KP to directly procure wheat next year

Direct wheat procurement from growers
By Tahir Ali

Dawn, Nov 21, 2011

http://www.dawn.com/2011/11/21/direct-wheat-procurement-from-growers.html

The Khyber Pakhtunkhwa government has announced that it will directly purchase wheat from growers this year instead of buying the grain from other sources. And the provincial food department’s procurement drive will be financed by the Bank of Khyber.

The direct procurement is expected to save around Rs6,000 per ton and could help cut provincial government’s expenditure by Rs2.5 billion in the procurement target of 0.4 million tons.

While acknowledging the sharp rise in cost of production, the Agriculture Planning Institute (API) has recommended a wheat support price of Rs11.50 per 40kg for the coming season.

This recommendation has been forwarded to the federal cabinet for approval. But approval of provincial chief ministers would also be needed for the price raise as the ministry of food and agriculture stands devolved after the 18th Constitutional Amendment.

Whether the chief ministers would approve the proposal or not is yet to be learnt, because of its impact on urban consumers.

As the elections due in t one and a half years, the government may find itself in a fix to take an early decision. It wants to please the growers by increasing the wheat support price but also knows that the increase would fuel food inflation and may result in public backlash. This explains the delay in taking the decision on the issue.

The high prices of farm inputs have raised the cost of production. The API, keeping this fact in mind, has also stressed the government to withdraw taxes and duties on agricultural inputs.

Small growers have been complaining of negligence and malpractices in the procurement system. “Officials purchase of the commodity from middlemen but the growers have numerous complaints. The procurement centres discourage and compel growers to approach their agents,” a farmer complained.

“Because of delays in assessing the crop, that expose the produce to thieves and vagaries of weather (as it is mostly kept lying in the open at procurement centres), and frequent wrong assessment and rejection of their wheat quality/variety, farmers usually prefer to sell their produce to private buyers for quick deal at four to five per cent lower rates,” he said.

The middlemen, who usually work as cartel, often reduce demand that results in price crash.

In the past, Khyber Pukhtunkhwa has never been able to achieve its wheat procurement target owing to shortage of finances, wheat procurement centres, storage facilities and extensive role of the middlemen in the process. The procurement system needs to be revamped.

“The government should enter into pre-sowing wheat purchase deals with farmers. It should announce the list of wheat procurement centres and increase the number of such centres. Interests of small growers should be safeguarded during the procurement of the crop, especially of those from the floods/militancy hit areas,” says a farmer.

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 Original text of the article

New wheat support price and the new procurement system

By Tahir Ali

With the advent of the wheat-sowing season in the country, farmers are demanding an increase in the wheat support price but the question is should it be increased and if yes to what extent, or should the old support price remain unchanged in the coming year?

Farmers argue that cost of production has swelled in the wake of rising cost of agriculture inputs on account of growing energy prices, eradication of subsidies and imposition of general sales tax.

Though an suitable raise in official wheat price is their right, it needs to be remembered that any exorbitant increase, like the one in 2008, when the wheat price was raised from Rs625 to Rs950 per 40kg all at once, would make life miserable for the majority population, hit hard by floods and terrorism-hit slump on one side and the rising inflation and poverty on the other.

The agriculture planning institute (API), the former agriculture pricing commission, while acknowledging the sharp rise in the cost of production, has recommended a wheat support price of Rs1150 Per 40kg for the coming season.

This recommendation has been sent to the federal cabinet for approval. But approval of the provincial chief ministers would also be required for to raise the support price as the ministry of food and agriculture and federal committee on agriculture, which would initiate and complete the process, stand devolved after the 18th constitutional amendment.

The question is: Will the provincial governments give their consent to the suggestion, thereby directing the public wrath towards themselves and totally absolving the federal government of any blame? Whether the chief ministers would approve of the suggestion or reject it, it is yet not clear as yet.

Whatever decision the government wants will have to be taken soon as it will directly impact the wheat acreage and eventually the food security situation in the country in the coming year.

But with elections due in less than two years, the government finds itself in a fix: it wants to please farmers by raising the wheat support price but also knows that the raise would increase food inflation and public unrest, which could provide further fuel to the anti-government campaign. It explains the delay in taking a decision on the issue.

It is writing on the wall that the government would raise the price eventually as it can’t displease the powerful landlords- PPP’s traditional strength- who are to massively benefit from the move and because the poor have no organised and powerful lobby to thwart the attempt and safeguard their interests in the power corridors.

Constituency-based politics, experts argue, has forced the government not to take any decision that could annoy the feudal class where a majority of the government elite come from.

Higher wheat support price in general benefits the big farmers at the cost of higher food inflation, higher interest rate, lower investment in other sectors and lower growth, they argue.

Pakistan is the only country in the world to have subjected agriculture inputs to general sales tax, which increases cost of production, believed to have climbed by about 200 per cent in recent years, and brought commission agents and dealers under sales tax which eventually mean high prices for consumers. The API has also stressed the government to withdraw taxes and duties on agricultural inputs.

Annual average wheat production in the country is 24 million tons. It means farmers pocketed around Rs98 billion additionally each year during the last three years from wheat alone if even half that produce was sold by them. Khyber Pakhtunkhwa farmers grow one million ton wheat each year. By this analysis, the farmers here have earned around Rs10bn in this head annually.

Hundreds of billions of rupees have been transferred to the rural economy on account of hike in major crops during the last three years. This is a big amount and the state of life of millions of farmers should have improved but the opposite is the case.

Big landlords, constituting only 10-12 per cent of all farmers, might have benefited but smaller and poor farmers, forming over 85 per cent of the farmers, usually fail to take advantage from the raised price as they have no resources and contacts in the right quarters to carry and sell their outputs at the procurement centres.

Small farmers have been complaining of negligence and malpractices in the procurement system. “Officials purchase the commodity from middlemen but numerous defects are pointed out when small growers approach the procurement centres; they are discouraged and compelled to approach the agents,” a farmer complained.

“For delays in assessing the crop, which exposes the produce to thieves and vagaries of weather as it mostly lies in the open at the procurement centres, and frequent wrong assessment and rejection of their wheat output, farmers usually prefer to sell their produce to private buyers for easy and swift deal though on four to five per cent lower rates,” he said.

In the wake of lacklustre procurement campaign, the agriculture commission mafia that usually work as cartel reduce demand, resulting in price crash and the poor farmers either have to sell it at lower prices or consume it themselves.

Ironically the agriculture department has no role in the procurement of wheat and the work is performed by the food department in all provinces which obviously neither has neither direct connections nor sufficient information on the farmers.

The Khyber Pakhtunkhwa government has announced it would directly purchase wheat from growers this year rather than from other sources.

The Bank of Khyber has agreed to finance the procurement drive by the provincial food department for this year.

Lesser direct procurement exert great financial burden on provincial exchequer on purchase and transportation from other provinces.

Direct procurement saves around Rs 6000 per ton and could help save KP around Rs2.5bn if the procurement target of 0.4 million tons is reached and over Rs20bn if it procures all of its 3.5mn tons requirements from the open market.

In the past, KP has never been able to achieve its wheat procurement target for shortage of finances, wheat procurement centres and storage facilities and extensive role of the middlemen in the process.

The procurement system needs to be revamped.

 “The government should enter into pre-sowing wheat purchase contracts with farmers. It should announce the list of wheat procurement centres and increase the procurement centres. Interests of small growers should be safeguarded during the procurement, especially those from the floods/militancy hit areas,” he added.

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About Tahir Ali Khan
I am an academic, freelance columnist, writer and a social worker.

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