Suppliers International 42 .
but the majority of Pakistanis eat few vegetables. Safety and Standards April 2007 14 43 . only a little fruit and seek energy from carbohydrate-rich foods. A typical meal would consist of some lentil (pulse)-based daal. Roti is an essential item on the table to be baked fresh and eaten hot. Perspectives on the demand for food in Pakistan In 2007 CSF conducted a major study of the food industry in Pakistan14. CONSUMPTION Wheat based products are a major part of the diet in Pakistan. bread (roti) and tea or a soft drink. rather than a serious concern that Pakistanis could not access enough food. Policy Analysis on the Competitive Advantage of the Food Processing Sector in Pakistan. At that time there was no suggestion that Pakistan faced a food crisis. Indeed the title of the study shows that the concern of all the stakeholders was about quality. Focus on Quality. The upper and middle-classes eat quite differently. standards and exports. Figure 10: Pakistani roti 1. meat on special occasions.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan PART III: DEMAND A.
5 percent of school children aged six to 12 years were found to have palpable or visible goitre. with the figure jumping to 16. is also limited by the lack of organized marketing facilities throughout the country. This document reported the results of a food security analysis (FSA) conducted from June 2003 http://www. Fluctuations in the availability of these important foods are likely to be one of the factors responsible for the micronutrient deficiency disorders observed in Pakistan and referred to earlier. An estimated 38 percent of children between the ages of six months and five years reported underweight. the level of milk consumption is high whereas the consumption of fruits and vegetables.5 percent of mothers were found to be severely iodine-deficient16.2 in the case of mothers. A similar view is expressed by the World Food Programme in Pakistan which published a document entitled “Food Insecurity in Pakistan 2003”.8 percent stunted. iron. In 2002 it was found that 12.9 percent of school children and 36. while 22.CSF has undertaken a study of the meat market that confirms this finding Pakistan Institute of Development Economics (PIDE). 16 15 44 .fao. 6. conducted the National Nutrition Survey 2001-2002 on behalf of the Planning Commission of Pakistan. Food products constituted 48 percent of household consumption expenditure (39 and 54 percent in urban and rural areas respectively) in the fiscal year (FY) 2002.5 percent of women were malnourished. According to the UN Statement of Pakistan’s Food Security (2000). with the percentage rising to 21. Compared to other Asian countries. and another 36. which are highly dependent on local seasonal availability.org/ag/agn/nutrition/pak-e. The consumption of fruit and fresh vegetables. about 42 million people in Pakistan lacked adequate income to purchase the food they need for a healthy life.stm . People in Pakistan suffer from four types of deficiencies: zinc.1 percent for lactating mothers. In the Pakistani diet cereals remain the main staple food providing over 60 percent of total energy. fish and meat remains very low15. vitamin A and iodine.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan This perspective contrasted strongly with a number of official views.
Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan to June 2004. WFP found that 62 percent of surveyed districts were in deficit. Punjab is after all one of the world’s richest agricultural areas. 38 percent of those surveyed were found not to utilize food properly with a major contributory factor being a lack of access to potable water. visual evidence suggests that food is not physically treated as if it was in short supply. Here is another current press statement by the WFP17: “Sahib Haq of World Food Programme (WFP). notably: • • • Physical access to food (availability) Economic access to food Biological utilization of food (food absorption) With regard to availability of food.g. Furthermore. Finally. It analyzed data on the basis of three determinants of food security. But it does conflict with anecdotal evidence and reports of various projects and other observers. flour is more expensive in India and Afghanistan). Islamabad urged the policy makers to take concrete steps to avoid the looming crisis as the current situation was heading from bad to worse in the near future. and in the case of flour there have indeed been riots about the availability of the commodity. It is very hard to ignore this survey evidence. Low incomes in 80 percent of the districts placed people at risk. women and landless labor and some small farmers were found at risk. food prices (even if rising) are relatively low compared with other comparable countries (e. 2008 45 . Equally. May 06. In terms of economic access to food. It is true that there are localized food shortages. Tuesday. 17 Daily Times. However as a rule it seems hard to believe that Pakistan has these high levels of reported food insecurity when 40 percent of the apple crop is either thrown away or given to animals..
