Professional Documents
Culture Documents
Discussion Paper
by
Sadia Sarwar
Table of Contents
INTRODUCTION//////////////////////////./.4
EXECUTIVE BRIEF/////////////////////////./7
Part I: Policies and Prices///////////////////....7
Part II: Supply and Processing/////////////////...8
Part III: Demand////////////////////////..9
RECOMMENDATIONS////////////////////////.10
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List of Tables
List of Charts
List of Figures
Figure 1: Soldiers guard a flour mill during the current wheat crisis .......................
Figure 2: Flour exports blocked at Chaman ...........................................................
Figure 3: Manually harvesting wheat crop ..............................................................
Figure 4: Sheaved wheat before threshing ............................................................
Figure 5: Transportatoin of Wheat..........................................................................
Figure 6:Field threshing in Punjab..........................................................................
Figure 7: Basic wheat grinding in the Tirah Valley neat Afghanistan......................
Figure 8: Small scale (les than 1 ton/day) commercial wheat mill ..........................
Figure 9: Wheat flour loading .................................................................................
Figure 10: Pakistani roti ........................................................................................
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1
Paper by Geoffrey Quartermaine Bastin, Senior Advisor, Sadia Sarwar, Junior Economist
and Zain Asadullah Kazmi, Management Trainee, .CSF September 2008. The views expressed
here are those of the authors, not the official views or policies of the Competitiveness Support
Fund or its affiliates..
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Despite the simplicity of the approach the authors believe that the
methodology used in this report will nevertheless provide useful insights into the
current dysfunctional state of the wheat and flour market, and as such provide a
2
It could be that half the population of Pakistan suffers to some degree from IDD which is found
to be directly correlated with inhibited brain function. http://www.micronutrient.org
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EXECUTIVE BRIEF
Until recently the GoP’s policy had kept prices relatively stable, however
an upward trend in prices has undermined the capacity of the Central
government to maintain price stability. Though part of the price increase is
undoubtedly due to a national inflationary trend the surging price of wheat also
reflects the fact that overall supply has not kept pace with increasing demand.
Though the GoP’s pricing policy maintained a low price for wheat in
Pakistan, it was only recently that a significant increase in the world wheat prices
and the price differential between Pakistan’s prices and the cost of wheat for
Pakistan’s neighbors made the export of wheat remarkably profitable. The high
cost of wheat in Afghanistan coupled with the breakdown of border security has
made smuggling wheat not only profitable but easy. Yet, given the complex
nature of the security situation, this report will show that even while assuming the
continuation of wheat smuggling in the long term there are other more significant
factors within Pakistan that contribute to the current wheat crisis, factors which
the government has the power and authority to address with well considered
policy implementation.
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Wheat based products are a major part of the diet in Pakistan. Flour and
bread (roti) plays a critical role in people’s lives. It provides upwards of 60
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percent of the protein and carbohydrate in the average Pakistani diet. Various
surveys3 have measured food security according to three simple measures:
It is a major finding of this paper that food insecurity arises more from the
general features of economic growth, from the mismanagement of the supply
chain and the lack of access to e.g., potable water than from agricultural
difficulties, although these do exist. To restate the finding in another way the
problem does not lie in the inability to grow more wheat, of which Pakistan has
adequate supplies and has over the course of its history demonstrated a slow but
steady improvement in method, despite the small plots and limited land; rather,
the current problems for wheat begin as soon as it has been harvested in the
supply chain, at the mills, in the agricultural planning and the provincial
government, as well as in economic factors somewhat independent of issues
related to agriculture such as economic growth and income distribution. Without
delving into applicable but peripheral issues such as increases in oil prices,
3
E.g., Food Security Analysis 2003, World Food Programme. 2004
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insecure borders and for example monetary and fiscal policy, it will be
convincingly demonstrated that the GoP and the provincial governments
themselves caused the crisis.
BROAD RECOMMENDATIONS
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A. WHEAT POLICY
Wheat policies in Pakistan have varied over time; however there has
always been a strong element of government intervention. Some market
liberalization took place in the late 1980s with the abolition of wheat ration shops
and liberalization of private wheat imports (which were subsequently disallowed).
In January 2007, the GoP predicted a bumper crop of 23.5 million tons -
the highest ever production of wheat in Pakistan’s history. This estimate was
driven more by political considerations than a realistic assessment of the crop,
which in actuality could not have even been made at that time in the growing
season. Analysis of the area and possible yield would have suggested the
estimate was wildly optimistic, reflecting a 10 percent rise in production. The
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actual crop production in 2007 was at least a million tons lower than the
estimates.
