Acquisition will cost Rs 542 billion amid disputes over price, storage and provincial share
ISLAMABAD:
The International Monetary Fund (IMF) has once again allowed Pakistan to buy wheat to replenish its dwindling reserves, leaving the government to determine the strategic level of stocks and proceed with plans to buy 6.2 million tonnes this year, an aide to the prime minister said on Monday.
Ahmed Umair, Prime Minister’s Agriculture Coordinator, clarified that the officially announced price of Rs 3,500 per 40 kilograms is not a fixed support price but an indicative rate linked to international market trends and subject to review.
A day earlier, the Prime Minister’s Office had declared that the federal and provincial governments would jointly procure 6.2 million tonnes of wheat at the price of Rs 3,500. Umair said the IMF had agreed to allow these purchases to rebuild the country’s wheat reserves.
In September last year, the IMF prevented the federal and provincial governments from intervening in commodity markets. The ban on procurement by all governments led to a drop in wheat prices, falling to Rs 2,200 per 40 kg from the high of around Rs 5,500.
Responding to a question on whether the decision to procure 6.2 million tonnes of wheat, requiring Rs 542 billion, would qualify as a “strategic reserve”, Umair said it was the country’s discretion to determine its national strategic reserve levels.
The IMF’s alleged consent to purchase the commodity may save the $7 billion program, as the IMF had called commodity market reforms one of the major successes of the year-and-a-half-old program.
“Authorities are planning reforms to reduce government intervention in commodity markets to foster a productive, diversified and internationally competitive agricultural sector that meets food security needs,” IMF Pakistan mission chief Iva Petrova said last week, announcing the staff-level agreement.
The IMF had banned wheat purchasing operations to end market distortions and ease pressures on provincial budgets. IMF Resident Representative Mahir Binici did not respond to a request for comment on Monday.
The government’s decision came weeks before the IMF board is set to consider Pakistan’s request to complete the second review of the $7 billion bailout package and the first review of the $1.4 billion climate fund.
After a meeting with provincial chief ministers, the Prime Minister’s Office announced that the government had approved a new wheat policy for 2025-26 at a high-level meeting chaired by Prime Minister Shehbaz Sharif.
The prime minister announced that the federal and provincial governments will procure 6.2 million tonnes of strategic wheat reserves for the 2025-26 season. The procurement will be Rs 3,500 per 40 kg, in line with international wheat import prices, according to the prime minister’s office.
prime minister meeting
Sources said there was consensus between the federal and provincial governments to procure wheat and support farmers. However, there was a disagreement over price discovery and the chief minister referred the issue to deputy chief minister Ishaq Dar to reach a consensus with the Sindh government.
The Sindh government had proposed a price of Rs 4,000 per 40 kg in the meeting, which the federal government did not accept. It was decided that the local price of wheat will not be lower or higher than that of the international market to avoid any distortion.
The Rs 3,500 per 40 kg is an indicative price and reflects the current international market price, including transportation costs, showing that the new policy is not in favor of farmers or consumers, Ahmed Umair said. The agriculture coordinator said that the price determination methodology had been shared with the IMF, which also endorsed it.
However, Sindh Agriculture Minister Muhammad Bux Mahar has demanded that the federal government fix the support price of wheat at Rs 4,200 per 40 kg. He stressed that the Pakistan People’s Party Central Executive Committee (PPP-CEC) had also made the same demand just a day earlier.
Wheat targets
According to the decision, the federal government will procure 1.5 million metric tons of wheat through the private sector, including 500,000 tons to meet the needs of special areas. Punjab will procure 2.5 million tonnes, Sindh 1 million tonnes, Khyber-Pakhtunkhwa 750,000 tonnes and Balochistan 500,000 tonnes.
The two small provinces will also buy wheat from Punjab and Sindh. The cost of storing the 6.2 million tonnes of wheat for a year is estimated to be Rs 125,000 crore, sources said. Umair said the private sector will purchase and store wheat on behalf of the federal government after the decision to abolish Pakistan Agricultural Storage and Services Corporation (PASSCO).
However, sources said the Sindh government will procure its entire 1 million tonnes of wheat without involving the private sector.
When the private sector participates, it will be financially compensated by the respective government on account of the procurement services, storage services and the financial costs that these operators will pay for the quantities that will be used for the acquisition of wheat. The government will issue licenses and only licensees will be able to offer procurement services, sources said.
The original plan was that starting next year the government would completely end restrictions on the import and export of wheat to provide a level playing field for farmers. However, instead of deregulating the market, the government reversed the old decision, which had also caused immense financial losses.
According to the IMF’s first review report, Pakistan had assured the global lender that substantial progress had been made towards a new framework for the wheat sector. It had also assured the IMF that it would refrain from wheat procurement operations and considered the price reductions as “big benefits” for consumers that also moderated food inflation.
The IMF had also been told that provinces paid off most of the legacy debt related to commodity operations. The IMF had urged Pakistan to expand its efforts to other commodities, including by reviewing relevant legislation and empowering competition authorities, to enable an agile and competitive agriculture sector that also addresses consumer needs.
