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Secrets of the dirty wheat trade in Pakistan

SAMAA | - Posted: May 2, 2020 | Last Updated: 5 months ago
SAMAA |
Posted: May 2, 2020 | Last Updated: 5 months ago
Secrets of the dirty wheat trade in Pakistan

Photo: AFP

“We did not domesticate wheat. It domesticated us,” writes Israeli historian Yuval Noah Harari in Sapiens: A Brief History of Humankind. His idea seems to be in line with what history tells us. If one sat down to write about the wars and conflicts that took place over wheat the result would be voluminous book. The pride of both the one who lays siege and the besieged was tied to wheat. Every empire needed to stock up on it and other grains to be considered powerful by rivals. Silos to stock it can be found in every fort. Emperors, kings and nobles would keep them filled to avoid food shortages.

Wheat is also an important part of the politics of the subcontinent. Fiefdoms awarded by the Sultans of Delhi, Mughal Emperors or the British Crown helped produce a class of loyalists who were given power in return for their loyalty. In exchange, these loyalists made sure that the supply of grain remained steady. The calm that resulted from this consistent supply of food fueled British victories. It was a time of mismatch between supply and demand. The filled warehouses also caused hunger and famine, be it Ireland or Bengal. The problem was not with the supply of food but the government’s priorities. They never shied from sacrificing the lives of their colonial subjects. George Bernard Shaw, while dwelling on the artificial famine in Ireland in his 1903 play Man And Superman, wrote the following dialogue:
Malone: Me father died of starvation in Ireland in the black 47. Maybe you’ve heard of it.
Violet: The Famine?
Malone: No, the starvation. When a country is full of food, and exporting it, there can be no famine.

The inherited thinking
As heirs of the colonial government we inherited the belief that warehouses must remain full. Every year the government would set a price, set a procurement target and then make sure that the warehouses were filled. For a long time the official price would be slightly lower than the market rate. It needs to be kept in mind that due to the agricultural and industrial revolutions there was now a balance between supply and demand of wheat. It was no longer possible for the government to procure all the required wheat on its own.
In such a state why would anyone want to sell their produce or their tenant’s produce at a loss to the government? Anyone who could, made sure that their wheat would not be scooped up by the government for a paltry sum. Some would dial their phones, some would go to the collector’s office, some would reach out to minsters. In response, they would hear “Don’t worry: we have to meet our target. Why don’t you give us ten thousand bags out of your hundred thousand and we’ll arrange the rest from somewhere else. Contact your food officer, I’ll fill him in.” There are two important parts in this dialogue. One, wheat will be procured from somewhere else i.e. some farmers who do not have the same level of contacts. Two, the part about “filling in the food officer” does not need any more explanation.
The second chapter of this situation would begin when there would be very little wheat left in the market and mill owners would start reaching out to government offices to get some more. This phase is also usually dealt with mutual agreement and the business keeps running.

Subsidies
Then things changed when the word “subsidy” was added to the official vocabulary. Facilitating cultivators became the slogan of every government. The government’s generosity ushered in an era when the official price of wheat became higher than the market price. Now, anyone who had contacts would ensure that all their wheat went to the government. Phones would be dialed again, the minister, advisor or confidant would be impressed upon that the wheat grew out of sweat and blood. Now the response would be, “Dear sir, you know how it is these days. We can’t take a hundred thousand bags of grain from you but you’re an old friend. We’ll get fifty thousand from you. Okay, okay no need to worry, sixty thousand. We have to get some from others too, there’s a lot of pressure. No need to worry, just contact your food officer, I’ll tell him the rest.” Some wheat must be procured from the poor farmers without contacts and they are relatively easier to squeeze too.
The second part of this dialogue needs an explanation. Let us suppose the government has fixed a price of Rs1,400 per maund while the same wheat sells for Rs1,100 in the market. So whoever uses their discretion to buy ten thousand sacks instead of one thousand needs to get something in return, right? The farmer needs money for his produce and the buyer for his favor. The former can take Rs1,300 and the latter can make do with Rs100. This might sound like a small sum until you spread it across a province. For example, Sindh purchased 1.4 million tons, every ton has 25 maunds, making this a total of 35 million tons. Now with Rs100 received against every maund, the amount becomes Rs3.5 billion.
But perhaps we are exaggerating; we can’t take money from everyone and not everyone will be able to pay. So it might be appropriate to halve this amount to 1.75 billion. But again, the amount will change if we change the money received on every maund to Rs150 or Rs200.
You might think this is a conjecture and perhaps you should. Critics will also say that the system of procuring wheat is well-defined and stable so all of this is a lie. One won’t deny this. But go out and talk to a poor farmer about what happens to them and you might understand how hollow the system is on the inside.

