“A major player in the world grain market, Pakistan’s most important products are rice and wheat. Pakistan is the top five in rice exports. And wheat production is around 25-26 million tons per annum. Because the country consumes almost all of its production barring a small quantity for export, Pakistan has a vibrant wheat milling industry. Investments are now sought to be made to modernize these mills. Also, the country has opportunity to produce more wheat through improved agronomic practices to feed the growing population. Pakistan is thus a market to be watched. It has potential for growth in terms of both production and consumption of rice and wheat. Investment in modernization of the milling industry – both rice and wheat – will result in supply chain efficiencies and lend a competitive edge to its grain export efforts.”

Guruswamy Chandrashekhar*  

Pakistan is an important player in the world grain market focusing on export of rice, followed at a distance by wheat. The country is rated among the world’s top five exporters of rice in the company of India, Thailand, Vietnam and USA.

While world rice production is about 490 million tons and world rice export is about 48 million tons, Pakistan’s rice production is in the vicinity of 7.0 million tons representing 7 percent of world production. However, the country’s strength lies in its export. While world rice export at 48 million tons is a shade less than 10 percent of world rice production, Pakistan’s rice export has been in the 3.5-4.0 million tons range in recent years, representing a little over half of domestic production.

The country’s paddy cultivation is supported by favourable agro-climatic conditions. With improving agronomic practices paddy yields are expected to trend up gradually. Pakistan’s rice, especially long grain rice, is well received in many markets including the Middle East and Africa.

The following table gives a focused view of Pakistan’s rice market fundamentals.

Interestingly, the USDA has projected Pakistan’s 2018-19 rice production higher at 7.4 million tons and exports also higher at 4.25 million ton on calendar year basis. Following improved availability due to crop harvest Pakistan rice prices have softened to $ 365 a ton for 5 percent broken.

The IGC has projected that the world rice output will trend upward in the next five years. However, consumption is seen growing at a slower pace than in the past. Stocks with major exporters (including Pakistan) are seen broadly steady. This suggests that the world rice market is unlikely to witness any dramatic or disruptive changes in the rice market fundamentals over the projected period.

However, while India and Thailand are expected to dominate the export market with annual shipments of about 10 million tons each, followed at a distance by Vietnam (up to 7 million tons), rice shipments out of Pakistan and USA may be determined by the quantum of crop production and therefore exports may rise marginally.

Wheat: Pakistan’s staple cereal is wheat. Unlike rice, Pakistan is a minor player in the world wheat sector in terms of production, consumption and trade. However, almost every one of the 170 million strong population eats wheat, making the fine cereal the most popular food crop of the country.

Pakistan’s share of world wheat production of over 700 million tons is less than four percent. In recent years, Pakistan’s wheat production has stagnated around the 25-26 million tons level, while its domestic consumption is in the 24-25 million tons range. There is a system of procurement of wheat by the government. A quantity of 6.0 million tons has been reported procured from the latest harvest.

According to USDA, Pakistani wheat growers receive attractive government support prices (procurement price $ 310 a ton) and are among the better compensated wheat growers globally. The government now holds an estimated 10.8 million tons in its warehouses.

Wheat export during the upcoming crop season is forecast to be slightly lower at 1.0 million tons comprising 800,000 tons of subsidized export plus 200,000 tons of wheat-equivalent flour to Afghanistan.

Because the country consumes almost all of its production barring a small quantity for export, Pakistan has a vibrant wheat milling industry. Investments are now sought to be made to modernize these mills. Also, the country has opportunity to produce more wheat through improved agronomic practices to feed the growing population.

Pakistan is thus a market to be watched. It has potential for growth in terms of both production and consumption of rice and wheat. Investment in modernization of the milling industry – both rice and wheat – will result in supply chain efficiencies and lend a competitive edge to its grain export efforts.