Coincidentally, 2007 also saw the greatest shortage of world wheat stocks
in 26 years. That knowledge determined GoP’s decision in April 2007 to lift its
four-year ban on wheat exports to take advantage of a perceived price
differential. Traders exported 500,000 tons of wheat to India. The government
then reinstated the export ban on May 25, 2007. If a more liberal market
environment free from government intervention were adopted gross
miscalculations of wheat crop would be less likely, because businessmen have
less incentive to distort the figures of their own bottom lines.
To make matters worse, at least 1 million tons of wheat and wheat flour
(perhaps more) were smuggled into neighboring countries due to the favorable
price differentials. Most smuggling is organized and carried out by influential
groups.
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$112.5 million went to the traders, who bore none of the subsequent loss, thus
the GoP took a $200 million loss for 500,000 tons of wheat so that the traders
could make a risk free $112.5 million.
Figure 1: Soldiers guard a flour mill during the 2008 wheat crisis
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policy. Thus, wheat policy is to some degree constrained by inflation targets and
inflation policy.
3. Instruments of policy
The federal and provincial governments employ public procurement and a
“procurement price” for intervening in domestic production and wheat farmers’
incomes. Provincial governments have generally set procurement targets aimed
at securing enough grain for planned distributions and stock build-ups.
If the government lacks the mandate or financial clout that price regulation
necessitates then it ought to consider procuring and selling at the market rate.
Doing this will boost its available supplies, because more people will then sell
directly to the GoP; then it ought to take into account all incidental charges and
sell the wheat to the mills at open market rates; finally, it should buy flour from
mills at the going rate and if need be distribute the wheat at utility stores where
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the poverty stricken can obtain it by means of a voucher. This would work well to
decrease profits from smuggling subsidized wheat, discourage hoarding, and in
addition it would be a huge benefit to farmers whose costs of living, it must be
remembered, are going up with everyone else’s. The costs of doing this still need
to be calculated, but generally speaking the price differential between selling
wheat and buying flour are small. In addition the GoP, will be able to segment the
market by sending some flour to the utility stores and selling the rest in the open
market.
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PRICES.
250
200
150
$/TON
50
0
6 7 8 9 0 1 2 3 4 5 6 7 8
-9 -9 -9 -9 -0 -0 -0 -0 -0 -0 -0 -0 -0
95 96 97 98 99 00 01 02 03 04 05 06 07
19 19 19 19 19 20 20 20 20 20 20 20 20
Year
Procurement
Price (PKR/40
kg) Issue Price
Year Sep-Oct Nov -Dec Jan-Feb Mar-Apr
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Procurement Price:
Set by GoP
PKR 350 $5 PKR 8750 $125
Incidental Charges:
Monthly Costs^
PKR 25 $0.36 PKR 625 $9
Subsidy:
Basis Price - Quota
Sept / Oct PKR 70 $1 PKR 1750 $25
Nov / Dec PKR 115 $1.64 PKR 2875 $41.07
Jan / Feb PKR 160 $2.29 PKR 4000 $57.14
March / April PKR 205 $2.93 PKR 5125 $73.21
5 Tons ***
Total Loss to
Average Farmer PKR 18,750 $267.85
^ A rough estimate of storage costs, losses from spoilt grain and transport costs.
*Sum of all the months multiplied by the overall volume of wheat grain issued.
**Open market Price minus the Procurement Price not including input costs.
***With an average of 3 ha of land and average yield of 2.5 ton/ha and an average 33.5% own consumption + losses.
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The calculation above also accounts for the reluctance of Punjab to allow
grain they have purchased to move outside the province. The “subsidy” from the
GoPunjab calculated in the above way could be very large, especially if a large
proportion of the grain was issued in the later part of the year (i.e., the GoPunjab
carrying storage for several months). By issuing the flour to mills situated, say, in
Sindh, the GoPunjab absorbs the costs but gains nothing from value added.
Whether this is a rational way of considering this subject in a country where
individual province GDPs are not calculated is yet another question
.
Restrictions on the transport of wheat are introduced periodically to ensure
that district officials of the provincial Departments of Food can meet their
procurement targets and for financial reasons. Most recently there has been a
panicked imposition of restrictions as provincial governments became convinced
that a serious shortfall of wheat flour was occurring. There has been little action
from the GoP to address the issue of these intra-national trade barriers (even
though they are unconstitutional) which amounts to a very damaging precedent
for the wider economy. If it were not for smuggling and non-government
regulated trade on the open markets, intra-national trade barriers would have
presented a significant threat to the health and livelihood of many ordinary
Pakistani and this merely for the sake of attaining procurement targets that
themselves have been shown to be grossly miscalculated.
.
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minimizing fiscal subsidies and overall inflation. Finally, donors have generally
pushed for reductions in food subsidies and an increased role of the private
sector in wheat marketing.
