Overview
Pakistan falls under 10 major wheat producing countries in the world. Around 40% of
cultivated land is used for wheat production in Pakistan (10). It is a staple diet in
Pakistani lifestyle and contributes almost 37% of the diet of an average person (4). It is
mostly grown in Punjab and national yield is around 25000 MT (6).
Graph Pakistan Wheat Production by Year 1960-2020 (6)
As seen from the graph, wheat production is growing throughout the years, although the
growth is stagnant and revolves around -3% to 7% (2010-2020) (6). Factors that play a
crucial role in wheat production and its contribution to GDP are climate change, storage,
R&D, demand and supply, mafia, laws, and regulation.
GOVERNMENT REGULATIONS
Wheat is one of the main strategic commodities of Pakistan and also one that is crucial
for Pakistan’s food security. As a result, the industry is heavily regulated by the
government in terms of pricing (input and output prices), procurement, and storage.
The federal and Punjab government are mainly involved in pricing (Punjab accounting
for 77% of total wheat production) through the wheat support price policy that serves to
protect food security, wheat productivity, farmers’ income through pricing controls and
subsidies. The government also intervenes to avoid price shocks and protect farmers
from monopolists (intermediaries, price makers).
Currently, the government has been unable to curb the rising production costs and thus,
has to provide high MSP (minimum support prices) of Rs 1800/40kg in order to ensure
farmers’ returns. However, even these are ineffective as costs of production have tripled
over the past two and a half years. This consequently results in higher domestic prices
that reduce competitiveness in the international market. Even though this policy
encourages farmers to produce more, since they are more concerned with prices than
yield, it raises financial burden on consumers who pay more on wheat products such as
flour, and the government that subsidizes wheat procurement and release prices. These
subsidies exceed Rs. 5500/ton which are financed through loans borrowed with interest
rates between 9-12% (World Bank, 2017). [19]
The subsidies on inputs, however, are low such as on fertilizers which amounted to Rs
27.96 billion in FY 16-17 which helped reduced 50kg bagged Urea and DAP fertilizers
by Rs300 and Rs150, respectively. In contrast, farmers in India, Bangladesh, and Sri
Lanka pay much lower prices.[19]
Other government policies include the PAMRA (Pakistan Agricultural Marketing
Regulatory Authority) Act passed by the Punjab Assembly in 2018 with the aims of
liberalizing agricultural markets by opening up markets to any person subject to
registration to set up markets. Previously, only limited licensed dealers were allowed.
However, the government still holds a monopoly in establishing wholesale markets or
mandis under PAPMO (Punjab Agricultural Produce Markets Ordinance) in effect since
1978. [9]
The government has also rolled out numerous insurance and risk management
schemes such as the Crop Loan Insurance Scheme in effect sine 2008 which is
mandatory for farmers with less than 25 acres of land and covers more than 700,000
farmers in Punjab. Since the frequency of climate hazards and natural disasters has
become more frequent the government has also introduced the Natural Disaster
Management Plan in 2012 and the National Disaster Risk Reduction Policy of 2013. [9]
Research and Development
The Research and development in the wheat sector has been continued very furiously
that in the current covid situation, PARC (Pakistan Agricultural research council) has
identified 18 new wheat varieties (5b). Moreover, Markaz-2019 and AZRC-DERA
another disease-free developed varieties introduced by PARC scientists (5b). This
AZRC-DERA variety has yield potential higher than 80 monds in irrigated and 35 monds
in rainfed condition (5a). The government is also spending more money in R&D. The
Gov: of Punjab has given 35 billion rupees of subsidies on wheat (three times more on
total agriculture) this includes the spending on Research and development (8).
Climate
According to World Bank report (9), climate change will intensify over the decade. Not
only this, the intensifying change in climate will also occur in continuous real GDP loss
(annually 1-2.7%) by 2050. For wheat and overall agriculture, this could mean high cost
of production as well as high demand. The only policy by government to counter climate
change is the National Climate Change Policy introduced in 2012. In a case study by
Muhammad Aamir Khan et al. (13), a climate change simulation showed loss of wheat
and rice production costing USD19.5 billion of real GDP as well as increase in
commodity prices.
Flooding
Data indicates that major flood events (once every 100 years) can result in loss of
around 7% of GDP (9). Historically, floods have also affected major Punjab regions
used for agriculture. This can mean Pakistan can suffer from extreme wheat shortage
and loss of agricultural land in case of major flooding. With the current condition of
technology and disaster management, minor floods can also prove to be cumbersome,
as evident from the 2010-14 flooding resulted in loss of 10.63 million acres of crops (9).
Almost 44,896 tonnes of wheat in Punjab, 5,41,696 in Sindh and 80,823 tonnes in
Khyber Pukhtunkhwa had been damaged during these floods (12).
Figure: 2030 flood risk in Pakistan
Temperature
The global temperature is rising, and the world will suffer from extreme weather
changes by 2050 (9). For Pakistan, this means it will suffer greatly in wheat production.
High temperature is not an optimal condition for wheat cultivation. Moreover, such high
temperature can trigger other weather changes such as drought, heatwave, or rain.
Warm temperature induced rain in 2019 which resulted in locust outbreak (14). Pakistan
missed its wheat production target by 2 million tonnes. This resulted in increased import
to meet national demand.
Drought
The probability of drought occurring is increasing as the weather becomes more
unpredictable. The 1998-2001 drought is a good evidence for the loss of GDP and
wheat production the Pakistan can suffer from in case of drought in future (15). Wheat
production growth rate decreased by 9.75% (6) in from 2000 to 2001.
Currently, only National Disaster Management Act of 2010 is in effect which function on
both provincial and regional levels.
