Procurement to cost Rs542b amid disputes over price, storage, and provincial share
ISLAMABAD:
The International Monetary Fund (IMF) has once again allowed Pakistan to purchase wheat to replenish its depleting reserves, while leaving it to the government to determine the strategic stock level and proceed with plans to buy 6.2 million tonnes this year, an aide to the prime minister said on Monday.
Ahmed Umair, the Prime Minister’s Coordinator on Agriculture, clarified that the officially announced price of Rs3,500 per 40 kilogrammes is not a fixed support price but an indicative rate linked to international market trends and subject to revision.
A day earlier, the Prime Minister’s Office had stated that the federal and provincial governments would jointly procure 6.2 million tonnes of wheat at the Rs3,500 rate. Umair said the IMF had agreed to allow these purchases to rebuild the country’s wheat reserves.
In September last year, the IMF had stopped the federal and provincial governments from intervening in the commodity markets. The ban on the procurements by all the governments led to a crash in the prices of wheat, falling as low as Rs2,200 per 40kg from the peak of around Rs5,500.
In response to a question on whether the decision to procure 6.2 million tonnes of wheat, requiring Rs542 billion, would qualify as a “strategic reserve”, Umair said it was the country’s discretion to determine its national strategic reserve levels.
The claimed consent by the IMF to buy the commodity can save the $7 billion programme, as the IMF had dubbed the commodity markets reforms as one of the main successes of the one and half years old programme.
“The authorities are planning reforms to reduce government intervention in commodity markets to foster a productive, diversified, and internationally competitive agricultural sector that meets food security needs,” the IMF’s Mission Chief to Pakistan Iva Petrova said last week while announcing the staff level agreement.
The IMF had banned the wheat procurement operations to end market distortions and ease pressures on the provincial budgets. IMF’s Resident Representative Mahir Binici did not respond to a request for comments on Monday.
The government’s decision came weeks before the IMF board is set to consider Pakistan’s request for the completion of the second review of the $7 billion bailout package and the first review of the $1.4 billion climate facility.
After a meeting with the provincial chief ministers, the Prime Minister’s Office announced that the government had approved a new wheat policy 2025-26 in a high-level meeting chaired by Prime Minister Shehbaz Sharif.
The prime minister announced that the federal and provincial governments will procure 6.2 million tonnes of strategic wheat reserves for the 2025-26 season. The procurement will be at Rs3,500 per 40kg, aligned with international wheat import prices, according to the PM’s office.
PM’s meeting
Sources said that there was consensus among the federal and the provincial governments to procure the wheat and support the farmers. However, there was a disagreement on the price discovery and the PM referred the issue to Deputy Prime Minister Ishaq Dar for reaching consensus with the Sindh government.
The Sindh government had proposed Rs4,000 per 40kg price in the meeting, which the federal government did not agree to. It was decided that the local wheat price will not be lower or higher than the international market to avoid any distortion.
The Rs3,500 per 40kg is an indicative price and reflects today’s international market price, including transportation cost, which shows that the new policy neither favours farmers nor the consumers, said Ahmed Umair. The agriculture coordinator said that the price determination methodology had been shared with the IMF, which also endorsed it.
However, Sindh Minister for Agriculture Muhammad Bux Mahar has demanded that the federal government set the wheat support price at Rs4,200 per 40kg. He underlined that the Pakistan Peoples Party’s Central Executive Committee (PPP-CEC) had also made the same demand just a day earlier.
Wheat targets
According to the decision, the federal government will procure 1.5 million metric tonnes of wheat through the private sector, including 500,000 tons to meet the needs of special areas. Punjab will procure 2.5 million tonnes, Sindh 1 million tonnes, Khyber-Pakhtunkhwa 750,000 tonnes and Balochistan 500,000 tonnes.
The two small provinces will also buy wheat from Punjab and Sindh. It is estimated that the storage cost of the 6.2 million tonnes of wheat for one year is Rs125 billion, said the sources. Umair said that the private sector will buy and store the wheat on behalf of the federal government after the decision to abolish the Pakistan Agriculture Storage and Services Corporation (PASSCO).
However, the sources said that the government of Sindh will procure its entire 1 million tonnes of wheat without involving the private sector.
Where the private sector will be involved, it will be financially compensated by the respective government on account of procurement services, storage services and financial costs that these operators will pay on the amounts to be used for the procurement of wheat. The government will issue licences and only licence holders will be allowed to offer procurement services, said the sources.
The original plan was that from next year the government would completely end restrictions on import and export of wheat to provide a level-playing field to the farmers. However, instead of deregulating the market, the government has reversed the old decision, which had also caused immense financial losses.
According to the IMF’s first review report, Pakistan had assured the global lender that substantive progress had been made towards a new framework for the wheat sector. It had also assured the IMF to refrain from wheat procurement operations and counted price reduction as “large benefits” to the consumers that also subdued food inflation.
The IMF had also been told that the provinces paid off most of the legacy debt related to commodity operations. The IMF had urged Pakistan to broaden its efforts to other commodities, including by reviewing the relevant legislation and empowering competition authorities, to enable an agile and competitive agricultural sector that also serves the needs of consumers.
