2013-02-25 10:12:49 - New Food market report from Business Monitor International: "Pakistan Agribusiness Report Q2 2013"
BMI View: The agriculture sector in Pakistan is characterised by inconsistent and often counterproductive government intervention. Towards the end of 2012 the government announced an increase in the wheat support price, but this is likely to stoke inflation while failing to benefit farmers, as middlemen have long exploited the system in which the government purchases around a quarter of the country's wheat harvest each year. The sugar sector has also been the subject of perhaps even more wasteful subsidies in the form of support prices. However, recent steps taken by the competition commission to break up milling cartels seem to have made a real impact, signalling that the government could work with the market for the best interests of agriculture.
Report Details at
- www.fastmr.com/prod/541260_pakistan_agribusiness_report_q2_2013. ..
* Sugar production growth to 2016/17: 9.7% to 5.0mn tonnes. After failing to keep up with demand for much of the last decade, improvements to regulation have made sugar appealing to farmers once again.
* Wheat production growth to 2016/17: -4.3% to 22.3mn tonnes. The ineffectiveness of policies aimed at supporting farmers will see production continue its slow decline.
* 2013 real GDP growth: 4.0%. Up from 3.7% year-on-year (y-o-y) in 2012.
* Consumer price inflation: 7.8% average in 2013 (down from 11% y-o-y in 2012).
Although the sugar sector in Pakistan remains beset by challenges, a recent intervention by the Competition Commission of Pakistan (CCP) seems to have made a difference by strengthening the position of farmers at the expense of a hitherto powerful milling cartel.
In September 2009, the CCP began investigating the All Pakistan Sugar Mills Association, uncovering collusion designed to force farmers to sell them sugar cane at lower prices, often even lower than the support price. By the harvest of 2011, the millers were forced to compete with one another to buy the crop, leading to farmers often receiving up to 50% more than the support price in some areas. Although sugar prices have remained low by historical standards ever since the downturn in mid-2011, this has not led to decreased incentives for Pakistani farmers to increase production, as they can still expect to get a higher price for their raw product now that they are no longer at the mercy of anti-competitive purchasing tactics. Improved competition has also benefited consumers, with the average retail price of sugar in November 2012 36% lower than in the same month of 2010.
The picture looks very different for wheat, where the government has raised the support price of wheat as of November 22 2012, possibly with a view to gaining the support of rural communities in the run-up to elections. The government will now pay INR1,200 per 40kg (US$312 per tonne) rather than the INR1,050 per 40kg (US$292 per tonne) previously set. Acreage has fallen by 2.7% from 8.9mn hectares (ha) in 2011/12 to 8.66mn ha in 2012/13, as farmers are unable to profitably sell the grain at the support prices stipulated by the government, according to the Pakistan Bureau of Statistics.
But while raising the support price might appear an effective solution, there is good reason to doubt whether farmers will see much of the money. The subsidiary of the federal government that oversees this process, the Pakistan Agricultural Storage and Services Corporation (PASCO), has instituted a system of procurement that has been faulted for being open to widespread abuse. As reported by the Nation, PASCO officials have allegedly exacted bribes from farmers in exchange for the bags which the corporation requires farmers use. This forces farmers into the open market, where their wheat is bought cheaply and sold on to the government at inflated prices. The new price is also still below what farmers' groups had demanded. Additionally, the higher support price is almost certain to increase the cost of flour for urban consumers, a risky policy given already high levels of inflation.
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