Grinding of wheat much higher than consumption


http://www.dawn.com/2007/09/23/ebr1.htm

By Sabihuddin Ghausi


KARACHI, Sept 22: Has anyone in the government or the business ever thought why are there about 1,000 flour mills in Pakistan with a total grinding capacity that is about five times the requirement of the country?

Who are these people who invested in flour mills even when they knew that the sector is over-saturated as far as Pakistan market for wheat flour is concerned?

It is an issue that begs for an explanation from the military president, a banker prime minister and from the oversized federal cabinet with 70 members, mostly drawn from business, landed gentry and second generation of families with proven loyalty to military governments in Pakistan.

Needless to say that many owners of the flour mills enjoy close links with businessmen-politicians in the federal and provincial cabinets and in the federal and provincial legislatures.

There are many retired military servicemen having stakes in flour mills.

Obviously, all these gentlemen with stakes in flour mills and wheat trade would not like their investment to go waste.

Efforts were made by this correspondent to seek explanation from the federal ministers of food and agriculture and industries and production.

Repeated calls were made to Mr Hayat Bosan and Mr Jehangir Tareen that failed to evoke any response from them in last three or four days.

Chairman, All-Pakistan Flour Mills Association Sheikh Mohammad Shabbir responded from Islamabad to inform that there were 950 flour mills in Pakistan with a total grinding capacity that is four times the wheat flour requirement of the country.

He ruled out cartelisation of flour mills in the country for creating shortages and pushing up prices.

“Absolutely impossible,’’ he made it clear while responding to an observation that quite a few flour mills have joined to form a cartel to regulate supply and push up prices of wheat and wheat flour in the market.

“The production capacity is much in excess of demand and almost all flour mills operate under their capacities out of compulsion,’’ he said.

But there was no plausible explanation as to how all these flour mills make their business operations viable by operating only on 33 to 50 per cent of the utilisation capacity.

Quite a many of these about 1,000 or 950 flour mills are closed and almost everyone of these flour mills operates on one to one and half shift basis. It means that every flour mill is operating on 33 to 50 per cent capacity utilisation basis and is yet in the business. How?

“An average size flour mill can be set up at an investment of Rs15 to Rs20 million,’’ Murtaza Jatoi, the adviser on Food and Agriculture to Sindh chief minister explained the proliferation phenomenon of flour mills in the country and stressed that there was hardly need of any bank credit as there were many people with such amount of cash with them.

But still the question is why should people put even this “small amount’’ in a business that is already over-saturated in terms of investment.

“My family does not have any flour mills, therefore, I cannot offer any explanation why people invest in setting up a flour mill.”

There are 80 flour mills in Karachi with a total grinding capacity that is three times of the actual wheat flour requirement. In Mumbai, the Indian mega city, with population almost equal to Karachi if not more, has only 22 flour mills. As compared to Karachi, Mumbai is closer to wheat growing areas of Maharashtra.

Like Karachi, Pakistan’s capital Islamabad is also located far away from wheat growing areas and its population is much less. Yet there are about 20 flour mills.

One explanation offered by a market analyst is that flour millers and wheat traders “do not operate for Pakistan market only.”

For years together, Afghanistan gets wheat and wheat flour from Pakistan. Pakistani wheat is said to be reaching Moscow and many countries of Central Asia.

In the current season, when there is a global wheat shortage and flour price is said to have touched Rs22 to Rs25 a kg in some parts of India, as much as two million tons of wheat and wheat flour is said to have been transported across the border.

Only the other day, Punjab Chief Minister Chaudhry Pervez Elahi said in a talk show that Pakistani wheat and wheat flour bags were being seen in Afghanistan and parts of Central Asia.

Way back in 1997, the Punjab food minister after returning home from Russia had disclosed that he saw for himself wheat flour bags of Pakistani mills in Moscow stores.

Millers jokingly call Afghanistan the “fifth province” of Pakistan for which not only wheat and wheat flour but cooking oil, ghee and importable items are indented.

A premature decision to export wheat by the government and a bumper wheat crop set the ideal conditions for speculators and more enterprising millers to go for quick money spinning.

Even a suspension of export in May could not stop outflow of wheat and wheat flour.