then the means to produce the food has been there. The fact that broadly speaking the GoP agencies are more concerned about food exports (hence the struggle e.g. so barring a crop collapse – which there was not – why should the situation be very different from last year?). to get orchards WorldGap quality certified) indicates that this is hardly the case.” Leaving aside the somewhat odd thought (and odd English!) that it is apparently increased consumption habits that have led to a food crisis (presumably if food consumption has increased. Intelligent policy would thus concentrate not on increasing the food output but using the food Pakistan has better. • It is important to understand that the physical availability of food is not the issue. 46 . 20 percent bottom line people were the greater suffers and were miserably struggling to meet their basic food needs even by compromising on their non-food expenses. rather. He identified several lacunas in domestic policy making system and role of the government primarily the previous one for not realizing the potential of the crisis coupled with poor decisions including the management failure in the worse crisis of 2007 when even international oil prices were not so high. it is clear that WFP believes that about 80 million people are “food insecure” however that is defined.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan He lamented that the 50 percent population of the country has become food insecure and was talking [sic] less calories to the recognized average human need adding the out of those 50 percent population. support prices at wrong time which only benefited the poor at the cost of consumer.. If so then it is indeed a monumental crisis and one that the GoP should be working night and day to correct. He said that it was not the massive population but their increased consumption habits and diversification of foods in addition to international energy crisis and our dependent economy behind the crisis. other factors seem to be at play. unavailability of fresh seeds and finally the export of rice which directly increased the need of wheat. He urged formalizing the trade with Afghanistan as half of our wheat was being exported to Afghanistan through formal and informal means.
is merely the starting point of the analysis. but as far as the majority of the population is concerned the transportation infrastructure for food looks to be sufficient. The population of Sindh is mainly from urbanized Karachi. Nevertheless. There should be limited concern that a food crisis arises simply because of the physical difficulty of reaching consumers. The following table is taken from the Official Census of 1998 which was the last time a full official census was conducted in Pakistan18.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan 2.g. The data show that the major population centers were Punjab (56 percent) and Sindh (23 percent). Of course this does not apply to other areas of the country (e. officially about 160 million persons (some have estimated as much as 200 million). remote areas of the north). 47 . Other provinces have smaller populations and are of course much poorer. In fact the population of Pakistan (as might be expected) is highly concentrated down the flow of the Indus river system and the related road network that follows the river. for want of more up-to-date data this Study uses those that are available. 18 The 1998 Census was the last full census conducted in Pakistan. This makes for an easily served market. Demographics Demographics are the key to understanding the food industry in any country.. The absolute size of the population.
64 Years (%) Population 65 & Above (%) Age Dependency ratio Literacy Ratio (10+) Male Female Enrollment Ratio (5-24) Male Female Economically Active Population (%) Labor Force Participation Rate (10+) Un-employment Rate Disabled Population (%) Pakistan 796096 132352 52.63 22. Official Census 1998 The urban population in 1998 was relatively small (under 33%) and is concentrated in a few large cities.92 54.83 34.20 49.23 Islamabad 906 805 53.60 2.52 96.99 2.53 29.39 18.6 23. therefore.42 29. K.01 47.10 39.05 36.10 2. According to the World Bank estimates for 2006 per capita income came to 48 .24 31.82 31.68 2.7 108.20 35.02 87.07 46.34 43.78 16.68 15.01 100.58 47.47 46.27 358.30 1.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 9: MAIN DEMOGRAPHIC INDICATORS FOR PAKISTAN (1998 CENSUS) Indicators Area (Sq.55 31.40 80.83 34.46 4.8 117.78 32.51 3. K.80 42.64 42.90 18.Ms) Population (in thousand) Male (percentage) Female (percentage) Urban Proportion Population Density (Person per Sq.30 23.23 2.70 22.70 57.70 880.88 47.80 114.02 2.07 65.09 23.41 51.73 14.46 40.02 35. Turning now to the question of incomes.76 54.98 19.90 24.05 Balochistan 347190 6566 53.40 24. This.98 41.79 24.67 50.99 21.50 34.82 47.40 2. since the demand for different foods is highly responsive to increases in incomes (positively income-elastic).75 216.70 1.24 2.93 46.9 114.) Sex Ratio (Male Per 100 Female) Average Annual Growth Rate(1981-1998) Population Under 15 (%) Population 15 .40 72.70 116.50 2.77 83.81 2.35 27.50 57.09 3.78 37.83 35.40 53.83 2.22 48.29 54.50 88.52 107.19 37.40 2.03 47.10 105.54 NWFP* 74521 17744 51.97 32.00 Source: Federal Bureau of Statistics.19 30.52 53.3 108.49 60.09 26. Allowing for population growth we estimate an urban population of about 70 million persons.00 5.30 19.48 Sindh 140914 30440 52.74 48.12 FATA # Punjab 205345 73621 51.47 2. is the base market for processed rather than fresh food.00 17.87 238.64 62.M.00 30.45 33.41 29. including manufactured flour and bread.75 32.35 22.26 31.19 25.12 48.90 59.50 166.39 57.69 43.70 68.81 32.98 19.56 57.4 46.03 14.05 27220 3176 52.02 112.43 3.79 3.48 2.38 43.