B. PRICES
The Chart shows real wheat and wheat flour prices from 1996 to the first
quarter of 2008. It will be seen that the trend is constantly upwards with minor
fluctuations around the trend line indicating that GoP policy at least has kept
prices relatively stable (except recently). The upward trend in prices also reflects
increasing demand and the fact that overall supply has probably not kept pace
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with demand at least in the cash part of the wheat economy. Increasing wheat
prices should in principle have increased farm incomes and encouraged
efficiency and expansion of the industry. But, it is possible that government
involvement in the wheat economy (especially in the area of large wheat related
infrastructure) is discouraging the private upgradation of the market. Indeed
yields appear to have increased with prices suggesting a conventional farm level
response. That said, input costs have increased in this same period. There is no
available data (as yet – we will be researching this aspect) on farm gross
margins, but it is possible that the sluggish farm-level response to better prices
indicates that the full price increase has not reached the farm.
700
600
Rupees/40kg
500
400 Wheat Grain
300 Flour (Atta)
200
100
0
8
96
98
00
02
04
06
-0
19
19
20
20
20
20
ar
M
In the case of wheat flour, the price data shows the very close relationship
between the raw material and the product of milling. The relationship is as
expected averaging a flour premium over wheat of 13 percent in 1996-2007. With
the subsidies and possibilities of selling subsidized flour at a full market price this
premium would permit flour millers to make a good business. However, the
premium fell in 2007 to 8 percent and then to 4 percent in the first quarter of
2008. Part of the reason for the low premium is that mills are working at
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significantly under capacity, not least because they often find it hard to obtain
wheat for milling. At this low premium of flour over wheat there is no possibility
that flour millers can mill profitably and sell to the local market and indeed many
mills have closed. The mills that have stayed in business can only do so because
they export (illegally) to neighboring countries.
2. Trade
In the 1990s Pakistan’s domestic wheat prices were below import parity
price levels because subsidized sales of government commercial imports added
to domestic supplies and reduced market prices. After self-sufficiency was
achieved in 2000 with a consequent rise in stocks, prices continued to remain
below import parity. With the relatively poor harvests in 2004 and 2005, however,
domestic prices rose substantially and remained at about 18 percent above
import parity levels in 2004-05. This situation was dramatically reversed in 2007
with the rise in world prices and especially strong price incentives for exports
arising in India and Afghanistan; this has lead to a dramatic increase in the profits
from smuggling of wheat.
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Wheat (Triticum aestivum L.) is Pakistan's largest food grain crop, and
accounts for a large proportion of the total area under cultivation (about 40%).
Probably 80% of farmers in Pakistan cultivate wheat. The country ranks within
the top-10 (about seventh) of the world’s wheat producers with the majority of
wheat grown in the Punjab. This is the best agricultural land in Pakistan and the
location of the world’s largest irrigation system. In many respects it would be
difficult to find better growing conditions. That said, individual plots are small –
probably on average about 2-3 hectares and the type of cultivation in the main
growing area has been described as “wheat gardening”. The small plot sizes do
not permit any degree of cohesion in the industry or the use of any
mechanization.
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Wheat production has increased somewhat over the last decade due
mainly to improved yields which have trended upwards; area under production
has been more volatile and not increased at the same rate as yields. The reason
for the drop in area under production in the early part of this decade is because
of drought; yields of course remained high because the land area in production
during this period was irrigated. Production (based on official statistics) averages
about 20 million tons of grain. There have been improvements in critical factors
such as better seed and more fertilizer. That said, most wheat production is in
the irrigated production area (see map) and so remains high cost relative to
yields that average about 2.5 tons per hectare (world average 4 tons per ha.) for
irrigated wheat, 1.5 tons for rain-fed wheat.
8,600 3.00
8,500
2.50
Area ('000 hectares)
8,400
Yield (Tons/Ha.)
2.00
8,300
Area (Million Ha.)
8,200 1.50
Yeild (ton/hec)
8,100
1.00
8,000
0.50
7,900
7,800 -
96
97
98
99
00
01
02
03
04
05
06
07
19
19
19
19
20
20
20
20
20
20
20
20
Year
4
Note: There are minor differences in the volumes reported owing to different data sources.
Unfortunately there is no consistency in the statistical data in Pakistan. However the differences
are small and make little difference to the overall outcome from a policy viewpoint.