An outflow of wheat and wheat flour pushed up prices within domestic market.

“It has all been milk and honey for speculators and millers this season so far,’’ the market analyst said.

What keeps the millers in business despite partial capacity utilisation is the subsidy element that gives good margin in trade.

The Punjab government is giving Rs16 billion subsidy while Sindh is likely to offer anywhere up to Rs6 to Rs7 billion on wheat trading.

The NWFP and Balochistan governments also offer good amount of subsidy on wheat trade.

The Sindh chief minister announced on Friday Rs250 million additional subsidy on wheat and wheat flour trade during Ramazan.

Murtaza Jatoi said this subsidy would be given to millers at the rate of Rs125 on 100 kg bag. The millers will be asked to fix ex-mill price at Rs13.50 during Ramazan.

Millers have been asked to open at least one fair price shop outside their mills. In Karachi, there will be more than 70 such fair price shops.

But these remain cosmetic measures for Ramazan. For round the year, as a market watcher said, the consumers are at the mercy of traders, millers and food bureaucracy.

The flour mills remain a thriving business for many political families and retired armed forces personnel because the government provides a good cushion for exploring market far and wide.

Business circles now openly say that there is a strong caucus of about a dozen persons. This caucus has a few stock brokers, a few brokers and grain merchants who exploit the situation to their advantage and make quick money at the cost of 160 million helpless consumers.

No wheat crisis in the country: Official

ISLAMABAD, Sep 23 (APP): There is no wheat crisis in the country while one million tons wheat would be imported to fulfill the requirements of the first two months of the next year (January-February) 2008. Agriculture Development Commissioner (ADC) in the Ministry of Food, Agriculture and Livestock (MINFAL) Dr. Qadir Bux Baloch Saturday told APP that the government was considering the terms and condition to import wheat.

“If Trade Corporation of Pakistan (TCP) asked for importing wheat, it will take three months while enabling the private sector to import wheat within 15 days”,the official added.

Punjab has sufficient stock of 2.5 millon tons of wheat to meet its domestics demand for the next three months while Punjab has no more wheat to supply for any other province, he said.

PASCO would provide .3 million tons wheat from its stores for Sindh province to tackle its domestic consumptions, he said.

He said that 23.5 million tons of wheat was produced during last year and 2 million tons was surplus as current domestic demand is 22 million.

ADC pointed out that due to thousands of miles long border line with India and Iran and because of high prices in these markets flour is being smuggled to these neighboring countries.

Iran is the main destination of flour smugglers, and due to international restrictions there is no proper law to stop illegal wheat export, he said.

Dr.Qadar said that there was wheat shortage in international market and prices of wheat was fixed as $400 per ton, whereas wheat in domestic market was available at $200 per ton.

He informed that if private sector permitted to import wheat, government have to provide subsidy at the rate of $200 per ton.

About 15,00 flour mills are supplying flour to the consumers at official fixed rates.


http://www.app.com.pk/en/index.php?option=...6&Itemid=38

There is no effective way to control wheat smuggeling to Iran as they are desperate for food items, same goes with Afghanistan and that is always included in our domestic consumption as fifth provence.

IF wheat prices in international market are $400 per ton and in deomestic market $200 per ton, then why a 1.5 Million ton wheat was allowed to be supplied to India at price of $190 a ton?

Almost less then 50% of international price!

Was it some sort of charity and who is responsible for it while now we are going to import at $400 a ton!

Who said we were selling it at $190 a ton? You have a link for that, because if this is true then something is seriously wrong!

The export price was $190 and with frieght it comes to $232............we have exported 1.5 Million ton so far to India, two million ton went to Afghanistan and India through smuggeling and rest is going to Russia and Iran.

Question is why we needed to give a charity of 1.5 Million ton to our worst enemy at half of international prices! and who is responsible for such decision!




Pakistan export ban won't upset Indian wheat - traders


http://in.news.yahoo.com/070524/137/6g78w.html

Enlarge PhotoBy Reuters
Thursday May 24, 04:50 PM
By Hari Ramachandran

NEW DELHI (Reuters) - Pakistan's decision to suspend wheat exports to stem price rises may snag some shipments to India, but will only have a marginal overall impact on Indian prices, traders said on Thursday.

