The cabinet’s economic decision-making body on Monday endorsed a minimum wheat procurement price of Rs1,600 per 40 kilogramme – giving a just 0.8% profit margin to farmers – but failed to agree on a subsidy of Rs1,000 per bag of fertiliser.
Based on official estimates of the cost of production, the minimum profit of 32 paisa per kg given to farmers for the next wheat crop is not sufficient to absorb the adverse impact of double-digit food inflation.
Headed by Finance Adviser Dr Abdul Hafeez Shaikh, the Economic Coordination Committee (ECC) of the cabinet also approved the purchase of another 320,000 tons of wheat from Russia under a government deal at a price of $292 per ton.
The imported wheat would cost over Rs50 per kg compared with Rs40 per kg that the Pakistan Tehreek-e-Insaf (PTI) government approved for the country’s farmers. The ECC decided to enhance the imported wheat procurement quota to 1.8 million tons from an earlier approved 1.5 million tons due to a gap between demand and supply, according to a statement issued by the Ministry of Finance after the meeting.
“The ECC decided to propose to the cabinet Rs1,600 as the minimum support price for wheat crop 2020-21,” according to the finance ministry.
The support price mechanism plays a pivotal role in boosting wheat production as it stabilises the market and increases the income of farmers, it added. Since 2010-11, the support price for wheat has been revised four times. The finance ministry said the new price, decided by the ECC, was close to the price recommended by Punjab – the largest wheat producer in the country.
At present, the minimum wheat support price is Rs1,400 and the government has given an increase of Rs200 or 14.3%. However, the raise is Rs150 or almost 10% less than what had been proposed by the Ministry of National Food Security and Research to the ECC.
Ironically, the price of Rs1,600 will only be higher by Rs13 or 0.8% compared to the estimated production cost of Rs1,587 per 40 kg by the food security ministry. At this price and with average output of 28 maunds per acre, the farmers will get additional benefit of Rs5,600 per acre.
In order to compensate the farmers, it had been decided by a sub-committee of the ECC that Rs1,000 subsidy would be given on a bag of di-ammonium phosphate (DAP) fertiliser. The current rate of DAP is Rs4,100 per bag.
But on Monday there was no formal proposal on the table to give Rs1,000-per-bag subsidy, showing the government’s apathy towards the poor farmers. Official estimates showed that the cost of fertiliser accounted for 20% of the total production cost. The ECC was apprised of the status of wheat import by the Trading Corporation of Pakistan (TCP), according to the finance ministry. It was briefed that till January 2021, TCP would be able to secure one million tons of wheat through international bidding.
On the request of food ministry, the ECC decided that the initial allocation of TCP for the import of 1.5 million tons of wheat may be enhanced to 1.8 million tons to cater for the additional requirement of 300,000 tons demanded by Khyber-Pakhtunkhwa and Sindh for shipment by mid-February, said the finance ministry.
The ECC also endorsed the request of food ministry to import another 320,000 tons from Russia under a government-to-government arrangement at $292 per ton, bringing the total quantity being imported from Russia to 800,000 tons.
As compared to the first tender issued on August 7, the latest Russian deal was $58 or 25% higher, indicating a constant increase in commodity prices in the international market.
The ECC constituted a committee of secretaries of finance, commerce and food ministry to look into the possibility of wheat import, either by Passco or TCP.
In its last meeting, the ECC had decided that 300,000 tons of wheat would be imported under a government deal from the Russian Federation by Passco at $282.5 per ton. The ECC endorsed its last week decision. It was also decided that further tendering for wheat may be stopped and TCP may resort to a government-to-government arrangement for additional procurement. Keeping in view the arrival of new crop in March 2021, the forum decided that no vessel of imported wheat should be arranged either in public or private sector beyond February 2021.
Wheat and wheat flour prices have increased up to 75% due to the government’s decision to export 5.5 million tons of wheat and its products.
The ECC decided to release 50% of the tariff differential subsidy to the Power Division. The Finance Division has earmarked Rs140 billion for 2020-21 as the Power Division subsidy. The release of Rs65.8 billion demanded by the Power Division will be used for payments to power producers in order to maintain adequate liquidity.
On a summary moved by the Ministry of Industries and Production for the determination of gas rate for operation of Fatima Fertiliser and Agritech plants, the ECC decided that gas rate of Rs772 per mmbtu with a variable contribution margin at the rate of Rs186 per bag may be offered to both the units for the period November 3, 2020 onwards.
The ECC granted approval for the sale of surplus power available at the incremental rate of Rs12.96 per unit to all industrial consumer categories, excluding zero-rated industrial consumers, on the incremental consumption above their respective historical consumption or established benchmark, according to the finance ministry.
The ECC formed a committee to prepare a proposal to include K-Electric in the industrial package. The committee will also propose whether the package will continue for one year or three years. The committee will also analyse the need for any subsidy that will be involved in the package and source for arranging the same and all the issues that may come up in the calculation and distribution of that subsidy, said the ministry.
Published in The Express Tribune, October 27th, 2020.
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