71 per day accounting for around ( $2813 x 30 million) $84. at least in urban areas. immediate effects of agricultural growth in Pakistan have gone mainly to those households that own substantial land: the rich20. Taking into consideration that this does not account for Pakistan’s wealthy ruling class who hold an increaseingly large share of the economic pie these numbers ought not be applauded. Overall rising incomes. Using the IMF’s PPP calculations to readjust these numbers to nominal amounts the Middle Class in Pakistan have incomes between $2500 --$3125 about $7. Research Report 102 by Richard H. but they are not an adequate excuse for bypassing broad Pakistan Country Overview 2006. 1995 20 19 49 . Given that the calculation is adjusted for PPP it is usefull to readjust them in our onward calculations. the World Bank Sources of Income Inequality and Poverty in Rural Pakistan.000 or an average of $24. Research by the International Food Policy Research Institute (IFPRI) suggests that the direct. Much of this might comes from a young. Adams.4 billion dollars in yearly earnings. Jr. The question then becomes one about quantifying the “rich segment” of the population and what that means for food demand. Middle class consumers are a boon for any country’s economy. Meausured by purchsing power. and Jane J. Assuming a population of 165 million and a GDP of $155 billion we conclude that 18% of the population is consuming 54% of the GDP. This represents a doubling in a decade. urbanized population a large proportion of which works in laboring and other manual jobs that require availability of cheap. suggest that the demand for food (in particular processed food) will have strengthened as the WFP claims. the income disparity is truly deplorable. the State Bank of Pakistan estimates that the country has a 30 million strong middle class enjoying per capita annual incomes of $8000-$10. To account for this it is either that the size of the middle class is wildly inaccurate or.66 per day.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan US$72019. carbohydrate-rich “energy” food – again strengthening the demand for flour-based products. which is no mean achievement. assuming the State Bank is correct.
environmental and political shocks. To use WFP terminology. 3. From 1993 to 1999 the incidence of poverty is estimated (by ADB) to have increased by 7 percentage points. 50 . As may be expected. The fact is that the basic population data are uncertain and this makes calculations very difficult. Poverty It is estimated21 that about 32% of Pakistan's population is below the food poverty line rising from a level of 26% in 1988 (GoP. access to food (at least processed food) is restricted because of the low incomes of a large proportion of the population and because of an inability by people to use the available food 21 22 Asian Development Bank work on poverty by Ms Emma Hooper Other sources show lower figures for poverty. it would seem then that the great majority of Pakistanis.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan based economic reform. and about 44% were below the poverty line on the human poverty index (UNDP. 4. Summary of overall consumption patterns Clearly there is enough quantified evidence based on health and nutrition surveys to suggest that Pakistan suffers from difficulties related to the ability to access and use food correctly. access to basic services and opportunities and hence are particularly vulnerable to economic. Once again there are significant differences between rural and urban areas. who live rural lifestyles. The implication here is that a significant proportion of Pakistan's population does not have adequate levels of food. when at the same time agricultural production was supposed to have increased. 2002)22. perhaps because of a failure to add value to raw materials or because of failures in a marketing system that does not “net back” value added to the farmer. the urban areas have a lower incidence of poverty than in the countryside. 2002). Thus increase in agricultural output has apparently not translated into higher rural incomes. Differences in income per capita across regions have persisted or widened as have gender gaps in education and health. are living at a subsistence or close to subsistence levels.