Industry officials said it was difficult to estimate the import quantities contracted with Pakistan, as the deals have been signed for small lots by several traders and flour millers mainly in Kerala and Tamil Nadu.

Pakistan suspended wheat exports with immediate effect on Wednesday because of a surge in domestic prices.

Traders said Indian mills have imported 6,500 tonnes of wheat from Pakistan in the last couple of months, most of which arrived at the ports of Tuticorin, Mumbai and Kochi.

The wheat was contracted at an average price of around $232 a tonne on cost and freight basis.

India's State Trading Corp has received offers between $265 and $302 a tonne at its latest tender for the import of 1 million tonnes of wheat.

"I don't think it will make a very big impact on prices as quantities are not huge," said S. Pramod Kumar, president of the Karnataka Flour Millers Association. "Definitely it is a cause of worry for importers in southern India."

continued................

If you continue reading, it says that Pakistan doesn't sell it for that price, and stopped for negotiation over better prices. So in the end the only way the wheat is getting out of the country is through illegal smuggling. I say that the government should allow the export of wheat and a price of $250 a tonne (not including freight costs, thats extra), that way our wheat is still far cheaper then the world's, the smuggling will be of no use, seeing that you can sell it legally now and at a good price. The government however needs to limit the amount of wheat exported per total crop. Meaning each farmer/mill can only export a certain amount of his wheat the rest must be sold within the country. That way the prices of wheat within the country are low, and stable and we are still exporting some 2 million or so tonnes (that would be around $500 million export), and our farmers get to make money from exporting. The good thing is that, even with 2 million tonne surplus or so, the country is continually going to grow in supply faster than demand, this is due to better farm equipment, better methods (along with seed tech, and fertilizer), and a better irrigation system.

First thing is this decion to stop export came when we had already exported a Million over ton a a discount price.

Secondly if you fix the wheat prices at international level or even at $250, the price of flour in local market will go to Rs. 50 a Kg.

My point, it was stupid not to set a standard from the beginning.

But you didn't include the other part, the one where each farmer/mill is limited to a percentage of the total output of which he can export. That way the domestic market will still be supplied at the same price, but wheat will be exported at the international level. (I am not saying that the government fix the price at $250, but whatever the price of the wheat is negotiated with the buyer, in this case India, that be the set price for exports). To ensure that the farmers/mill comply with this percentage method, the government can give incentives to follow it (tax breaks etc.). So pretend next year we have a production of 25 million tonnes of wheat, the consumption is 22 million tonnes of wheat within the country. 1 million tonnes should be held as extra within the country (to keep supply high, and just as a safety, in case of famine or another problem the following year). Now the remaining 2 million tonnes should be exported. That means that each farmer/mill should be limited to exporting 8% of his total production.

Shhhhhhhh Its uncle Mushys love for INDIA which is resulting in such stupid and ignorant trade with them. We should have tried to get max out of the deal rather than giving it away as charity....

I hope it doesnt turn out to be the case of Sugar trade during BBs era... Sell them at cheap get bak at high prices (including commission for the minster doing this work).....

Although I am against nationalization of industries, I think the GoP should setup a few grinding factories just to make sure these lunatics dont suck on Pakistani blood.

This problem will continue as long as we keep the domestic price of wheat artificially below the market rate. Its simple economics that this will cause smuggling. Instead we should allow the wheat producers to sell in Pakistan and the market rate. This will end all smuggling. I guarantee it.

Yes, but that would lead to inflation, something the GOP is trying to avoid.

There are better ways to control inflation than setting ceiling prices for commodities. If that worked then Zimbabwe would not have its current food crisis. If growers saw that they were getting better price for wheat, then in the next season more acres would be alloted to wheat growth, thus bringing down the price. Also, higher profit margins would mean that the farmers would now invest in better tech, thus increasing output.

Of course, none of these results would come before election time and I guess politics always trumps good fiscal policy.

the only way price ceiling works is when the govt pays the producers the amount they lose from the price ceiling in the form of subsidies etc... when the producers will get a low profit margin they will smuggle or resort to hoarding, thus creating a shortage, pulling up inflation.

Never said it was a good method to control inflation, just said it was one of them. But yes you are right in essence, this is not the way the government should handle this.