Tuesday, 3 February 2015

Will Shahbaz''s ''Pa''a Jee'' raise rebate on wheat export?

The government is likely to increase rebate by $5 per ton on export of 1.2 million tons of surplus wheat as recently announced export rebate of $55 per ton for Punjab and $45 per ton for Sindh has been termed insufficient to attract international buyers, well informed sources told Business Recorder.

Top officials of Ministry of National Food Security and Research which submitted a summary on wheat export to the Economic Co-ordination Committee (ECC) of the Cabinet without taking the exporters on board has now consulted them prior to submission of another summary for increase in rebate.

The sources said Ministry of National Food Security and Research has been informed that with a decline in the international price of wheat the government would have to increase rebate if it is to export the 1.2 million tons of wheat. International buyers are willing to buy at $260 per ton to $265 per ton Freight on Board (FoB) at Port Qasim or Karachi Port, said Hussain Sharif, a Karachi-based exporter.

He urged the government to sell wheat at around Rs 24,000 per ton ex-godown to make it viable for exports at Rs 26,000 per ton, including transportation cost, FoB charges and profit etc. He further argued that as international price of wheat could be affected due to Euro-Dollar parity and exchange rate fluctuations, etc, the government should move quickly to ensure export of surplus wheat.

On January 13, 2015 Chief Minister Punjab wrote a letter to Finance Minister Senator Ishaq Dar addressing him as "Pa''a Jee", stating that if current wheat stocks are not quickly lifted, it will have serious political, administrative and financial implications for the Punjab Government. Chief Minister Punjab further argued that under present circumstances, the export of surplus wheat will be a viable option.

"Export of surplus wheat will enable us to make necessary financial and logistical arrangements for the coming wheat procurement," Shahbaz Sharif added. He sought permission to export 1 million tons of wheat. Chief Minister Sindh Qaim Ali Shah, in a letter to Prime Minister Nawaz Sharif, had sought a rebate of $50 per ton. He also sought concurrence of Federal Government to bear carrying cost of Rs 7.5 billion retention of stock of 1.1 million tons wheat.

According to sources, Punjab and Sindh had procured wheat stocks of 3.74 and 1.21 million tons, respectively. With the carry-over stocks of 135,000 tons and 6,000tons, Punjab and Sindh provinces started the year 2014-15 with stocks of 3.88 and 1.28 million tons, respectively. Owing to a very good crop, the private sector also purchased huge stocks directly from growers. Meanwhile, the Pakistan Flour Mills Association (Sindh Zone) also imported 611,000 tons of wheat from Russia at a cheap price. This trend, however, was stalled by imposing a Regulatory Duty @ 20% with the approval of ECC. Due to abundance of stocks with the private sector, the flour millers are not purchasing wheat from Government reserves.

This year, Punjab and Sindh provinces have released only 310,032 and 29,742 tons of wheat respectively, to the flour millers, as against 1,480,000 and 467,934 tons, last year. As on December 12, 2014, the Provincial Governments of Punjab and Sindh were carrying wheat stocks of 3,567,000 and 1,153,000 tons, as against 2,233,800 and 629,000 tons in 2013. It was apprehended that at the present pace, the Provincial Governments would be able to sell very little quantity from their stocks. PASSCO''s stocks were 1,392,000 tons as on December 22, 2014.

The sources said, forecast for the next wheat crop is very good. In the last Federal Committee on Agriculture (FCA) meeting held on October 14, 2014, the provinces estimated that next year''s wheat crop at 26 million tons. It is, therefore, evident that unless the Government releases wheat from its reserves at a very fast pace, very little physical and fiscal space would be available for procurement of the next year crop.

Official documents reveal that procurement cost in Punjab was Rs 37,975/- per ton while it was Rs 38,720/- per ton in Sindh and Rs 38,012/- per ton by PASSCO. As against procurement cost of around $380 per ton, the provinces want to export their stocks at a rebate of $50 to $70 per ton. The proposal of the Provincial Governments was considered and it has been noted that the price of wheat in the international market has depreciated significantly. Australian soft wheat which is comparable to Pakistani wheat in quality is being sold in the international market @ $270 per ton (FOB). Indian wheat is also being evaluated at around $270 per ton. The government has already allowed export of 800,000 tons wheat by the Government of Punjab at a rebate of $55 per ton (including transportation charges @ US $10/ton) and 400,000 tons by the Government of Sindh at a rebate of $45 per ton.
Copyright Business Recorder, 2015

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