* Source MinFal
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TOTAL CROP
VALUE-ADDED 100.00 100.00
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Area hectare 1
PKR/40
Price GOP 625 kgs 15,625 PKR/ton 226 USD/ton
PKR/40
Private 740 kgs 18,500 PKR/ton 268 USD/ton
Government
margin PKR 8,976 13,231
USD 130 192
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Notes
on the
Table:
Average price /50kg bag = PKR
Seed 950
Requirement per acre = 1 bag
Fertilizer For P content: DAP PKR 3,230/50 kg bag
For N content: Urea PKR 620/50 kg bag
! Bag DAP at sowing/acre
2 bags Urea (1 sowing, 1 growing)
Irrigation Tube well bill 2.000/acre calculated from 1 tubewell per 60acre farm
average 20,000 PKR/farm
Fuel PKR 307 per cultivation/acre
Total cost cultivation per acre at 5 cultivations/acre
= 1535
Harvest Includes threshing = 975/acre in Punjab irrigated area
Combined margin is 50% kept for on-farm use equivalent to private sale
25% sold to GOP, 25% sold to private traders
We have calculated two sets of costs and margins, one for the rain fed
area -- low cost-low yield -- and one for the irrigated area -- high cost-high(er)
yield. In fact, yields in both areas are assumed to be low since average yields in
Pakistan are inferior by world standards, the reasons for this are not within the
scope of this report but is a worthy subject for further investigation. It should be
the case that with irrigated wheat using these inputs that yields would be higher,
possibly closer to 4 tons/ha. However, the official data suggests otherwise.
Rain fed wheat uses smaller amounts of all inputs and returns a gross
margin (in our model) of $168/ha. Irrigated wheat uses fertilizer in relatively large
amounts and also incurs costs of water (though to what extent these are actually
paid if the water is gravity-fed from the canal is not known; tube well water costs
have to be paid. The margin turns out to be $270/ha.We have used a combined
price to calculate these figures.
The assumptions we have used here are that the farmer keeps half the
crop for on-farm and family use. We have assumed an opportunity cost of this
wheat to be the same as if it was sold to the private trade (note: we are using
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current prices in the calculation). The remaining half of the crop we assume to be
sold half to the private trade at a higher price and half to the government
procurers (see below) at a lower, so-called “procurement price”). The mechanics
of GoP procurement are discussed in detail below. The combined result gives us
the farm revenue per hectare5.
1. Production costs per hectare are high, especially in the irrigated area
where water costs are included. We have compared these costs with data from
neighboring countries (and as a benchmark: the USA) and these data are
presented in the next table.
5
We understand very well that these are rough and ready calculations and that the assumptions
are not based on any survey data. Nevertheless we think that the calculations capture the
essential elements of farm production, revenues and margins. At the least this is more than is
available from any official source.
* Note: that Uzbekistan’s costs understate water charges; it is probable that Uzbek wheat costs
are in fact higher than in Pakistan if water charges are included. Note that land costs are NOT
included in these calculations.
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poverty line. At this level of return, there seems no cash incentive at all to
cultivate wheat; indeed the industry can be considered as essentially subsistence
farming with some related secondary cash income rather than commercial
farming of a commodity cash crop.
If this is a correct picture of the majority of wheat farmers (and we test our
conclusion), then the approach to agricultural development has to be very
different from countries where wheat is grown entirely commercially.
Methods and timing of harvesting are important factors to total crop yield.
A major proportion (70 percent) of the wheat crop in Pakistan (like the rest of
Asia) is harvested manually using sickles. Manually harvested wheat crop is tied
into small bundles and stacked in bunches of 10 - 15 bundles, which are left in
the field for one to three days to dry.
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Threshing is usually undertaken in the field where the sheaves have been
left. Machines are generally not used because of the associated cost. However,
these costs are not far different from manual labor. The main reason machines
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are not used is that it is said that local threshing machines destroy the outer husk
of the grain which is used for animal feed. The resulting grain is left in the same
field covered by a tarpaulin. Most wheat is manually loaded and unloaded from
wagons, trucks, railroad cars, and barges between farm and mill. In some
situations, bagged wheat may be loaded on and off vehicles ten times manually
before it is milled.
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2. Primary Storage
6
Pakistan Agricultural Research Council, Umar Baloch
7
Wheat Markets and Price Stabilisation in Pakistan: An Analysis of Policy Options
Dorosh, Paul and Salam, Abdul Pakistan Institute of Development Economics 2006
http://mpra.ub.uni-muenchen.de/2244/1/MPRA_paper_2244.pdf
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The major food grains are usually stored at the farm in specially
constructed mud bins, protected by a cover, inside the house or in the open
courtyard. Wheat may also be stored as a heap covered by straw, mud and dung
plastered, loose in a room, or in bags, metal bins, baskets and pots. There are
significant losses due to insects, moulds, birds and rats. Wheat grain is often
stored for more than 5 months with losses estimates at 3.5 percent8. More than
half of farm households regard insect infestation as a major problem. Losses in
public sector managed storage facilities may be higher.
1. Procurement
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2. Public storage
Grain storage facilities in the country are mostly horizontal sheds called
house type godowns. There are also binishells (temporary emergency stores -
about 70 percent of capacity), hexagonal bins and a few silos. There are
probably no modern storage systems in the public sector and consequently
losses in public sector godowns are due to inadequate covered storage space as
well as shortage of trained manpower to manage proper procurement,
warehousing and the pest control operations.
