A worker checks wheat as it's milled into flou. Wheat is Pakistan's second-largest food import after palm oil. Photo: AFP / Asif Hassan

PESHAWAR – Pakistan’s politically powerful sugar and wheat cartels have caused a surge in the prices of basic food items and Prime Minister Imran Khan’s government seems helpless to control the unprecedented inflation. 

The shortage of crucial food items in the country prompted Khan’s government to import US$3 billion worth of sugar, wheat and cotton bails to meet domestic food requirements and to keep the textile industry’s wheels turning.

Advisor to the Prime Minister on Finance and Revenue Abdul Hafeez Shaikh painted a rosy picture of the economy last week, saying importing two million tons of wheat had stabilized prices. 

However, stakeholders did not buy the advisor’s optimistic assessment, saying imports had brought a new wave of spiraling prices in the country. The prices of imported commodities had almost doubled that of local products, they argued. 

The supply position had improved but the input cost pushed up the prices of wheat and sugar in the market, resulting in inflated food prices. 

Pakistan’s Ministry of Food Security claimed that by last February that the country had received 400,000 tons of imported wheat as part of government efforts to encourage the private and public sectors to bridge the gap in domestic requirements of the grain. 

The ministry issued permits to the private sector to import 2.9 million tons of wheat, while the government, through the Trading Corporation of Pakistan (TCP), imported 1.5 million more tons of wheat. 

A total of 4.4 million tons of wheat will be imported by the end of January next year. With a view to bringing down the price of wheat in the local market, the government has abolished regulatory duty, customs duty, sales tax and withholding tax on the imports

Supporters of Pakistani Islamic political party Jamaat-e-Islami hold placards during a protest against the price hike and shortage of wheat flour in Rawalpindi earlier this year. Photo: AFP/Aamir Qureshi

However, the government’s strategy to bring down the price of wheat by exempting the duty and taxes on imports failed as prices have kept increasing in the open market. 

Muhammad Naeem Butt, senior vice-chairman (Central) of the Pakistan Flour Mills Association (PFMA), told Asia Times that although the wheat supply in the market had been restored, prices had gone up. 

“Wheat is priced in the international market at US$280 per ton and with the input cost of freight and transportation, it becomes double the price prevalent in the local market,” he said, adding that the government allowed millers to import wheat to make it more available in the market.

The government also planned to import at least 300,000 tons of refined sugar in an attempt to control surging prices of the commodity and make sufficient stocks available for domestic consumption. 

The Sugar Advisory Board (SAB) has already given the green light to the Trading Corporation of Pakistan (TCP) to import sugar to maintain a strategic reserve as well as to give the market some breathing space.

Last month, the All Pakistan Textile Mills Association (APTMA) revealed that due to high input costs and inclement weather, the production of cotton declined by 15%. 

The APTMA estimated the country would need to import 5 million bales of cotton worth $1.5 billion this year to meet industrial requirements. APTMA Central Chairman Amanullah Kassim said production fell short by 10.2 million bales this year. 

Faisal Moiz Khan, president of the North Karachi Association of Trade & Industry (NKATI), told Asia Times that the shortage of cotton and cotton yarn was affecting exports. 

“If the duties and taxes are not abolished on cotton yarn imports, which is a basic raw material of the textile industry, the export orders would run into difficulty. This will result in the cancellation of export orders,” he said.

A Pakistani laborer picks cotton in a field in Qazi Ahmed in the district of Nawabshah. The country has faced a shortage this year. Photo: AFP/Asif Hassan

Pakistan manufactures woolen yarn, acrylic yarn, fabrics, shawls, blankets and carpets. In 2009, Pakistan exported $4.2 billion – 20% of total exports – worth of miscellaneous textiles, worn clothing, $3.5 billion (16.7%) of clothing and accessories and $3.3 billion (16.1%) worth of knitted or crocheted clothing and accessories to different countries. 

Importing agricultural commodities for domestic requirements is a new trend for Pakistan, an agrarian economy that has been largely self-sufficient in food.

Analysts claimed that importing farm products would cost the exchequer more than $3 billion, and half of that would be spent on importing cotton bales. 

At a time when the country’s Central Bank says the real GDP has contracted by 0.4% in the year 2019-20, and economic growth slipped into negative territory for the first time in the last six decades, importing farm products could deal a blow to a wavering economy.

The Pakistan Bureau of Statistics revealed that food prices surged 16.6% in October over the same month last year, putting Khan’s government under pressure to go on a panic-buying spree to bring prices down. 

“We are going ahead with the imports regardless of rates,” said Pakistan’s Food Security Minister Syed Fakhar Imam in August when the country’s food inflation was hovering at 13%.     

Pakistan had to import wheat, sugar and cotton in the face of widespread inflation in the country stemming partly from the cartelization of sugar and wheat flour by powerful groups that enjoy political clout in the ruling Pakistan Tehrik-e-Insaaf (PTI), Pakistan People’s Party (PPP) and Pakistan Muslim League-Nawaz (PML-N). 

A laborer loads sugarcane onto a truck at the main vegetable and fruit market in Islamabad on July 7, 2020. Photo: AFP/Aamir Qureshi

A sugar inquiry commission, initiated by the prime minister in February, found that a cartel of 88 sugar millers had exported sugar in a low-yield year, underweighted the sugarcane stock, underpaid growers, forged records, manipulated prices and pocketed more than rupees 76 billion ($720 million) by hiking the price of sugar by 33%.

An investigation into the wheat crisis by the Federal Investigation Authority highlighted the lethargy in the food department in meeting the targets of wheat procurement that resulted in a huge shortage of the staple food in the country. 

The report held Chief Minister Punjab Usman Buzdar responsible for making rapid changes in the food department that led to a serious flour crisis.

Buzdar admitted before the inquiry committee that he made massive transfers and postings in the Punjab food department under “political pressure,” but did not divulge the names of politicians who exerted pressure for the transfers. 

The inquiry led to the removal of Punjab Food Minister Samiullah Chaudhry, former Punjab Food Secretary Naseem Sadiq, who was working as the commissioner of Dera Ghazi Khan, and Punjab Food Director Zafar Iqbal. No action was taken against the Punjab Chief Minister, who was the prime suspect in the inquiry’s report.

Meanwhile, some analysts blame the International Monetary Fund’s (IMF) conditions for the steep upsurge in the food, electricity, gas and petroleum prices. Pakistan qualified for a $6 billion IMF bailout package and jacked up the cost of petroleum products, gas and electricity, as well as devaluing the Pakistani rupee vis-a-vis the US dollar.

These measures have contributed to widespread price hikes in the country, which Khan’s government now finds hard to contain.