including prices and the way food is treated and stored is that for some reason the Pakistani consumer does not value food in the same way that other consumers value it in other Asian countries. The long term issue for Pakistani agriculture and development is ensuring food is affordable not only on the supply side but also on the demand side by decreasing rural poverty. And that ultimately even if the GoP had an effective policy to lower the cost of food. and proper distribution systems. • The short term issue then is reversing a culture of waste. but at present we have no other research that can reconcile the two points of view. to education and the supply of external aspects such as water. access to markets. but one more related to overall economic growth (poverty and inadequate incomes). if rural incomes decrease as the rural population increases no amount of intervention will benefit the silent poor majority. There appears to be a lack of understanding or demand for quality beyond a relatively small number of middle-class and rich persons who by no means represent the population as a whole. There does not appear to be a supply problem or lack of physical availability of food. The evidence from the retail sector. As we have seen from a consideration of the wheat policy.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan correctly (perhaps because of factors like lack of potable water). • 51 . The overall conclusion for Pakistan seems to be that there is indeed an underlying. So much food is wasted that one must conclude that the value placed on food in Pakistan is very low. chronic food or nutritional problem. These conclusions appear paradoxical. it appears that GoP intervention itself can make matters worse rather than better. Merely upgrading the supply chains for agricultural produce would go a long way to reducing the future cost of food independent of input prices.
000 153.480 9. it 52 . we adopted a simple nutritionist’s approach based on what would be the protein and carbohydrate requirement of a given number of persons to be supplied from cereals.520. a possible understatement of the actual population but one we must use as a basis in the absence of other information.407.610 9.000. It should be remembered that this is for protein and carbs from wheat flour in particular.479.960.097.890 9.480 2007 160.090 7.560.000 47 7.000 150.860.180 9.360 Carb/ cap/ annum (kgs) 47 47 47 47 47 47 Requirement carb/ annum (tons) 6. As a first effort to consider the demand for flour.699.860.285.410.120 7.195.000 10.004.000 145.080.000 16 2.760 2.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan B.470.000 142. We then calculate using Household Survey data for annual per capita protein and carbohydrate consumption the actual volumes that are required for a population of this size.714. CONSUMPTION OF WHEAT FLOUR We have used this overall view of food consumption to color our approach in considering the demand for wheat flour.310.072.463.410 7.384. The results are presented below.560 2.480 2.000. We have assumed that wheat is the only available cereal. Table 10: CALCULATION OF DEMAND FOR CEREAL-BASED PROTEIN AND CARBOHYDRATE Year 2001 2002 2003 2004 2005 2006 Population 144.787.236.000 Protein/cap/ annum (kgs) 16 16 16 16 16 16 Requirement protein per annum (tons) 2. whereas of course there are other sources of carbohydrate including rice and potato.420 6.520 2.000 149.000 The calculation uses the official population estimates for 160 million persons for 2007.360 2.388.030.335. The total requirement is 10.270 6.120 TOTAL tons requirement protein and carbs 9.2 million tons of proteins and carbohydrates.830 9.960.
We repeat that wheat must pass through a supply chain that adds value and transforms it into a useable commodity. 53 . 1. Wheat requirement to satisfy demand.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan is not the amount of wheat that is required to fulfill this requirement. The results show what wheat is actually available (a) for processing and (b) for human consumption. The calculation to be performed is aimed at understanding that entire chain (including elements of external supply or losses from the chain either as exports or wastage). We come to that side of the equation in the next section.
098.650 2.930 13.196 19.857 1.649 1.381 Year 2001 2002 2003 2004 2005 2006 Area (ha.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Table 11: CALCULATION OF SUPPLY OF WHEAT GRAIN Farm usage (seed.37 2.098.119.192 19.376 13.485 109.181.993.779 126.96.36.199 Output (tons) 19.417 3.413 16.519.919.59 2.154.493.088.623 3.753 Official Exports "Black" Exports 1.988.380 149.161 12.261.606 2. 13.494 54 .280.045.000 8.568 21.485 3.612 2.000 8.058.020.204.167.376 14.448.886 3.494.617.170.435 Domestic Supply 12.890 1.940.522 Imports 83.734.083 18.358.983 19.666 14.889 648.197 10.512 Farm offtake 16.853.494 13.687 3.124 TOTAL SUPPLY 11.748 15.934.998.028 2007 8.314.192.26 2.606 819.720 18.117 16.351 42.371.335.496.233.077 Postharvest loss 20% 3.859.594.227.77 23.540 3.924.674.124 2.000 8.079 2.000 8.903 Source” Official GOP statistics and authors estimates Note: “Black exports” are estimated at 15% of Domestic Supply.572.) 8.307.788 21.051 10.000 Yield (ton/ha) 2.825 18.068 3.344 3.077.257.000 8.185.527. fodder) 15% 2.33 2.39 2.748 12.034.000 2.701 15.399.483 3.394.589 426.174 1.877.956.216.160 267.991.613.697.470.174 11.
