WASHINGTON, D.C., U.S. — Pakistan is, at this point, effectively cut off from the international wheat market as high procurement prices are making exports uncompetitive and a high tariff is preventing imports. Pakistan procured 6 million tonnes of wheat from the recently concluded wheat harvest, significantly lower than the 7.05 million tonnes target that was announced prior to the onset of harvest, but approximately 1 million tonnes higher than a year ago, the U.S. Department of Agriculture’s (USDA) Foreign Agricultural Service (FAS) said in a July 1 report. Total procurement is just 24% of the estimated total crop. 

Trade issues are also having a significant impact on Pakistan’s flour milling industry as around 800 flour mills have reportedly been temporarily shut down as the export of flour from Pakistan to Afghanistan was suspended on July 13 after authorities in Afghanistan increased the custom duty on the commodity (click here for related article).

Afghanistan is heavily dependent on wheat flour from a number of countries in the region, with Pakistan being the leading supplier. Pakistan is projected by the International Grains Council to be the world’s sixth-leading flour exporter in 2016-17, with 600,000 tonnes in wheat equivalent. Afghanistan is projected to be the world’s second largest wheat flour importer in 2016-17 at 1.8 million tonnes.

In terms of wheat procurement in Pakistan, over the past four years it has ranged between 5 million tonnes to 6 million tonnes annually. With around 4 million tonnes in carryover stocks, this year’s procurement will boost public stock levels to around 10 million tonnes shortly after the start of the marketing year, similar to the levels reached during the past two years.

The estimate of 2016 wheat production is unchanged at 25.3 million tonnes. About 25% of Pakistani wheat growers produce a marketable surplus that amounts to an estimated 50% of the crop or 12 million tonnes to 13 million tonnes. The government and private sector typically split the surplus with each purchasing about half of the marketed crop, although, as mentioned above, government procurement was just 24% of the crop this year. The balance of the crop remains on farm for local consumption. The government’s role in the procurement of the harvest is generally sufficient to influence market prices, creating an effective price floor in the domestic wheat market.

Pakistan, through the provincial food departments and the federal Pakistan Agricultural Storage and Services Corporation (PASSCO), procures wheat from farmers at the support price and then releases wheat for sale to flour mills at the government’s fixed issue price. The system aims to protect farmers from price fluctuations and ensure a minimum return to farmers and encourages wheat production. The Pakistani government maintained the wheat support price for the market year 2016-17 crop, at 1,300 rupees per 40 kilograms ($310 per tonne). The government spent approximately $1.8 billion for wheat procurement this year, much of it financed through loans that will be paid back when the wheat is sold to the private sector. Some wheat stocks are used to feed communities that have been displaced from their homes due to conflict and some is sold as flour at reduced rates to consumers via low-priced, government-run utility stores.

As global wheat prices have declined, Pakistan’s high sales price for publicly-held stocks has resulted in limited export buyer interest. In January 2015, the Economic Coordination Committee (ECC) of the Cabinet approved a subsidy of $55 per tonne for Punjab and $45 per tonne for Sindh for Islamabad three months to cover exports of up to 1.2 million tonnes of wheat. The deadline was extended twice until Sept 30, 2015. The ministries of Food Security and Commerce and the provincial food departments approached the Finance Ministry to extend the subsidy for wheat exports but the latter declined. Currently, no export subsidy has been announced or approved.

Afghanistan has been the main wheat export market for Pakistan for many years mainly due to easy accessibility and traditional trade linkages between the two countries. 
The domestic wheat market has been insulated from imports by a 40% regulatory duty. With a high tariff and high domestic prices, Pakistan continues to be isolated from the international wheat market. The tariff is well below Pakistan’s bound tariff rate (the maximum tariff rate Pakistan can establish) for wheat of 150%. Consequently, Pakistan is not likely to import any significant quantity of wheat during market year 2016-17.