Identifier
Created
Classification
Origin
09LAHORE87
2009-05-07 06:30:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Consulate Lahore
Cable title:  

PUNJAB WHEAT HARVEST JEOPARDIZED BY CORRUPTION AND LACK OF

Tags:  ECON EAGR EAID ECIN ETRD PGOV PREL PK 
pdf how-to read a cable
VZCZCXRO8265
RR RUEHLH RUEHPW
DE RUEHLH #0087/01 1270630
ZNR UUUUU ZZH
R 070630Z MAY 09
FM AMCONSUL LAHORE
TO RUEHC/SECSTATE WASHDC 4015
INFO RUEHIL/AMEMBASSY ISLAMABAD 4755
RUEHKP/AMCONSUL KARACHI 2052
RUEHPW/AMCONSUL PESHAWAR 1733
RUEHBUL/AMEMBASSY KABUL 0405
RUEHNE/AMEMBASSY NEW DELHI 0781
RUEHLO/AMEMBASSY LONDON 0136
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/USAID WASHDC
RUEHLH/AMCONSUL LAHORE 5162
UNCLAS SECTION 01 OF 03 LAHORE 000087 

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR EAID ECIN ETRD PGOV PREL PK
SUBJECT: PUNJAB WHEAT HARVEST JEOPARDIZED BY CORRUPTION AND LACK OF
CAPACITY

REF: A. LAHORE 77

UNCLAS SECTION 01 OF 03 LAHORE 000087

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON EAGR EAID ECIN ETRD PGOV PREL PK
SUBJECT: PUNJAB WHEAT HARVEST JEOPARDIZED BY CORRUPTION AND LACK OF
CAPACITY

REF: A. LAHORE 77


1. (SBU) SUMMARY: Corruption and inadequate storage facilities
have hindered the Punjab government's ability to take full
advantage of a bumper crop of wheat. Many farmers, faced with
transportation and bureaucratic hurdles, have chosen to sell
their wheat to middlemen, who have pocketed the difference
between their rate and the government support price. Punjab
Chief Minister Shahbaz Sharif has traveled throughout the
province in an attempt to enforce procurement policy, and he
told Principal Officer that he expected to fire more civil
servants. Shahbaz's political adversaries have warned that a
wheat crisis may follow. Government purchasing in Punjab this
wheat season amounts to a billion dollar misguided intervention
into agricultural markets. END SUMMARY.

- - -
THE CURRENT CHALLENGE
- - -


2. (U) Thanks to an abundant harvest, the Punjab provincial
government increased its expected wheat purchase from 3 million
metric tons (MMT) to as much as 6 MMT April 25. The federal
government will acquire an additional 1.5 MMT from Punjab's
crop. This season's harvest in Punjab is currently estimated at
18 MMT out of a national total of approximately 23 MMT according
to the latest press reports (Note: USDA/FAS estimates 24 MMT.
End Note). High government procurement prices may be
encouraging farmers to bring more of their crop than usual to
purchasing centers. Chief Minister Sharif has been widely
quoted as promising to buy "every grain of wheat" that comes to
market, and ensuring that farmers receive the official price of
PKR 950 (USD 11.82) per 40 kg.


3. (U) Newspaper accounts have expressed outrage over a critical
shortage of gunny sacks in some Punjab districts this season, in
spite of GOP efforts to ensure ample supply. They assert that
middlemen are bribing food center workers to gain control over
the supply of sacks, then extracting commissions from farmers
for providing the sacks and transporting wheat to a procurement
facility. Punjab authorities have responded to complaints,

taking well-publicized disciplinary action against government
agents in Dera Ghazi Khan, Sheikhupura, Sahiwal, and Multan. In
Multan, purchasing center workers reacted to the arrest of their
colleagues by going on strike, closing down a dozen procurement
locations for more than a day, prompting still more complaints
from growers. In a mirror image of last year's political
squabble over responsibility for insufficient wheat stocks,
Chaudhry Pervaiz Elahi, Pakistan Muslim League-Quaid-e-Azam
(PML-Q) Punjab President and a political opponent of the
Pakistan Muslim League-Nawaz (PML-N) Sharif brothers, alleged
last week that the mismanagement of the current PML-N Punjab
government would lead to a wheat crisis in the coming months.

- - -
CHIEF MINISTER CONSUMED BY WHEAT
- - -


4. (SBU) Punjab Chief Minister Shahbaz Sharif told Principal
Officer May 2 that he has traveled throughout the province in an
attempt to ensure that farmers receive the "full benefits" of
the government procurement policy. He related that surprise
visits to purchasing centers in Multan, Sheikhupura and Sahiwal
have resulted in arrests, including a Food Inspector in Sahiwal
who had enjoyed the protection of a sitting Member of the
National Assembly. "These are mafia," he claimed, and said that
he expected to fire more civil servants as he continues his
inspections. "The Food Department is part of the problem, but
also part of the solution," he explained. He added that he has
directed the conversion of several outdoor areas to house the
surplus wheat, and denied that Punjab faced a shortage of
storage (Note: According to the Associated Press of Pakistan, on
May 5 the Punjab Food Department announced its intention to rent
private, covered storage facilities to hold wheat during the
ongoing procurement season. End Note).