Pollution
Air
Agriculture sector is the most vulnerable sector for climate change (20). However, the
best trigger of this climate change is generally Pollution and specifically air pollution.
CO2 is main factor of Air pollution and driving factor of climate change (20). It affects
more on C3 plants, like wheat, rice, cotton etc. This reduces growth period duration of
wheat crop (20). This type of pollution can reduce production of wheat crops by 14.7
percent (13). “The economy of Pakistan is very air pollution intensive, with grave
consequences for both productivity and public health” a world report said (9).
Water
According to a world bank report, Pakistan ranks 140 out of 180 countries in water and
sanitation (9). According to the Indian Journal of Soil conservation, the study suggests
that “the quality of irrigation water affects the yield of crop under the semi-arid
ecosystem” (21).
However, some study also suggests that there are also some forms of water pollution
which are caused by agriculture itself like Nitrate from agriculture is now the most
common chemical contaminant in the world’s groundwater aquifers (22). Since
agriculture itself is a main source of water pollution, it reversely affects also its
production.
Wheat Storage
-Current situation of wheat storage6
65% to 75% of wheat produced in the country is stored in farms, with smaller farms
keeping more grain for consumption. On farms, grain are usually stored inside the
house or in courtyards using smaller primitive methods like mud bins, loose in a room,
or bags, and pots. Most largecale storage is in sheds called “godowns”, but also in
binishells and silos (Dmitry & Zrilyi, 2013). Details of large-scale grain stores are
provided in the table below:
As of march 2019, the Punjab government was undergoing a crisis in terms of wheat
storage, i.e the department on average required a storage capacity of 320,000 tons of
wheat but was only capable of storing 220,000 tons (Asif, 2019) (17)
“In Punjab some steel silos have been installed under an IFC supported public-private
partnership programme, but a similar project in Sindh is believed to have run into snags.
Punjab’s combined storage capacity is in excess of 100,000 tonnes. Both, the Punjab
Board of Investment and Trade (PBIT) and the Sindh Board of Investment have been
lobbying for attracting investment in silos construction.” (Aazim, 2017) (18)
The current system of wheat storage relies heavily on using bags of either jute or
polypropylene to transport grain from the thresher/harvester to the collection point/flag
station, transportation from the flag station to the receiving station, weighing at the
receiving station, and loading and unloading at each transfer point and at storage
points. A small fraction of government stocks is stored in bulk, but even this grain is
handled and transported in bags.
-Problems
The biggest problem in storage of wheat is of losses during storage due to pests, mold,
temperature, humidity, and type of storage (Dmitry & Zrilyi, 2013) (1) . Losses can
range between 0.1% to 10% as shown in the table below
Table 2 Taken from Review of the Wheat sector and grain storage issues by FAO
investments centre, 2013
“Losses due to insect infestation across the country, but are higher in Karachi (Sindh)
and Peshawar (NWFP). This may be due to general temperatures that are favourable to
insects, and higher humidity, which is also conducive to insect growth. In Peshawar
(NWFP), the average loss due to insect pests in wheat stored for two years is 8.9
percent, reaching as high as 15 percent (Highley et al., 1994)” (Dmitry & Zrilyi, 2013)
(1)
Table 3 Taken from Review of the Wheat sector and grain storage issues by FAO
investments centre, 2013
MAFIA
Another major threat that looms over Pakistani wheat industry is the existence of
mafias. Current PM Imran Khan has mentioned this issue on several public platforms.
How mafias operate and affect the economics of the country is that they buy the wheat,
sugar or other crops at lower rates and sell them to the public at unreasonably higher
rates. Thus, creating inflation that is neither helping the consumer nor the producer.
Also mafias can create false shortages by holding the wheat and crops when they want
the prices to escalate.
Ever since 1971, the country has been compromised at the hands of corruption and
misuse of power. It comes down to the responsibility of the state to ensure that these
mafias are not allowed to flourish and enjoy profits that they do not deserve and that
harms the economy. It is the failure of policies and enforcements that this issue has
come this far.
Supply and Demand
Government encourages overproduction of wheat as its demand is also high, most
people in Pakistan prefers roti and bread over rice; however, wheat is not only used for
bread. The Government has subsidized wheat sector heavily as it is more than three
times than all other public spending in agriculture including research and development.
The Government of Punjab takes loan of around PKR 35 Billion per year for financing
wheat procurement drives. On average, 20 Million tons of wheat is produced in which
half (10 Million tons) is kept by the farmers themselves for their own consumption and to
feed their animals, while the government takes 40% of the remaining (4 million tons) at
a fixed price of PKR 1,300 per 40 KG for reserves and lowering the price in the market
(8), the reserves store Wheat in bags rather than modern silos which affects the quality
of wheat, it is important to notice that due to government there is less room for prices to
adjust by market forces and the rates become politically sensitive. This also means that
farmers cannot sell at high prices during a time where cost of production is increasing,
and they cannot benefit from exports as well. The reserves store Wheat in bags rather
than modern silos which affects the quality of wheat. Pakistan also faces shortage of
wheat as half of the production is consumed by farmers themselves which makes the
Government import wheat from other countries; however, Government is also to blame
for corruption and poor procurement program as one government official reported that 6
Million Tons of wheat had vanished from market since harvest (16). The prices are then
seen to be fluctuating as there is being an imbalance in supply and demand. However,
the Federal Government is taking action to improve wheat sector by allowing private
sectors to import without any restriction of limit and abolished 60 per cent regulatory
duty (24) this would not only help to stabilize the market prices but also eliminate the
chances of hoarding. To make sure that the supply side meets demand side the federal
government also decided to lift ban on inter-provincial transportation (24)