*(G. Chandrashekhar, Economist, Senior Editor and Policy Commentator is a global agribusiness and commodities market specialist. Views are personal. He can be reached at gchandrashekhar@gmail.com)

Wheat economy and milling industry in Pakistan

Wheat is perhaps the most important food crop in Pakistan, and being the main source of energy for large segments of the population. It occupies a central place in food security and nutrition policies. According to “A Value-Chain Perspective on Wheat Flour Fortification in Pakistan” research paper written by Natasha Ansari, Rashid Mehmood and Haris Gazdar, the government has a strategic position in the wheat flour value chain even though private sector stakeholders are responsible for virtually all of the wheat grown and processed in the country. The government’s role in the procurement, storage and transportation of wheat makes it the leading market player that influences price, availability, and investments in the sector. Although the government also enjoys administrative and regulatory authority, its strategic position is largely due to the volume of its market intervention.

Pakistan grows around 23 million tons of wheat annually and domestic output is sufficient, in most years, to satisfy consumer demand. Pakistan’s farm economy is almost entirely made up of private farmers, and there are four main channels to which the wheat crop is directed . First, farmers retain part of the crop for selfconsumption and for seed. Second, there are in-kind payments to various stakeholders, including harvest labourers. Third, grain is sold at controlled prices to government agencies. Fourth, part of the harvest is sold to private buyers — mostly grain traders and flour millers.

There are no precise data about other uses of the crop but it is estimated that private traders and mills directly buy between 15 and 19 per cent of the harvest. Farmers are, therefore, thought to retain over 60 per cent of the harvest in the first instance. Only around half that amount is kept for self-consumption or seed. The rest is either used as in-kind payments (including to harvest labourers), or sold to private sector buyers.

There are two alternate value chains for producing wheat flour: small-scale, traditional, communitylevel chakkis and large-scale flour mills spread across the country. Virtually all the grain which does not enter the market, such as that which is retained for self-consumption by farmers or is earned by labourers as in-kind payment, goes through a local chakki. For grain that customers bring for grinding, the chakki charges a small fee — 2 rupees per kg in rural areas and 4 rupees in Karachi.

The chakki system is the predominant value chain in the wheat-growing rural areas of Punjab and Sindh, by which grain is crushed into whole wheat flour. Chakkis are not limited to rural areas. They are common in cities too. Chakkis also buy grain from the market. This is particularly the case in urban areas where customers do not, typically, have their own grain stores.

The second method is processing through large-scale flour mills spread across the country. These mills acquire grain from two sources. Licensed mills are supplied grain from government stocks at subsidised prices, and they are also free to buy grain from the open market. Nearly all of the grain procured by the government eventually ends up being processed in a licensed flour mill.

Mills produce a range of varieties of flour, from ‘regular’ to ‘fine’ qualities. Among consumers there is a strong identification of regular flour with flour made from government-supplied grain, even though there is no restriction on millers using grain from private suppliers to produce regular flour.

Most of the licensed flour mills are represented in the Pakistan Flour Mills Association (PFMA). The PFMA website mentions a total of 915 mills operating across the country. Not all mills are registered with PFMA however, and different sources provide varying numbers. It has been noted that the reported output capacity of licensed mills in Pakistan far exceeds market requirements. No data was found on the number of industrial-scale flour mills which are not licensed or are not members of PFMA.

The relationship between government agencies (primarily the provincial food department) and privately-owned licensed flour mills currently revolves around three parameters. One, mills are assigned quotas according to their processing capacities and their supply of government-procured grain is determined by this quota. Two, a mill is obliged to produce a requisite quantity of regular flour against the supply of grain. Three, the ex-mill price of regular flour, whether it is made from government-supplied grain or grain acquired from the market, is agreed between the government and the mills association. This price is set by taking into account processing costs and other margins which are negotiated between the millers and the government. Industry sources claim that while all atta is subject to the food department’s price regulation, ‘fine’ qualities are actually maida (all-purpose flour) which has low bran content and is therefore exempt.