- - -
GOVERNMENT TRIES TO CONTROL THE WHEAT MARKET...
- - -


5. (U) Pakistan's national and provincial governments control
wheat markets by setting prices, regulating shipments, and

LAHORE 00000087 002 OF 003


operating a monopoly procurement system. The federal
acquisition agency and import and export manager is the Pakistan
Agricultural Storage and Services Corporation (PASSCO),and the
Punjab buying authority is the Food Department. The Punjab Food
Department claims to have 389 purchasing centers, in order to be
accessible to growers and minimize the need for middlemen
services. PASSCO has a much smaller presence because of its
limited buying, and it is based almost entirely in Punjab.

- - -
...AND SOWS THE SEEDS OF CORRUPTION
- - -


6. (SBU) Farmers who bring their crop to a government purchasing
center have long complained of being forced to sell their crop
below the government price, as indicated by press coverage each
season. Government agents take advantage of the farmers' urgent
need to sell and allegedly pocket the difference between the
official wheat price and the amount actually paid to the farmer.
Wheat growers also accuse officials of colluding with
middlemen, most often by selling them the gunny sacks intended
for farmers to bring their crop to a purchasing center. The
middlemen then charge farmers a commission of five to fifteen
percent for providing the sacks and transporting the wheat to
market. Several provincial agriculture officials and academics
corroborated these criticisms in recent interviews with Econoff
(REF A). However, Muhammad Ashfaq, Professor of Agricultural
Economics at the University of Agriculture, Faisalabad,
acknowledged to Econoff April 17 that middlemen also satisfy a
legitimate need in cases where farmers genuinely lack access to
credit, storage facilities, and transportation.

- - -
PUNJAB CHIEF MINISTER IS TRYING TO IMPROVE EMPLOYEE CONDUCT
- - -


7. (U) The Punjab government has established complaint centers
this season to address any alleged improprieties in the
procurement process. Press reports say that Chief Minister
Sharif and Punjab Food Secretary Irfan Elahi have disciplined
"dozens" of Punjab Food Department agents for failure to follow
procedures and for colluding with middlemen. In the latest
enforcement action, announced at a surprise inspection of a
district Food Department purchasing center on May 2, the Chief
Minister suspended the District Food Controller and the entire
staff of two procurement facilities in Dera Ghazi Khan. After a
similar surprise inspection in Sheikhupura April 27, he ordered
the arrest of the local Food Department staff and suspended the
District Food Controller for negligence. On April 25, the
Punjab government directed employees from other departments to
take over several purchasing centers in Multan district after
workers there went on strike to protest the arrest of two
Assistant Food Controllers on charges of corruption. A dozen
locations were shut down for more than a day by the strike, and
press accounts said that middlemen stepped in to purchase wheat
at PKR 900 (USD 11.20) per 40 kg (five percent below the
government price),as farmers were uncertain how long the
procurement centers would be closed.

- - -
FACILITIES AND FUNDING IN A DREADFUL STATE
- - -


8. (SBU) In addition to corruption, the government procurement
agencies in Punjab suffer from inadequate facilities and
insufficient funding. In an interview with Econoff on April 16,
Major General Anwar Saeed Khan, Managing Director of PASSCO,
maintained that his agency had only 430,000 metric tons of
storage capacity, and that 80 percent of this was outdoors.
USAID built PASSCO's concrete and block silos 25 years ago;
PASSCO has no modern steel silos at all. Khan said the lack of
storage made it difficult to handle federal wheat purchases each
season, and impossible for PASSCO to maintain the strategic
wheat reserve mandated in its charter. Elahi described the
Punjab Food Department infrastructure in nearly identical terms
in an interview with Econoff on April 1. Both men complained
about "decades of neglecting to invest" in facilities for bulk
storage and handling of wheat.


9. (U) A lack of operating capital also hinders the government's
capacity during wheat buying season. The Nation newspaper

LAHORE 00000087 003 OF 003


estimated that PASSCO and the provincial food departments would
need a PKR 60 billion (USD 746 million) credit facility to cover
the cost of wheat purchases this season, assuming Punjab would
only buy 3.5 MMT, which the article claimed would be financed by
commercial banks. Punjab's ability to buy as much as 6 MMT
depends on additional funding from the federal government.

- - -
A BILLION DOLLARS MISSPENT
- - -


10. (SBU) COMMENT: Government efforts to manage wheat markets
are driven by politics not sound economics. This is especially
true in Punjab, Pakistan's most critical wheat growing region.
As Anwar Saeed Khan put it, wheat policy consists of more than
agriculture or even national food security; it is an "emotive"
issue in Pakistan. It is also very expensive. At PKR 950 per
40kg, Punjab's original target of 3.5 MMT would cost more than
PKR 83 billion (USD 1.04 billion). PASSCO's target of 1.5 MMT
purchased from the Punjab harvest is worth an additional PKR
35.6 billion (USD 443 million). The high support price has also
driven an increase in the cost of flour mill subsidies. Little
or no distinction is made between businessmen who provide a
legitimate service at a fair price, and those "entrepreneurs"
who engage in profiteering or who simply steal. The
exploitation (licit or illicit) of the system's inherent
weaknesses further erodes the effectiveness of already dubious
public policy, and in particular undermines the effort to boost
farm household incomes through wheat price supports. Punjab's
steps to hold Food Department officials accountable for abusing
their positions is welcome, but does not get to the heart of the
problem: the flawed system of set prices and subsidies that
encourage corruption in the first place. Punjab desperately
needs massive investments in bulk handling and storage
facilities to get the most out of its wheat harvest, but PASSCO
and the Food Departments procurement monopolies are the wrong
platform for rural development. END COMMENT.
HUNT