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Of course wheat grain can be sold outside Pakistan just as crude oil is
exported, however in this case the value-added by milling is transferred to other
economies. In principle, agricultural raw materials should be processed close to
where they are grown. The reason for this is that the value to weight ratio alters
dramatically as one progresses along the value chain – a ton of wheat costs
about (2008 prices!) about $214/ton10, a ton of flour costs $223 and a ton of
cookies or biscuits has a cost about $2,000/ton (which includes the cost of sugar,
other additives, packaging and manufacturing and marketing overhead). The
point is obvious. Pakistan is not to be congratulated when it exports wheat or
indeed flour; for every ton of flour exported the country loses against the value
added elsewhere.
The wheat flour produced in Pakistan is known as Atta. This is the Hindi
word for wheat flour commonly used in South Asian cooking. It is a whole wheat
flour made from hard wheat. Hard wheats have a high protein content, so doughs
made out of Atta are strong and can be rolled out very thin as in chapati and, roti.
10
March 2008 ex-farm price
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11
Pakistani wheat cultivars developed locally are similar to Hard Red Winter Wheat — hard,
brownish, mellow high protein wheat used for bread, hard baked goods and as an adjunct in other
flours to increase protein in pastry flour for pie crusts. Atta from Pakistani wheat has a unique
taste and consistency; flour from a different grain source will not produce roti to the required
taste.
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The location of these mills is puzzling. There are 80 mills in Karachi, quite
some way from the major growing areas (again, the weight/value ratio suggests
that the shorter distance the raw material is transported, the lower the cost of
production)13. There are 20 mills in Islamabad, a very significant distance from
the growing areas. The location of the Karachi mills may be explained by the fact
that for much of the recent past, Pakistan has been an importer of wheat, in
which case a location near the Karachi port might make sense. The Islamabad
location remains a mystery.
12
According to the Chairman, All-Pakistan Flour Mills Association Sheikh Mohammad Shabbir
(“Dawn” newspaper, September 2007)
13
Mumbai, with population almost equal to Karachi if not more, has only 22 flour mills. Compared
to Karachi, Mumbai is closer to the wheat growing areas of Maharashtra than Karachi is to
Punjab..
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not distinguishable from wheat flour produced from market wheat, their prices are
the same.
Profits from sales of mills using government issued wheat are thus
substantial despite the low capacity utilization, and there are many wheat mills
that operate only in the November-April period and mill only government-supplied
wheat. The fact that mills are far below their profitable output yet are still extant
all over the country is a direct indication that they are collecting sizeable
economic rents, by selling subsidized wheat on the open market or smuggling
wheat out of the country to sell at an even higher profit.
The blame for this rampant corruption does not lie, in this case, with the
rent-seekers but with the GoP which for unexplainable reasons refuses to
enforce the final mechanism to guarantee that wheat be subsidized for the
common consumer; yet it is willing to allow the closure of provincial borders and
contribute to the wholesale degeneration of farmers’ household incomes to get
the wheat to the mills. And the mill owners, upon receiving the wheat sell to
whomever they wish at the highest price they can get for it often across
international borders.
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A. CONSUMPTION
Wheat based products are a major part of the diet in Pakistan. A typical
meal would consist of some lentil (pulse)-based daal, meat on special occasions,
bread (roti) and tea or a soft drink. The upper and middle-classes eat quite
differently, but the majority of Pakistanis eat few vegetables, only a little fruit and
seek energy from carbohydrate-rich foods. Roti is an essential item on the table
to be baked fresh and eaten hot.
14
Policy Analysis on the Competitive Advantage of the Food Processing Sector in Pakistan;
Focus on Quality, Safety and Standards April 2007
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In the Pakistani diet cereals remain the main staple food providing over 60
percent of total energy. Compared to other Asian countries, the level of milk
consumption is high whereas the consumption of fruits and vegetables, fish and
meat remains very low15. The consumption of fruit and fresh vegetables, which
are highly dependent on local seasonal availability, is also limited by the lack of
organized marketing facilities throughout the country.
15
http://www.fao.org/ag/agn/nutrition/pak-e.stm - CSF has undertaken a study of the meat market
that confirms this finding
16
Pakistan Institute of Development Economics (PIDE), conducted the National Nutrition Survey 2001-2002 on behalf of the
Planning Commission of Pakistan.
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It is very hard to ignore this survey evidence. But it does conflict with
anecdotal evidence and reports of various projects and other observers. Punjab
is after all one of the world’s richest agricultural areas. Equally, food prices (even
if rising) are relatively low compared with other comparable countries (e.g., flour
is more expensive in India and Afghanistan). Furthermore, visual evidence
suggests that food is not physically treated as if it was in short supply. It is true
that there are localized food shortages, and in the case of flour there have indeed
been riots about the availability of the commodity. However as a rule it seems
hard to believe that Pakistan has these high levels of reported food insecurity
when 40 percent of the apple crop is either thrown away or given to animals.