635 959.477 11. They are an average of very low rainfed wheat and irrigated wheat production.163.506 Flour Protein basis (tons) 1.852. This volume is close to amounts available for 2006 and 2005 when there was no indication of a wheat crisis. The losses through the system have been explained in the main text above. In the UK.769 1.774 9.896 1.065 11.334 964.938 9.969 655.493 9.768.052.046.702 6.335.246.523.051 10.304 13.174 11.703 504. However.066 11.623.048 1.394.223 7. While the area figures may be suspect.346.341 1.692.136.197 10.327 1.077.291.593.909 566.6 million tons becomes 11.463.389 TOTAL FLOUR (tons) 9.005 7.748 12.889 Process loss 5% 553.471.6 million tons of flour.806 1.003 8.057.376 13.494 679.766.076.5 million tons of wheat at the field level.043.895 Distribution chain loss 10% 1.077. we consider the yield figures reliable.784.073 1.101 1.914.646.961 12.732.098.198. We consider this a basic calculation that can be made more sophisticated as we expand our understanding of the industry. here we have used a 95 percent conversion rate note also that we have not distinguished between the proportion of wheat grain that remains and is milled in the rural sector using very primitive 55 .757 6.354 Year 2001 2002 2003 2004 2005 2006 2007 Wheat grain (tons) 11. The calculation indicates that in 2007 a claimed bumper crop year produced 23.594.325.099 The above table shows the wheat grain transformed into flour.199 6.520 1.994 Flour output (tons) 10. Table 12: CALCULATION OF WHEAT FLOUR PRODUCTION Combined protein and carb supply in flour (tons) 7.528 1.246 7.079.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan The table uses official figures for area and yield.337 9. the conversion of wheat grain to flour is 80 percent.273.136.6 million tons.041.947.119.713 8.348 9.531.407 12. It is well to note that we have been optimistic with our wastage and conversion coefficients.445 7.681.787 645. losses through the system (which we have assumed are the same every year) together with a much higher level of exports of wheat produced a grain availability of 13. This amount is well above what the conventional wisdom in Pakistan considers necessary to meet demand.919.633.795 Carb basis (tons) 6.227.265 10.119.860 507.254 8.217.292 Source” Official GOP statistics and authors estimates 9. 13.036.725 12.154.629.831 7.
Assuming that the entire supply is only from wheat the result is that there is a deficit.119.480 SURPLUS/DEFICIT (tons) (1.607) (1. 2. perhaps over-simple.099 Year 2001 2002 2003 2004 2005 2006 2007 Requirement protein and carbohydrate (tons) 9.195. It is clear that 2007 is towards the low side of that range – previous years where there may have been a larger deficit were not considered to be crisis years.480 9. then 56 .6 million tons – to a basis of protein and carbohydrate.397) (421. This varies over a range of 2.766.354 9.000.180 9.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan equipment.115.331.493 9. There is now a simple basis for understanding the supply and demand for wheat grain and wheat flour in Pakistan.531. This provides a combined protein/carbohydrate supply of 9.836) (501.947.080.057.2 million tons in 2003 to 553. The point about this admittedly crude calculation is this: if wheat were the only source of protein and carbohydrate available from staple crops.126) 10.890 9.175) (2.649) (1.699. tons) 7.831 7.479.830 9.881.774 9. We do not consider this more than a very simple.005 7.223 7.DEMAND BALANCE Protein and Carb supply (as flour. Table 13: WHEAT FLOUR SUPPLY.097.000 (548.5 million tons.079.388.441.901) The calculation takes the amount of available protein and carbohydrate from wheat flour and measures it against the demand for cereal-based protein and carbohydrate.000 tons in 2005. Balance of Supply and Demand. The next stage of the calculation converts the available flour – 11. but it gets us a step closer to considering the industry on an objective basis and allows us a clearer look at the real issues.198.610 9. way of looking at this problem.