Photo: Online

Middlemen
Another point that merits mention is the role of the middleman. These are people who purchase vast amounts of wheat from farmers and sell it to the government. Their involvement makes it easy and beneficial to procure wheat for the officials in charge.
Now let’s look at it from the other side. Suppose the government has purchased wheat and filled its warehouses. This usually happens by May. It needs to be remembered that 4 million tons of wheat are produced in Sindh, so only a small part of it is kept in government storage.
After a few months when wheat becomes short in supply in the markets and its price rises higher than the government level, mill owners start visiting government offices to find cheaper wheat. The wheat is cheap because the government fixes the price and its fluctuation affects profits. There is some bargaining and then the mill owner has to pay some extra money for every bag that comes out of the government’s treasure. This amount runs in the tens of millions.

Jute bags
A word on the bags or sacks used to store wheat. In Sindh these are called Baardana. The government provides farmers with these sacks and they fill it with grain and sell it to the government. The government only buys grain that is inside its own sacks. They are normally made of jute. However, in the last few years some sugar mills introduced a new sack which costs less than the one made of jute. Both come with their own pros and cons and buyers should think about the best way to store them. Every year millions of sacks are purchased and contractors earn tens of million rupees.

Procurement Reserve Centers
This story would be incomplete without mentioning the mill Procurement Reserve Centers (PRCs). Though they have now been banned by the Sindh government it is important to understand them in order to understand the wheat business.
When official warehouses return out of space, the government has to reluctantly declare the warehouses of flour mills as Procurement Reserve Centers. In short, this is like asking the cats to guard the cream. Official capacity to store wheat is quite limited; Sindh can reportedly hold up to 1.1 million tons only while the province’s need is estimated to be 1.4 million tons. So anywhere between fifty to a hundred thousand sacks are handed over to mill owners on contract for safekeeping without any charge.
The smart mill owner will turn this wheat into flour when the market price goes above the government price. Then he will buy cheap wheat next year to match the government record.
The new/old term in use stems from this practice. Mill owners also take bank loans by passing government wheat off as their own.
Similarly, those in charge of government warehouses give up wheat to mill owners when they receive assurance that the records will be kept straight after buying cheaper wheat next year. Last year, the Sindh government did not procure any wheat and when market prices rose there were reports of shortages from many warehouses. In this regard the Sindh government took action against many officers of the food department and NAB raided multiple four mills and warehouses. But no one knows what happened as a result. Now the government has set a new procurement target while farmers are lamenting the same problems as last year.

Buying wheat
Now let’s talk about where the government gets money to buy wheat in the first place. For example, if you look at the Sindh budget you will only find a nominal sum set aside for procuring wheat. All wheat purchase is made through State account two while the budget is made for State account one.
A glance at Sindh’s account two will tell you that the province is in debt worth a hundred billion rupees. If banks were to demand their money back today there is no way the Sindh government would be able to pay up.
Another question worth pondering is why banks loan money for such an endeavor. The reason perhaps is convenience. By doing this banks do not have to work very hard and they are assured of their money’s safety because it is in government hands.

Other provinces
I have used Sindh as an example here but if you were to change the province name to Punjab or something else there would not be any major difference. For the government’s reputation, the wheat trade is the same as trading coal—as long as the government remains involved, its hands will be blackened.
It is understandable that the government wants to keep a reserve of grain but it is not necessary that the grain be in government custody. Legislation can be used to bind the private sector to keep a certain amount of wheat in the country. But the current system is only incurring losses.
The common Pakistani eats expensive roti and pays taxes to finance loans taken by the government. A common Pakistani who works hard to put bread on the table for their family is unaware that the food they are eating is the product of exploitation. They do not know that their honest living contains traces of bribery and corruption.
If banks were to give soft loans to farmers instead of governments and the government allowed the market to operate fairly instead of becoming mired in procurement, perhaps the prices would remain stable and farmers happy. But this is not an easy decision to make. The recently released wheat and sugar reports have made it clear that the wheat business benefits the political class.
If you raise your voice someone will call you anti-farmer and that you do not want the government to financially support farmers. But if the system were perfect, there would not be a crisis year after year.

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One Comment

  1. Sayed Gada Hussain shah  May 4, 2020 2:04 pm/ Reply

    I had remained as checking officer on provincial level during 2000 AD in sindh . In a SPAN of 3 months I visited 31 godowns in sindh.i submit my reports to my Secretary food.i caught the all godown centres with shortages of 10 thousands to over one lack short of filled bags of wheat / with recorded proofs. And submitted all proofs and details.
    This was treated my , negative approach and was transferred outside department.
    After further 3 months , without examining me/ my reports all the “”LACS “” of wheat bags were “”shown “” as “”available “” in stocks and all culprits were declared as INNOCENT. And reports were filed as usual.

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