How To Start An Aata Crisis

If you remember your Pak Studies textbook from school, you probably don’t remember much besides the colour of its jacket, and that Raja Dahir was a very bad man indeed.

But one of the other things you probably do remember is that you learned that wheat is Pakistan’s staple crop. Pakistan’s super crop. Wheat is to Pakistan what chocolate is to Willy Wonka. Well, kind of. At any rate, Pakistan’s average production of wheat over many years has been 21.5 million metric tons, making it the 9th largest producer of wheat in the world. The Food and Agriculture Organization of the United Nations reported that in 2005 Pakistan produced over 21.6 million metric tons of wheat, more than all of Africa (20.3 million metric tons) and nearly as much as all of South America (24.5 million metric tons).

And then in January 2007, the government of Pakistan predicted a bumper crop of 23.5 million tons – the highest ever production of wheat in Pakistan’s history.

Of course, this estimate was being made two months earlier than such estimates are usually made, but at the time we didn’t really think about that. 23.5 million tons of wheat were coming!

Now, analysts were a bit skeptical about the official estimate – seeing as the area of wheat plantation in the country had increased by only 1% over the previous crop year, while the government’s estimate reflected a whopping 10% rise in production. If you remember your maths textbook from school, you may be able to discern how that doesn’t quite equate. Sure, growing conditions were favourable, but experts are saying that the actual crop production in 2007 was at least a million tons lower than what the government had predicted.

Coincidentally, 2007 also saw the greatest shortage of world wheat stocks in 26 years, due to severe weather conditions in the major wheat-producing regions of Canada, Australia, the EU and Ukraine. Which basically meant that global wheat prices were at record highs. So high in fact that, according to Wikipedia, people in Italy were complaining about the rising price of pasta.

That obviously played a huge part in the government’s decision in April 2007 to lift its four-year ban on wheat exports. Traders quickly took advantage of this lucrative situation and exported 500,000 tons of wheat to India. The government then reinstated the export ban on May 25, 2007. Despite the small window of opportunity, exports had the desired effect of raising farm prices, and these traders made huge profits.

However, wheat exports also set in motion the spiral of food inflation, which would slowly build in early summer and get much worse during Ramadan, when demand traditionally increased and so did prices.

“The decision to export was plainly wrong … Maybe somebody made money off of this, but I think more than corruption it was incompetence.” – Shafqat Mahmood, former agriculture minister

To make matters worse, at least 1 million tons of wheat and wheat flour were smuggled into neighbouring countries due to the favorable price differentials. According to agricultural specialist Asmat Raza, a Pakistani living in a border town can earn about one third more than his daily wage as a laborer by smuggling a single 20 kilo bag of flour into India. Even so, he says, most smuggling is organized and carried out by influential groups. Critics blame the government in part for flour smuggling because it eased restrictions on transportation of wheat between provinces in 2004 to promote an open market.

“Now there are huge stocks of wheat lying near the Afghan border … It is virtually impossible to gauge how much was spirited over the frontier.” – Abid Sulheri, Sustainable Development Policy Institute

Unfortunately, all this wheat was being waltzed out of the country while domestic demand increased. Food prices in general jumped by about 14% in 2007, on top of double-digit increases for the two previous years. Most of Pakistan’s wheat utilization of 22 million tons is for human consumption; however, the rise in prices of corn and broken rice relative to wheat resulted in farmers increasing their utilization of wheat in poultry and livestock feed. Also, as rice got more and more expensive, people were consuming more and more wheat instead. This likely pushed domestic wheat demand above 23 million tons.

And well, we didn’t have 23 million tons.

So we had to import.

In September 2007, then-PM Shaukat Aziz announced that the government would import 1 million tons of wheat, stating that this action was necessary to “maintain a reasonable buffer stock for the future.” (Whereas, of course, at the time we didn’t even have an unreasonable buffer stock for the present.)

Now, if you’ve actually been reading this article and not just skimming through it as I would, you know that global wheat prices at this time were sky-high. So the export price for Pakistani wheat during the April-May export window was approximately $225-232 per ton – and for December 2007 delivery, the import price of wheat from Australia and Russia was $380-400 per ton, exclusive of transportation.

Therefore, we imported wheat at prices 70% higher than the prices we exported them at.

Former agriculture minister Shafqat Mahmood says that even with faulty predictions, the wheat harvest is usually completed by May, so the government would have realized its error and had six months to prepare for shortfalls by the year’s end. Of course, the government didn’t prepare. Which brings us to the present crisis, and the long lines at utility stores where people must wait for several hours so that they may or may not get their hands on a sack of flour.

“We were told there was a bumper crop of wheat this season, but look at us.” – Sher Nawaz, labourer, who waited three hours in a crowd at a Peshawar bazaar, only to have the state-subsidized flour run out before he and 100 others got any

As is always the case when things go horribly wrong, the administration is pointing its finger at scapegoats. Besides blaming smugglers for the flour shortage, the government also blames it on hoarding by unscrupulous suppliers. It is, indeed, speculated that hoarders could be sitting on as much as 2 million tons of wheat.

