A bumper wheat crop!

Shouldnt we celebrate?
Wheat harvesting is round the corner. It has in
fact already started in southern parts of the
country. It is likely to be a bumper crop. The
production estimates show that country will
cross the 24 million ton mark. It may actually
produce an unprecedented and all time high 25
million ton. This will make us a self-sufficient
country in this vitally important food crop.
Shouldn't we celebrate this achievement? Policy
makers are confused; traders perplexed and
farmers worried. This is how the agriculture is,
in this overly globalized world where less means
more opportunities to earn and more can spell
disaster.
Pakistan has almost always remained wheat-
deficient. Both the acreage and the per acre yield
of wheat have never been enough to feed its
burgeoning population. Yield hovered around
400 kg per acre till 1967-68. The so-called green
revolution pushed it up. It now stands at 1160
kilogram, which is still less by the international
standards. The average yield in the neighboring
Indian Punjab is 1680 kg per acre. The area on
which wheat is cultivated in Pakistan has also
doubled over past 60 odd years, yet we walk the
tight rope.
Perhaps low yield is less a result of 'technological
backwardness' of our farmer than of lack of
incentive for growing this crop. Wheat is a food
security crop and farmers work against heavy
Punjab Lok Sujag, South Asia Partnership-Pak; FR 03/09; April 2009
Wheat economy heading for boom or bust?
Make or break season for millions of farmers
odds to secure enough for the family. They cannot
dare to co-opt it. But they do not also see any
incentive in going beyond this point in a big way.
Wheat trade is dominated by the government
which is the biggest buyer of the home
production and also enjoys the authority to set its
price. Farmers hardly ever find the wheat Support
Price attractive enough to invest more resources
into this crop and produce the surplus required to
feed the non-grower population of the country.
Overall production in recent years has swung
between 17 and 23 million ton. The government
of Pakistan is a frequent visitor of wheat selling
markets of the world. It fills the supply gap
through expensive imports and has been
lamented for offering far more to farmers of other
countries than it does to its own.
Wheat price in Pakistan has traditionally been
lower than the international prices. It is set on the
basis of calculations made by Agriculture Pricing
Commission that claims it considers in-put costs,
inflation rate etc. It however always falls below
the expectations of farmers and has remained
stagnant for years. It remained Rs 240 per 40 kg
for three consecutive years, 1997 to 99, and then
Rs 300 for next four years. It was in a way
reflective of the political importance of wheat
farmers in our economy.
International market on the other hand is more
influenced by the demand and supply
perceptions and the expert forecasts of future.
Commodity prices, including wheat, peaked to
unprecedented high levels during last year along
side the prices of petroleum products. This
weighed heavily against our governments
reliance on wheat imports to fill the demand-
supply gap. To spur home production it raised
the wheat Support Price by a hefty 52 percent. It
moved from Rs 425 per 40 kg in 2006-07 to Rs 625
in the next to Rs 950 for the current. The farmers
response obviously has been overwhelming and
they promised a bumper crop.
The international market however has pulled the
rug from under the government. The wheat prices
that rose hand in hand with petroleum have
tumbled down. US wheat (FOB, Gulf) was quoted
at $454 per ton in March 08. It now stands at $241
and is expected to go down further as harvesting
in South Asia starts. The government of
Pakistans announced price for purchase of local
wheat translates into over $300 per ton. This
makes it the unique year for the local price is
higher than the international price for the first
time ever. So who will buy wheat from Pakistani
farmers at the government price?
Why the private buyers will keep off?
Private buyers will most likely keep out at least
until it gets out of the government hands and the
price crashes. It does not make good business
sense to buy at higher rates when it is available at
much lower price just across the Gulf. The much
publicized smuggling to Afghanistan will also
stop automatically. In fact we could see reverse-
smuggling if the international prices fall further;
that is cheap international wheat bought for
Afghanistan may find its way to the silos of
government of Pakistan. Businessmen however
will be keenly watching the government
procurement drive and will wait for their chances
of breaking deals at good rates.
This leaves the government alone with the
onerous task of fulfilling its promise of buying
wheat at the announced price of Rs 950 per 40 kg.
The government has exhibited the will to oblige
but how much can it buy?