The other outstanding feature is the role played by the so-called “black” exports. that the GoP has contributed to a significant depression in farmers incomes for the sake of a food security policy that is not working. but it is the human management aspect of the supply chain which is surely its weakest link. In essence the storage infrastructure is poor. a few salient features come to the fore that because of their importance are worth mentioning again. To that end we have avoided statistics that may be subject to debate and instead derived robust conclusions from generally accepted quantities. especially rice and potato and other protein sources. In conclusion. Even when we have had reason to doubt the veracity of the statistics used the results were still convincing. The system itself is unnecessarily inefficient in a large grain growing area that is well-served with roads and rail. notably livestock and pulses. that the more significant long term issues are not in the supply but in the demand side of the equation where 57 . and finally. Another extraordinary feature of the data are the high losses sustained through the post-farm and post-harvest supply chain. Firstly. If these exports were not made. and indeed Pakistan has been an importer in low harvest years. there is the issue of the sheer size of losses in the government run supply chain. there was not at that time a comparable wheat crisis as we see today. Pakistan would have no deficit. there are other sources of staple crops. PART IV: CONCLUSIONS AND RECCOMENDATIONS The purpose of this study was to take a broad and parsimonious approach to the wheat industry in Pakistan as a whole. However. and even though previous deficits had been greater. That said. secondly. the problem would not be insuperable because the grain required to meet the deficit could be acquired on the international market. then even with the supply chain inefficiencies.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan Pakistan would indeed have a problem of physical supply.
Even whilst assuming a very low process loss when wheat is turned into flour. the majority of the country. reconstituting the supply chain alone would amount to a second “green revolution” in Pakistan. The global economy has been growing at a rapid pace 58 .Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan inequalities in opportunity are making food more dear for the very people who produce it. The production of more food alone will not help Pakistan’s destitute. Without even addressing factors that determine the overall supply of wheat. In a global economy prices of commodities are greatly influenced by the international market. and support farmers’ incomes. such as improved seeds and farming techniques. This way the government would encourage the production of more wheat. • The wheat economy must be liberalized and rationalized. smuggled. In the present circumstance the government is procuring the wheat at lower prices than what the open market dictates.6 billion or %2. If that wasted wheat were exported meaning 9 million tons at $400 dollars a ton then the total loss to the economy would amount to $3. have the ability to supply large amounts of it to urban centers. If the rural population. reduces the supplies it has at its disposal for urban centers. • The supply chain must be upgraded immediately. our estimates show that 45%-50% of wheat that has been harvested is wasted. This discourages the growing of wheat.3 of GDP. The “food security” mechanism only works when the government is paying more for wheat than the open market. or never even enters the cash economy. nor will it increase food security. and depresses farmer incomes. the future of Pakistan’s agricultural sector is itself at stake. If it is necessary to provide food for the poverty stricken the government should do so directly with food vouchers. does not see growth in their disposable incomes then food security will never be achieved. spoilt.
in future. seed and water will tend to cost more and ultimately the result will be a steady upward trend in commodity prices. Sadia Sarwar and Zain Asadullah Kazmi September 2008 Competitiveness Support Fund Islamabad 59 . The current city-centric approach is not sustainable and only contributes to the mass migration of the destitute from rural villages to cities where migrants often end up as the urban poor. this current wheat “crisis” is only an intimation of what may. Geoffrey Quartermaine Bastin.g.Competitiveness Support Fund Discussion Paper on the Wheat-Flour Industry in Pakistan with India and China (both neighbors of Pakistan) seeing upwards of %12 annual growth in their GDPs. • The GoP needs to implement a clear long term policy dealing with broad based growth. As a result factor inputs e. be the most important challenge to Pakistan’s sovereignty. Demand side issues include a wide variety of problems involving many factors that may not have a direct correlation to agriculture. fertilizer. If Pakistan’s population does not see more broad based patterns of economic growth basic food items will become less affordable for more people. yet if these issues are not addressed the impact it will have on food security for common Pakistanis will be immense.
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