PUNJAB AGRICULTURE OFFICIALS CRITICIZE PAKISTAN WHEAT

UNCLAS SECTION 01 OF 02 LAHORE 000077

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR EAID ECIN ETRD PGOV PREL PK
SUBJECT: PUNJAB AGRICULTURE OFFICIALS CRITICIZE PAKISTAN WHEAT
POLICY

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1. (SBU) SUMMARY: Senior bureaucrats in the Punjab Ministry of
Agriculture realize that government wheat policy endangers
Pakistan's food security and perpetuates rural poverty and
isolation, creating fertile ground for extremists. Despite the
cost and corruption fueled by price supports and subsidies,
programs such as the "two Rupee roti" have popular support,
making it difficult to end such policies. END SUMMARY.

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GOVERNMENT INTERVENTION UNDERMINES FOOD SECURITY
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2. (SBU) Punjab Food Secretary M. Ifran Elahi, Director General
Agriculture (Extension and Agricultural Research) Dr. M. Anjum
Ali, Punjab, and Chief Executive of the Punjab Agricultural
Research Board (PARB) Dr. Mubarik Ali, told econoff in separate
meetings that they believe that the federal government wheat
price supports and import/export controls harm Punjab's overall
agricultural production. While intended to improve
farm-household incomes and to keep limited grain supplies in the
country, all three officials said that government policy
dissuaded farmers from diversifying crops; made them wary of
global markets and risk in general; prompted farmers to rush to
the market when the next price increase in the support price is
implemented rather than when the market needs wheat; and
encouraged smuggling whenever global wheat prices reached new
highs, which decreases Pakistan's own food supply and increases
the cost of ensuring sufficient food. As a result of these
corrosive effects of the current wheat policy, all three
believed that more open agricultural commodity markets would be
more efficient and cost effective than current policies.

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GOVERNMENT WHEAT PURCHASING IS RIFE WITH CORRUPTION
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3. (SBU) A. Ali and M. Ali asserted that the government
purchasing institution further undermined the price support's
intended purpose of increasing farm incomes. The Pakistan
Agricultural Services and Storage Corporation (PASSCO) buys the
vast majority of the wheat crop brought to market, and purchases
the wheat at a fixed price for a season. A. Ali asserted that
brokers exploit the distance and lack of infrastructure that
farmers face when they bring their crop to market. The
middlemen cajole farmers into selling wheat well below the
government price and pocket the difference, less their own
expenses, when they sell to PASSCO. M. Ali claimed that PASSCO
buyers often haggle with wheat sellers rather than paying the
full government price, and skim the balance off for themselves.
He thought that the appointment of a former general, Maj. Genl.
(Ret'd) Anwar Saeed Khan, exacerbated the corruption. All three
officials felt that storage, mechanized bulk handling, and other
rural infrastructure improvements would be catalysts for higher
yields, particularly if developed independently of the
government.

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PUNJAB MILLS NEED CONSOLIDATION AND MODERNIZATION
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4. (SBU) All three officials also condemned the state of
Punjab's wheat mills, and laid the blame on government policy.
Elahi and M. Ali both said that the federal fixed "release
price" of wheat, and the provincial government policy of
distributing wheat to mills based on capacity rather than
population served or sales, effectively killed all profit
incentives and competition. The mismatch has resulted in milling
overcapacity and inefficiency. Elahi further asserted that these
inefficiencies made flour more expensive, which adds to the cost
of the government's flour subsidies. He also noted that mills
game the timing of government price changes, and hoard supplies
until prices increase. Elahi and M. Ali both alleged that
politically powerful mill owners perpetuate this system.

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SASTI ROTI IS GOOD POLITICS BUT BAD ECONOMICS
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5. (SBU) Elahi and A. Ali noted that farmers themselves consume
or barter 65 to 75 percent of the wheat crop. Farmers, Elahi
said, may be poor, "but they will not go to sleep on an empty

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stomach." Government policy has failed to improve crop
production, and the limited surplus crop for market exposes poor
urbanites to scarcity and inflation. Although Punjab Chief
Minister Shahbaz Sharif implemented the "sasti roti" or "two
Rupee roti" program to keep the price of Pakistan's staple bread
low for the vulnerable urban poor, the scheme misses its target,
Elahi and M. Ali both observed. All tandoors (bread makers)
within certain areas receive subsidy payments, whether or not
they and their customers need it. Moreover, as the price of
flour goes up, the cost of the subsidy goes up. What began as a
Rs 10 million per day social welfare program could balloon to Rs
24 million per day by mid April. Elahi called the program bad
economics and bad food policy, but he also realized that ending
the program could spark urban unrest. In fact, as an indication
of its political significance, the press has reported that
recently restored Punjab Chief Minister Shahbaz Sharif has
floated the idea of implementing a "one Rupee roti" program.

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LACK OF CAPITAL HURTS YIELDS
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6. (U) One issue elicited almost identical comments from all
three officials: access to capital. All three argued that giving
farmers access to capital to acquire seed, fertilizer, and other
inputs on a timely basis could dramatically improve
yields. Credit mechanisms could also alleviate farm household
cash flow problems, easing the urgency to harvest and sell their
crop whenever the government sets a new price. M. Ali noted that
the rush to convert crops to cash also causes a cash flow
problem for the Punjab government. All three officials supported
similar programs that would give farmers relatively low-cost
access to limited amounts of credit using little more than their
potential crop as collateral. A. Ali also saw potential in such
credit mechanisms to help establish cooperatives and drive rural
development in general. A. Ali and M. Ali said that they have
participated in specific programs experimenting with credit
access.

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COMMENT: FREE MARKETS AND U.S. SUPPORT ARE THE WAY FORWARD
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7. (SBU) COMMENT: The prescription offered by all three
officials was similar: less government intervention, more open
markets in agricultural commodities, and substantial U.S. aid
for rural development and agricultural institutional capacity
building. Elahi extolled the virtues of an expired USAID program
that built bulk storage and handling facilities some twenty
years ago. M. Ali believed that profit incentives can drive
research, and he lauded the impact of U.S. support for
agricultural education institutions, especially the University
of Agriculture, Faisalabad. A. Ali saw potential for U.S.
assistance in improving Punjab's agricultural extension
services. U.S. aid in rural development is most welcome,
according to these officials. Such support could go a long way
to winning the hearts and minds of ordinary Punjabis, especially
those in poor, rural areas prone to exploitation by extremists
eager to entice followers with easy money. However, all three
officials also cited the same obstacle to progress: politics.
They seemed eager to find a way to make structural changes to
Punjab's agricultural economy without having to go through
politicians or the federal government. END COMMENT.
LOWE