Punjab is not only the biggest producer of wheat
in the country; it is the only surplus producing
province. 8 in every 10 kilograms of wheat
produced in the country come from this province.
Punjab Food Department is the biggest wheat
buyer. It comes under the provincial government.
Pakistan Agricultural Storage and Supplies
Corporation (PASSCO) is the other big buyer.
This comes under the federal government.
The two departments set procurement targets
each year and fail to achieve them many times as
farmers prefer private buyers who offer premium
over Support Price. But this time as the private
F a r me r R e p o r t 0 3 / 0 9 2
Wh e a t e c o n o my h e a d i n g f o r b o o m o r b u s t ? 3
P
akistan has seldom been able to
meet its wheat demand. It has
been covering the supply gap
through import of heavily subsidized
wheat from mainly the USA. For
many years the US bartered its
surplus wheat against Pakistans
support in furthering its political and
military interests in the region. As
subsidies in the West started going
down in 1980s, the cheap import
option got weaker and the
government started attending to
home production.
Wheat production is on the rise yet it
is not a smooth upward curve.
Weather conditions do matter to an
extent, but what really causes the
line to climb up or slide down is the
incentive that the government offers
to the farmers.
Punjab dominates the countrys
wheat production with a hefty
share that varies from
76 to 81 percent.
buyers will abstain, it will be an advantage to win
a procurement promise from the government
buyers. The favor is likely to become the new
currency of political patronage. Punjab is already
divided into constituencies of the two main
political parties, one ruling at the federal level and
the other at the provincial and both refusing to
come to terms with each other. Juxtaposition of
political constituencies over the jurisdictions of
the two procurement authorities may level a new
battle ground for the two political heavy weights.
Aside from the politics, the government
departments do not have the capacity to pick the
entire tradable surplus of wheat. The Punjab Food
Department has set 3.5 million ton procurement
target, while media reports put the same for
Passco at 1.5 million ton. Rs 111 billion has been
earmarked for Punjab Food Department and Rs
40.5 billion for Passco. The amount is being
released by a consortium of banks.
The government planners consider only 30
percent of total production as the tradable
surplus. It is a rule of thumb that needs
verification. Even at this percentage the current
seasons bumper crop will produce a surplus that
will be much more than the procurement targets
of the government.
Who will buy this leftover? The private buyers
will make a hay day when a gasping government
will be sitting over its brimming silos.
Who will suffer most in a price crash?
Wheat is grown by all farmers irrespective of the
size of their farm. According to Agriculture
Censuses 2000, 8 in every 10 farming families of
the country dedicate a portion of land to wheat
cultivation. In Punjab nine, NWFP eight, Sindh
five and in Balochistan four in every 10 farmers
grow wheat. In Rabi season almost 6 in every 10
cultivated acres of the country come under wheat
cultivation. All the three provinces except Punjab
are wheat deficient.
According to the last census around 69 percent of
Punjab families live in rural area. Almost half of
these (53 percent) have some access to land. They
either own a farm or have rented one on different
terms. The rest are landless laborers or are
attached to services and other sectors.
Access to land within these around 4 million
owners and/or tenants is highly skewed. Average
access of more than half of these (56 percent) is
just 2.1 acres. From the point of view of wheat
production, the Punjab farmers can be divided
into four broad categories. Here are the details:
1: Very small farmers
Around a third of Punjab farmers own on an
average just 1.2 acres of land. They are more than
1.3 million in number and cover almost their
entire area (1.1 acres) with wheat in Rabi season.
Their share in total wheat production of the
country is just 7.4 percent. Their produce is hardly
F a r me r R e p o r t 0 3 / 0 9 4
Farmers have shown time and again that they
have the capacity to fulfill the countrys wheat
demand, all they need is a fair incentive.
Wh e a t e c o n o my h e a d i n g f o r b o o m o r b u s t ? 5
What do farmers earn from wheat?
Agriculture in Pakistan is not a business in the
modern commercial sense of the word as in put
costs, out put prices and cash flow statements
are not the sole determinants of its dynamics.
Agricultures relation with the lives and
aspirations of farmers is not one-dimensional. It
instead is a tangle of complimentary and
contrasting social, historical, political and
economic factors. It makes it quite difficult to
quantify what exactly farmers get out of one
crop. We have attempted here to decode the
business of growing wheat.
