By:
Maarij Ali Tarar
Cruising on the M2 motorway through the fertile tracts of central Punjab in winter, one is likely to see fields of green wheat stretching to the horizon. Come spring, these young green saplings will have matured into golden stalks, ready to deliver their fat grains into the calloused hands of the farmers. Of courses, it is also in spring, as farmers begin harvesting, that a farce on a grand scale begins to play out.
This farce is the Punjab government’s wheat subsidy programme, a series of procurements and releases ostensibly to benefit the small farmer and poor urban consumer. In reality, however, each and every facet of this complex mechanism is designed to benefit large farmers, private banks and government bureaucrats; in short, everyone but the small farmer.
In economic terms, a subsidy is a benefit given by the government to a particular sector or industry of the economy – often deemed to be of national importance – designed to help the industry keep its production costs and retail prices low. Wheat farming is the backbone of Pakistan’s agricultural sector, which is in turn of great importance given its historic contribution to the country’s GDP, employment and exports. This is why the government has seen fit to subsidise, in some form or another, wheat production since 1968. Currently, the wheat subsidy is Punjab’s largest subsidy and is based on a system of procurements and releases.
Procurement takes place during harvest season (March-April), with the Punjab Food Department (PFD) purchasing surplus grain stocks from farmers at above-market prices.Selling to the government is an attractive option for most farmers as they receive a higher price than they would have received from local traders (beoparis).
The government issues its stocked grain to flour mills at below-market prices during sowing season (October-November). By selling cheaply to the flour mills, the PFD helps them keep production costs, and consequently retail prices, low.
From 2010 to 2018, the PFD spent Rs. 25-30 billion a year in order to purchase 15 to 20% of the province’s total wheat production. This huge sum of money was not spent from the provincial budget but borrowed from various private sector banks. Worryingly, the PFD has failed to pay back its outstanding debts to these banks and has fallen into a pattern of habitual borrowing to finance procurement each year.
Consequently, the interest on these debts has grown. In fact, bank markups and interest payments make up around 70% of the PFD’s total costs – in 2010-13 this figure soared to more than 90% – and tragically, these huge payments only go to pay off the accumulated interest, the principal amount is barely dented.
Worse still is the fact that the wheat subsidy programme works against the small farmer, who is supposed to be the principal beneficiary of it. If we take small farm to mean farms less than 12.5 acres in size, then 78.45% of all farms in the Punjab are small farms. Despite comprising such a huge portion of the agricultural sector, they are deprived of the benefits of the wheat subsidy programme.
To begin with, many of them do not appear in the patwari’s lists that form the basis of the PFD’s procurement operations; if the farmer’s name is not on the list, he cannot sell his grain to the PFD. It is not uncommon for the names of politically weak farmers to simply vanish from the list.
If his name is on the list, the farmer proceeds to obtain bardana (jute bags) from the procurement centre, as the wheat can only be delivered in officially provided bardana. Even the issuance of bardana becomes a matter of contention and local politics: farmers find it beneficial to remain in the PFD officer’s good books to get the bardana without hassle duringharvest season.
Once the bardana are obtained, it is the farmer’s job to fill the bags with wheat and transport them to the procurement centre. The transportation costs involved in this must be paid by the farmer. The entire process is exhausting, time-consuming and labour intensive; but it does not end here. After all this hard work, the farmer doesn’t receive immediate payment for the grain. He is given a slip by the procurement centre that he must submit at a bank to receive payment, taking another day or two. The whole process takes at least a week in the best of circumstances.
What must be understood is that the small farmer is essentially a powerless figure in the world of government bureaucracy and politics. His only source of income is selling the crops he has grown. These crops are never substantial to begin with, given the small size of his landholdings, and once he has set aside grain for his own use, what little he has left is only enough to earn him enough money to buy seeds for the next crop cycle. He is trapped in a cycle of back-breaking work that leaves him in nigh perpetual poverty.
Thus, it is extremely exhausting for this farmer, who has just finished harvesting, to undertake the procurement process: in all he must make at least three trips to the procurement centre and at least two to the bank. Not all small farmers have the time to undertake such trips, especially when they need to prepare their land for the next sowing season. Nor do they have the right connections to navigate the complex world of the PFD bureaucracy. Small farmers are also less likely to have enough of a surplus to warrant initiating such a demanding process in the first place.
Instead, all of these things are present in great quantities with medium to large farmers (cultivating more than 12.5 acres of land) and it is they who often receive the benefits intended for the small farmers. Furthermore, PDF officials are also guilty of currying favour with certain farmers and engaging in rent-seeking behaviour, to the direct detriment of thesmall farmers they are supposed to serve.
Another beneficiary of this farce of a subsidy is the consortium of banks that finance the PFD’s procurement operations. Lending to the government involves minimal risks or transaction costs. In return, the banks get a hefty interest rate and receive annual interest payments on the principal amount.
By 2018-19, the total outstanding balance of the PFD had reached an astronomical 400 billion rupees. It is clear that the Punjab govt. will run into enormous fiscal difficulties if it continues its procurement operations without proper foresight and planning. At the same time, the entire subsidy programme must be revamped so that it is sensitive to the harsh realities of those it is intended to benefit: small farmers.