ISLAMABAD:

The Ministry of National Food Security and Research has urged Prime Minister Shehbaz Sharif to quickly announce a new support price for wheat and set procurement targets, warning that inaction could result in an import bill billion dollar wheat.

The urgency of the situation stems from the International Monetary Fund’s (IMF) condition that the government refrain from intervening in agricultural markets.

According to ministry sources, farmers are currently facing uncertainty as it is unclear whether the government plans to set a new minimum support price for wheat.

The lack of clear guidelines has left farmers in the dark about supply targets, complicating their decision-making as the planting season approaches.

The Food Ministry informed Prime Minister Shehbaz that failure to fix the price of wheat and guarantee supply for the second year in a row could discourage farmers from planting enough for local consumption.

According to the ministry, this could result in wheat imports exceeding $1 billion.

In its report released this month, the IMF said Pakistan’s federal and provincial governments had agreed in principle to refrain from announcing support prices for raw materials and to limit purchase programs for food safety.

In the Memorandum of Economic and Financial Policies (MEFP), Finance Minister Muhammad Aurangzeb also committed to the IMF that “we will take steps to phase out price fixing by the federal and provincial governments for commodities agricultural products by the end of fiscal year 2026.

The Finance Minister further said that Pakistan recognized that the government’s large-scale interventions in agricultural commodity markets, including fertilizers, were no longer fit for purpose.

They have created distortions that stifle private sector activity and innovation, exacerbated price volatility and hoarding, and put fiscal sustainability at risk, the finance minister said.

“To set expectations for the 2025 kharif crop year and minimize disruptions, we will define our strategy for transition arrangements by end-September 2024,” in line with the Finance Minister’s commitment to the IMF.

However, this week, the National Food Ministry proposed directing the Prime Minister to announce a cost-effective support price and set procurement targets for the 2024-25 Rabi season in consultation with the provinces and to make it known that this policy will be interrupted from Rabi 2025-2025. 26 in accordance with the commitments of the IMF program.

The second option is that the Prime Minister can announce that there will be no support price for wheat this year, but that the government will purchase the commodity only for this year at market prices to create certainty on the market and for farmers.

The third option is that the Prime Minister can approach the Economic Coordination Committee of the cabinet for a decision on the wheat support price and procurement operations.

The Ministry of National Food Security and Research’s version could only be obtained at the time of filing the story.

Last year, the federal government had fixed the support price of wheat at Rs 3,900 per 40 kg on the basis of an estimated average production cost of Rs 3,304 per 40 kg. This gave a profit margin of around 18% to farmers.

The Food Ministry was of the view that the IMF program required complete deregulation to be effective from FY 2025-26, beyond Rabi 2024-25. He said there was a need to establish a clear policy direction on the price of wheat and that supply should be set out by the federal government in consultation with the provinces.

The Ministry of Food informed the Prime Minister that for this crop, the cost of production is estimated at Rs 3,312 per 40 kg by the Agriculture Policy Institute.

Over the past four years, domestic wheat production has, on average, been below the self-sufficiency level of 2.5 million metric tons (MMT), at 3.5 MMT requiring imports worth about $1 billion a year.

He said that last year, Punjab did not procure wheat and this, combined with wheat imports from the private sector, had created a glut situation in the market, dampening wheat prices to between 2,600 and 3,100 rupees for 40 kg.

Many farmers suffered losses which led to distrust and concerns about wheat sowing in the upcoming Rabi season without a categorical policy iteration on wheat price and procurement from the federal and provincial governments, he adds.

The Ministry of Food held a meeting with provincial agriculture and food departments and farmers’ representatives last month to discuss the estimated cost of wheat production, import parity price , domestic prices during the post-harvest season and wheat sowing plans for the upcoming Rabi season.

However, the provincial representatives did not have clarity on their respective government’s policy on wheat prices and supplies for Rabi 2024-25.

The farmers’ representatives expressed reservations over the wheat procurement policy during the last Rabi season and the current wheat market situation, and expressed concerns over the policy of the federal and provincial governments for the next season Rabi. They warned that in the absence of wheat support prices, the area sown to wheat would decline significantly in the upcoming Rabi season.

Until last year, the federal and provincial governments purchased approximately 6.2 million tonnes of wheat. For the 2024-25 Rabi crops, there is no certainty that the provincial governments, including Punjab and Sindh, will fix the support price of wheat or purchase wheat.

The federal government has a stockpile of 2.7 million tonnes as of September 30, 2024, compared to an average stockpile of 1.4 million tonnes over the previous four years at the same date.

The Food Ministry said the general perception among farmers was that they were going to sow less area under wheat compared to previous years of Rabi 2024-25.

He said the size of the deficit was difficult to predict at this stage, but could potentially be larger than in recent years, requiring wheat imports valued at more than $1 billion, which would worsen the balance of payments situation.

The Ministry of Food stressed that the federal and provincial governments could urgently intervene to prevent a reduction in the area sown to wheat in Rabi in 2024-2025 and provide certainty to farmers for decision-making.