(Interestingly though, the flour mills are all owned by families with ties to both government and major opposition parties – which is why the public and press are doubtful that any of the hoarders will be brought to justice.)

Meanwhile, the government has set up an emergency food committee to remedy the situation. This committee, according to its chairman, Farooq Ahmed Khan, sends millers enough wheat every day to feed about 120 million people. In addition, about 5,000 paramilitary forces now guard flour mills and escort supply trucks.

So, esteemed readers, if you’re ever running a country where wheat is the major agricultural crop, and you want to successfully create a flour crisis – you know where you got your pointers from.

You’re welcome.

In hindsight, lowering the official crop estimate should have had the same effect on farm prices as exports, while keeping more wheat within Pakistan. – Asmat Raza, agricultural specialist

10 Comments so far

  1. Farhan (unregistered) on January 21st, 2008 @ 4:53 am

    How to ruin a good islamabad blog.

    keep posting politics, other crisis posts.

    Come on enough of it, there are plenty of other blogs for this. post this at pkpolitics

  2. Memorial Power (unregistered) on January 21st, 2008 @ 5:13 am

    This is nice Fatima. Quite informative. I dont know when we will think of our country first. Wrong policies and wrong decisions. We still need a century to get civilised as a nation.
    feeling bad :(

  3. JayJay (unregistered) on January 21st, 2008 @ 7:30 am

    Even if Pakistan produces 25 or even 30 million tones of wheat annually, there still can still be a crisis of wheat shortage in the country. The reason is simple. Wheat, and therefore wheat flour, is a heavily subsidized commodity in Pakistan as compared to neighboring countries of India and Afghanistan. It is a common business law that the supply of a commodity will flow to the place where it attracts higher price. Therefore, no matter how much we try to seal our borders [we can’t even stop the flow of the Taliban across the Durand Line], a substantial quantity of wheat will leak to India, Afghanistan and even to the Central Asia.

    Interestingly, the people who suffer most as a result of subsidized rates of wheat are the wheat farmers as they fail to receive right prices at par with global rates. It works as a disincentive to bring further land under wheat cultivation. If the country can readily pay higher prices to import wheat to meet the shortfalls, why not de-regulate wheat prices in domestic market [this crisis has shown the government is unable to control the artificial prices] and let the market forces take care of prices according to supply and demand rule. One thing is for sure that the people will have to bite the bullet and will have to live with higher wheat prices – if Afghanis and Indians can live with higher prices of wheat so can us. One why to absorb the rise in flour prices is look at alternatives and to modify our eating habits – rice, corn, barley etc.

  4. Fatima Shakeel (unregistered) on January 21st, 2008 @ 3:08 pm

    @ Farhan: We post about everything under the Isloo sun, actually, so you have a wealth of choice – read whatever you like, I haven’t got a gun to your head. =)

  5. Kamran (unregistered) on January 21st, 2008 @ 3:35 pm

    Awesome!! Informative!!

    I happen to come across Javaid Chaudary article once where he also mentioned same crux of the matter. If shaukat aziz ever come across this board, i would love to ask on him that WHAT THE HELL YOU DID??

  6. JayJay (unregistered) on January 22nd, 2008 @ 7:57 am

    An interesting insight into the wheat crisis\22\story_22-1-2008_pg3_3

  7. Majad (unregistered) on January 22nd, 2008 @ 11:06 am

    Great post Fatima… and it IS relevant to this blog despite what some mean people might say… when the house is burning we cant expect to sit in the front room looking relaxed!…
    Absolutely agreed that this was another Mr Bean example of a bungling government created crisis of idiotic proportions just so they could show the foreign donors that Pakistan is doing great in order to extract more loans from them… however they now have egg on their face because they knowingly lied about the wheat production stats… wave on the new government and we can only expect more of the same…

  8. mansoor (unregistered) on January 22nd, 2008 @ 6:30 pm

    beautifully written fatima. enjoyed it thoroughly!

  9. JayJay (unregistered) on January 23rd, 2008 @ 9:17 am

    More on the wheat crisis – Part 2\23\story_23-1-2008_pg3_3

  10. Latentry (unregistered) on January 24th, 2008 @ 10:54 pm

    Wheat, Electricity, cooking oil, law n Order etc… It looks like People not living in PAKISTAN but in CRISISTAN. Why not change the name of the country and call it Islamic Republic of Crisistan. The country is in mess. These Politicans and Generals have ruined the country. I must salute the patience of 160 million Pakistanis who are being held ransom by these LAUNTICS from last 65 years. There is no remedy to our problems. There are many more BILAWALZ waiting in wings to continue the legacy of looting of their ancestors.
    So girls and guys boys and dolls just chill and let these suckers suck the country.

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