As a first step here are the cash aspects. A
farmer in Punjab working under average
conditions needs to invest the following
detailed money to cultivate wheat on one acre.
We worked on the two extremes, the best in
which the farmer owns its entire land, has his
own tube well, tractor and its implements and
on the worst where he rents a piece of land and
buys or hires every thing else.
Worst Best
Land rent 3,000 0
Land preparation 1,000 700
Seed and sowing 950 950
Pesticides 1,000 1,000
Fertilizer (1xDAP) 2,000 2,000
Fertilizer (2xurea) 1,400 1,400
Fertilizer (manure) 800 500
Canal water 60 60
Tube well water 3,000 1,500
Total cash in put 13,210 8,110
DAP fertilizer was in short supply for the
current season and was bought by many at Rs
3000 per bag. The prices have now come down.
We have included an average expense actually
incurred by the farmers.
There are two million small farmers in Punjab
that cultivate wheat on four acres each. For
these farmers total cash in put for the current
crop has been 32 to 53 thousand rupees.
Harvesting is the most labor-intensive process
for almost all the crops. Wheat harvesters are
paid in kind. They include the groups that cut
the plant and stack them at one place; thresh
the grains out through threshers; pack the
grains; clear the ground by sifting the grains
from dust etc. All of them collectively charge
around 7.5 maunds (40 kg) per acres.
Wheat growers have to pay in kind a number
of village based professionals like barber,
cobbler etc., for their year long services. Each
farmer family pays these saipees on average 9.5
maunds. The farmer also sets aside wheat
enough for the family and the seed for the next
crop before offering it for sale. Here are the
calculations for an average small farmer
growing wheat on four acres
Maunds (40 kg)
Average production 29
Total production 116
harvesters share 30
Saipees share 9.5
Home consumption 22
Seed 5
Total utilized 66.5
Tradable surplus 49.5
Cash balance for the 4 acre farmer
(in rupees) Worst Best
Total cash in put 52,840 32,440
Selling price of surplus
at official rate 47,025 47,025
Net cash income - 5,815 14,585
Net cash income
at last years rate - 20,665 -265
If the small farmer working under best
conditions is offered the official rate of Rs 950
per 40 kg, he will make around 15 thousand
rupees from this five month crop besides
saving enough for the family for a year and
securing services from village professionals.
Another saving is the wheat stalk that makes
good fodder for the family's herd for many
months.
enough for the family itself. In fact to ensure this
they have to harvest it themselves and avoid
hiring labor for any other field job as well. This
effectively means that they themselves consume
their entire production and generate no surplus
for trade.
2: Small farmers
A little more than half of Punjab farmers own
(and/or rent) 5.8 acres on average. These around
2 million farmers cultivate wheat on 4 acres of
their land. Their share in Punjabs total output is
47 percent. After saving enough for the family
consumption and seed, they pay a considerable
amount to groups of harvesters in kind and also
oblige the service providers of the village called
saipee. Since the small farmers form the biggest
farming group, they are able to contribute 41
percent in the province's entire tradable surplus of
wheat.
3: Medium farmers
These over five hundred thousand farmers of
Punjab have on an average access to 20.5 acres of
land and dedicate over half (11.8 acres) of this to
wheat. The second half is occupied by other Rabi
crops most of which are grown for cash. The
medium farmers produce 35.5 percent of the
provinces entire wheat. As they too save for
family and seed and pay for services in kind, their
share in tradable surplus of Punjab wheat stands
at 45 percent.
4: Big farmers
They are around 50 thousand in number and their
land holding size on average is 86 acres. They
cultivate wheat on less than half (45 percent) of it.
They produce ten percent of Punjabs wheat and
their share in tradable surplus, according to
estimates, is around 14 percent of the total
surplus.
The government experts calculate the overall
tradable surplus of wheat as 30 percent of total
production. We have serious reservations about it
and our estimates put the surplus at much higher
level. Even if the official rule of thumb is accepted
a bumper crop of 25 million ton will produce a
tradable surplus of 7.5 million ton. In Punjab the
collective procurement target of Punjab Food
Department and Passco falls short of the expected
tradable surplus. The departments will leave at
F a r me r R e p o r t 0 3 / 0 9 6
The overwhelming majority
of farmers has very limited
access to land. Their
decision to grow wheat is
not a commercial one.