“Sahib Haq of World Food Programme (WFP), Islamabad urged the policy makers to
take concrete steps to avoid the looming crisis as the current situation was heading from
bad to worse in the near future.
17
Daily Times, Tuesday, May 06, 2008
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He lamented that the 50 percent population of the country has become food insecure
and was talking [sic] less calories to the recognized average human need adding the out
of those 50 percent population, 20 percent bottom line people were the greater suffers
and were miserably struggling to meet their basic food needs even by compromising on
their non-food expenses.
He said that it was not the massive population but their increased consumption habits
and diversification of foods in addition to international energy crisis and our dependent
economy behind the crisis. He urged formalizing the trade with Afghanistan as half of our
wheat was being exported to Afghanistan through formal and informal means.
He identified several lacunas in domestic policy making system and role of the
government primarily the previous one for not realizing the potential of the crisis coupled
with poor decisions including the management failure in the worse crisis of 2007 when
even international oil prices were not so high, support prices at wrong time which only
benefited the poor at the cost of consumer, unavailability of fresh seeds and finally the
export of rice which directly increased the need of wheat.”
Leaving aside the somewhat odd thought (and odd English!) that it is apparently
increased consumption habits that have led to a food crisis (presumably if food
consumption has increased, then the means to produce the food has been there,
so barring a crop collapse – which there was not – why should the situation be
very different from last year?), it is clear that WFP believes that about 80 million
people are “food insecure” however that is defined. If so then it is indeed a
monumental crisis and one that the GoP should be working night and day to
correct. The fact that broadly speaking the GoP agencies are more concerned
about food exports (hence the struggle e.g., to get orchards WorldGap quality
certified) indicates that this is hardly the case.
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2. Demographics
The following table is taken from the Official Census of 1998 which was
the last time a full official census was conducted in Pakistan18. Nevertheless, for
want of more up-to-date data this Study uses those that are available. The data
show that the major population centers were Punjab (56 percent) and Sindh (23
percent). The population of Sindh is mainly from urbanized Karachi. Other
provinces have smaller populations and are of course much poorer.
18
The 1998 Census was the last full census conducted in Pakistan.
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#
Indicators Pakistan NWFP* FATA Punjab Sindh Balochistan Islamabad
Area (Sq. K.Ms) 796096 74521 27220 205345 140914 347190 906
Population (in thousand) 132352 17744 3176 73621 30440 6566 805
Male (percentage) 52.03 51.22 52.01 51.74 52.88 53.4 53.93
Female (percentage) 47.97 48.78 47.99 48.26 47.12 46.6 46.07
Urban Proportion 32.50 16.87 2.70 31.27 48.75 23.90 65.70
Population Density
166.3 238.10 116.7 358.52 216.02 18.9 880.8
(Person per Sq. K.M.)
Sex Ratio
108.50 105.02 108.40 107.23 112.24 114.60 117.00
(Male Per 100 Female)
Average Annual Growth
2.69 2.82 2.19 2.64 2.80 2.47 5.19
Rate(1981-1998)
Population Under 15 (%) 43.40 47.20 25.90 42.52 42.76 46.67 37.90
Population 15 - 64 Years (%) 53.09 49.79 24.30 53.46 54.47 50.81 59.40
Population 65 & Above (%) 3.50 3.01 1.80 4.02 2.77 2.52 2.70
Age Dependency ratio 88.34 100.83 114.00 87.07 83.58 96.79 68.40
Literacy Ratio (10+) 43.92 35.41 17.42 46.56 47.29 24.83 72.40
Male 54.81 51.39 29.51 57.20 54.50 34.03 80.64
Female 32.02 18.82 3.00 35.10 34.78 14.09 62.39
Enrollment Ratio (5-24) 35.98 31.46 - 39.38 32.78 23.53 57.50
Male 41.19 40.99 - 43.83 37.35 29.49 57.70
Female 30.35 21.30 - 34.63 27.70 60.40 57.30
Economically Active
22.24 19.41 - 22.55 22.75 24.05 23.00
Population (%)
Labor Force Participation
31.98 29.09 - 31.98 32.73 36.45 30.68
Rate (10+)
Un-employment Rate 19.68 26.83 - 19.10 14.43 33.48 15.70
Disabled Population (%) 2.54 2.12 - 2.48 3.05 2.23 1.05
The urban population in 1998 was relatively small (under 33%) and is
concentrated in a few large cities. Allowing for population growth we estimate an
urban population of about 70 million persons. This, therefore, is the base market
for processed rather than fresh food, including manufactured flour and bread.
Turning now to the question of incomes, since the demand for different
foods is highly responsive to increases in incomes (positively income-elastic).
According to the World Bank estimates for 2006 per capita income came to
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19
Pakistan Country Overview 2006, the World Bank
20
Sources of Income Inequality and Poverty in Rural Pakistan, Research Report 102 by Richard
H. Adams, Jr. and Jane J. 1995
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based economic reform, it would seem then that the great majority of Pakistanis,
who live rural lifestyles, are living at a subsistence or close to subsistence levels.
3. Poverty
Once again there are significant differences between rural and urban
areas. As may be expected, the urban areas have a lower incidence of poverty
than in the countryside. From 1993 to 1999 the incidence of poverty is estimated
(by ADB) to have increased by 7 percentage points, when at the same time
agricultural production was supposed to have increased. Thus increase in
agricultural output has apparently not translated into higher rural incomes,
perhaps because of a failure to add value to raw materials or because of failures
in a marketing system that does not “net back” value added to the farmer.
21
Asian Development Bank work on poverty by Ms Emma Hooper
22
Other sources show lower figures for poverty. The fact is that the basic population data are
uncertain and this makes calculations very difficult.
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correctly (perhaps because of factors like lack of potable water). There does not
appear to be a supply problem or lack of physical availability of food, The
evidence from the retail sector, including prices and the way food is treated and
stored is that for some reason the Pakistani consumer does not value food in the
same way that other consumers value it in other Asian countries. There appears
to be a lack of understanding or demand for quality beyond a relatively small
number of middle-class and rich persons who by no means represent the
population as a whole. So much food is wasted that one must conclude that the
value placed on food in Pakistan is very low. These conclusions appear
paradoxical, but at present we have no other research that can reconcile the two
points of view.
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We have used this overall view of food consumption to color our approach
in considering the demand for wheat flour. As a first effort to consider the
demand for flour, we adopted a simple nutritionist’s approach based on what
would be the protein and carbohydrate requirement of a given number of persons
to be supplied from cereals. We have assumed that wheat is the only available
cereal, whereas of course there are other sources of carbohydrate including rice
and potato.
The calculation uses the official population estimates for 160 million
persons for 2007, a possible understatement of the actual population but one we
must use as a basis in the absence of other information. We then calculate using
Household Survey data for annual per capita protein and carbohydrate
consumption the actual volumes that are required for a population of this size.
The total requirement is 10.2 million tons of proteins and carbohydrates. It should
be remembered that this is for protein and carbs from wheat flour in particular; it
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is not the amount of wheat that is required to fulfill this requirement. We come to
that side of the equation in the next section.
We repeat that wheat must pass through a supply chain that adds value
and transforms it into a useable commodity. The calculation to be performed is
aimed at understanding that entire chain (including elements of external supply
or losses from the chain either as exports or wastage). The results show what
wheat is actually available (a) for processing and (b) for human consumption.
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2001 8,181,000 2.33 19,020,825 2,853,124 16,167,701 3,233,540 12,934,161 83,160 1,940,124 11,077,197
2002 8,058,000 2.26 18,227,196 2,734,079 15,493,117 3,098,623 12,394,494 267,380 648,649 1,859,174 10,154,051
2003 8,034,000 2.39 19,185,192 2,877,779 16,307,413 3,261,483 13,045,930 149,485 1,140,351 1,956,890 10,098,174
2004 8,216,000 2.37 19,496,568 2,924,485 16,572,083 3,314,417 13,257,666 109,589 42,857 1,988,650 11,335,748
2005 8,358,000 2.59 21,613,788 3,242,068 18,371,720 3,674,344 14,697,376 426,606 2,204,606 12,919,376
2006 8,448,000 2.52 21,280,512 3,192,077 18,088,435 3,617,687 14,470,748 819,753 2,170,612 13,119,889
2007 8,494,000 2.77 23,519,886 3,527,983 19,991,903 3,998,381 15,993,522 2,399,028 13,594,494
Source” Official GOP statistics and authors estimates
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The table uses official figures for area and yield. While the area figures
may be suspect, we consider the yield figures reliable. They are an average of
very low rainfed wheat and irrigated wheat production. The losses through the
system have been explained in the main text above. We consider this a basic
calculation that can be made more sophisticated as we expand our
understanding of the industry.