They in fact look for
securing the supply of
staple food for the family
and fodder for their animals
and want to ensure that
they would continue to
receive services of the
village professional through
out the year. If the sale of
surplus enables them to re-
pay the cash in-puts of
wheat crop, they consider
themselves lucky.
No of Average No of Average % share % share in
farms/ farm size farms as area under in total tradable
Punjab farmers families (acres) % of total wheat (acres) production surplus
Very small farmers 13,20,903 1.2 34.2 1.1 7.4 0
(less than 2.5 acres)
Small farmers 19,78,937 5.8 51.2 4.0 46.8 41.1
(2.5 to 12.5 acres)
Medium farmers 516,943 20.5 13.4 11.8 35.5 44.7
(12.5 to 50 acres)
Big farmers 47,285 85.7 1.2 38.6 10.3 14.3
(More than 50 acres) Source: Agriculture Census 2000; others
least a million ton with the farmers. The
government can in fact achieve its procurement
target by starting with buying the produce of big
farmers and ending with that of the medium
ones. Who will buy the surplus produced by the
small farmers? The private parties cannot be
expected to pay at par with the government in the
present international scenario. These two million
small farmers who have grown wheat on four
acres each, risk humiliation at the hands of
private buyers. And we are fast running out of
time. They grow almost half of the provinces
total wheat and a big loss in this year is bound to
negatively effect their contribution the next
season. According to careful estimates of cash
input costs of current season, a Punjab farmer on
an average has spent Rs 628 on the production of
40 kg wheat. This does not include land rent and
self-labor.
What can be done?
The political government had for the first time
ever dared to come face to face with the
international market by pricing its wheat at par.
The same however has up set the cart. We believe
the government needs to tackle the issue on two
fronts.
First and foremost it must act quickly to save its
small farmers from destruction. The government
departments are given purchase targets which are
then distributed among several of their purchase
centers. Performance of each is judged by what
percentage of target they have achieved. If we
have to save the small wheat farmer, we need to
ensure that the departments give priority to small
producers. As is evident from the data, the
smaller the farm size bigger is the share of wheat
cultivation. Very small farmers with average farm
size of 1.2 acres sow wheat on 88 percent of the
land available to them while big farmers with
average access to 86 acres, cultivate wheat on less
than half (45 percent) of their land. This implies
that the big and medium farmers grow other
crops in the same season as well and are more
able to sustain pressures on wheat. While for the
small farmers this crop is a make or break matter.
Moreover, small farmers with little clout are more
vulnerable to maneuvering by private traders. Big
farmers have storage facilities as well and they are
not pushed to sell their produce then and there.
They can wait for the market to turn in their
favor. Many times hoarding by big farmers has
caused the government difficulties in achieving its
procurement targets. On the other hand cash
strapped small farmers have to sell their produce
immediately after harvesting to keep their limited
cash flow cycle in tact. The government must
ensure that small farmers are preferred by its
departments in their procurement drive. It has to
go beyond political rhetoric and develop a
foolproof system. A crisis will be a big
disappointment for farmers that will definitely
reduce production in the coming season.
Wh e a t e c o n o my h e a d i n g f o r b o o m o r b u s t ? 7
Harvesting is labor intensive and labor is paid in
kind. It is the yearly opportunity for the landless
and menial workers to secure their food.
Secondly, the government needs to work with
other governments of developing countries to
look into the matters of international trade. Its
high volatility is a cause of big concern for our
small farmers. The temperamental global
commodity market should not be taken as a
natural phenomenon. The governments of
countries producing surplus for export unduly
shield their farmers from the effects of market
fluctuations. They ensure that their farmers get
reasonable returns whatever the way market
goes. This in fact encourages the market to waiver
wildly as the risks of the primary producers are
already effectively covered by their governments.
The governments need to effectively campaign
against these policies of exporting countries to
develop a rational global market.
To discourage opportunistic traders from spoiling
the announced procurement rate, the government
shall levy duty on cheap wheat imports till at
least the next harvesting season. It should ensure
that the international wheat is not available in the
country at cheaper than local wheat. This step will
deprive the local traders the option of cheap
imports and they might start buying local wheat
at the government announced price. The
government will have to be vigilant about the
smuggling of wheat into Pakistan as well.
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