Combined
Wheat Flour Distribution TOTAL Flour protein and
grain Process output chain loss FLOUR Protein Carb basis carb supply
Year (tons) loss 5% (tons) 10% (tons) basis (tons) (tons) in flour (tons)
2001 11,077,197 553,860 10,523,337 1,052,334 9,471,003 1,136,520 6,629,702 7,766,223
2002 10,154,051 507,703 9,646,348 964,635 8,681,713 1,041,806 6,077,199 7,119,005
2003 10,098,174 504,909 9,593,265 959,327 8,633,938 1,036,073 6,043,757 7,079,831
2004 11,335,748 566,787 10,768,961 1,076,896 9,692,065 1,163,048 6,784,445 7,947,493
2005 12,919,376 645,969 12,273,407 1,227,341 11,046,066 1,325,528 7,732,246 9,057,774
2006 13,119,889 655,994 12,463,895 1,246,389 11,217,506 1,346,101 7,852,254 9,198,354
2007 13,594,494 679,725 12,914,769 1,291,477 11,623,292 1,394,795 8,136,304 9,531,099
Source” Official GOP statistics and authors estimates
The above table shows the wheat grain transformed into flour. 13.6 million
tons becomes 11.6 million tons of flour. It is well to note that we have been
optimistic with our wastage and conversion coefficients. In the UK, the
conversion of wheat grain to flour is 80 percent; here we have used a 95 percent
conversion rate note also that we have not distinguished between the proportion
of wheat grain that remains and is milled in the rural sector using very primitive
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equipment. The next stage of the calculation converts the available flour – 11.6
million tons – to a basis of protein and carbohydrate. This provides a combined
protein/carbohydrate supply of 9.5 million tons.
There is now a simple basis for understanding the supply and demand for
wheat grain and wheat flour in Pakistan, We do not consider this more than a
very simple, perhaps over-simple, way of looking at this problem, but it gets us a
step closer to considering the industry on an objective basis and allows us a
clearer look at the real issues.
Protein
and Carb Requirement
supply (as protein and
flour, carbohydrate SURPLUS/DEFICIT
Year tons) (tons) (tons)
2001 7,766,223 9,097,830 (1,331,607)
2002 7,119,005 9,000,180 (1,881,175)
2003 7,079,831 9,195,480 (2,115,649)
2004 7,947,493 9,388,890 (1,441,397)
2005 9,057,774 9,479,610 (421,836)
2006 9,198,354 9,699,480 (501,126)
2007 9,531,099 10,080,000 (548,901)
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Pakistan would indeed have a problem of physical supply. That said, the problem
would not be insuperable because the grain required to meet the deficit could be
acquired on the international market, and indeed Pakistan has been an importer
in low harvest years. However, there are other sources of staple crops, especially
rice and potato and other protein sources, notably livestock and pulses, and even
though previous deficits had been greater, there was not at that time a
comparable wheat crisis as we see today.
Another extraordinary feature of the data are the high losses sustained
through the post-farm and post-harvest supply chain, The system itself is
unnecessarily inefficient in a large grain growing area that is well-served with
roads and rail, In essence the storage infrastructure is poor, but it is the human
management aspect of the supply chain which is surely its weakest link. The
other outstanding feature is the role played by the so-called “black” exports. If
these exports were not made, then even with the supply chain inefficiencies,
Pakistan would have no deficit.
The purpose of this study was to take a broad and parsimonious approach
to the wheat industry in Pakistan as a whole. To that end we have avoided
statistics that may be subject to debate and instead derived robust conclusions
from generally accepted quantities. Even when we have had reason to doubt the
veracity of the statistics used the results were still convincing.
In conclusion, a few salient features come to the fore that because of their
importance are worth mentioning again. Firstly, there is the issue of the sheer
size of losses in the government run supply chain; secondly, that the GoP has
contributed to a significant depression in farmers incomes for the sake of a food
security policy that is not working; and finally, that the more significant long term
issues are not in the supply but in the demand side of the equation where
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inequalities in opportunity are making food more dear for the very people who
produce it.
The “food security” mechanism only works when the government is paying
more for wheat than the open market. This way the government would
encourage the production of more wheat, have the ability to supply large
amounts of it to urban centers, and support farmers’ incomes. In the present
circumstance the government is procuring the wheat at lower prices than what
the open market dictates. This discourages the growing of wheat, reduces the
supplies it has at its disposal for urban centers, and depresses farmer incomes.
The production of more food alone will not help Pakistan’s destitute, nor will it
increase food security. If the rural population, the majority of the country, does
not see growth in their disposable incomes then food security will never be
achieved. In a global economy prices of commodities are greatly influenced by
the international market. The global economy has been growing at a rapid pace
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with India and China (both neighbors of Pakistan) seeing upwards of %12 annual
growth in their GDPs. As a result factor inputs e.g. fertilizer, seed and water will
tend to cost more and ultimately the result will be a steady upward trend in
commodity prices. If Pakistan’s population does not see more broad based
patterns of economic growth basic food items will become less affordable for
more people. Demand side issues include a wide variety of problems involving
many factors that may not have a direct correlation to agriculture, yet if these
issues are not addressed the impact it will have on food security for common
Pakistanis will be immense, this current wheat “crisis” is only an intimation of
what may, in future, be the most important challenge to Pakistan’s sovereignty.
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