Grinding of wheat much higher than consumption
KARACHI, Sept 22: Has anyone in the government or the business ever thought why are there about 1,000 flour mills in Pakistan with a total grinding capacity that is about five times the requirement of the country?
Who are these people who invested in flour mills even when they knew that the sector is over-saturated as far as Pakistan market for wheat flour is concerned?
It is an issue that begs for an explanation from the military president, a banker prime minister and from the oversized federal cabinet with 70 members, mostly drawn from business, landed gentry and second generation of families with proven loyalty to military governments in Pakistan.
Needless to say that many owners of the flour mills enjoy close links with businessmen-politicians in the federal and provincial cabinets and in the federal and provincial legislatures.
There are many retired military servicemen having stakes in flour mills.
Obviously, all these gentlemen with stakes in flour mills and wheat trade would not like their investment to go waste.
Efforts were made by this correspondent to seek explanation from the federal ministers of food and agriculture and industries and production.
Repeated calls were made to Mr Hayat Bosan and Mr Jehangir Tareen that failed to evoke any response from them in last three or four days.
Chairman, All-Pakistan Flour Mills Association Sheikh Mohammad Shabbir responded from Islamabad to inform that there were 950 flour mills in Pakistan with a total grinding capacity that is four times the wheat flour requirement of the country.
He ruled out cartelisation of flour mills in the country for creating shortages and pushing up prices.
Absolutely impossible, he made it clear while responding to an observation that quite a few flour mills have joined to form a cartel to regulate supply and push up prices of wheat and wheat flour in the market.
The production capacity is much in excess of demand and almost all flour mills operate under their capacities out of compulsion, he said.
But there was no plausible explanation as to how all these flour mills make their business operations viable by operating only on 33 to 50 per cent of the utilisation capacity.
Quite a many of these about 1,000 or 950 flour mills are closed and almost everyone of these flour mills operates on one to one and half shift basis. It means that every flour mill is operating on 33 to 50 per cent capacity utilisation basis and is yet in the business. How?
An average size flour mill can be set up at an investment of Rs15 to Rs20 million, Murtaza Jatoi, the adviser on Food and Agriculture to Sindh chief minister explained the proliferation phenomenon of flour mills in the country and stressed that there was hardly need of any bank credit as there were many people with such amount of cash with them.
But still the question is why should people put even this small amount in a business that is already over-saturated in terms of investment.
My family does not have any flour mills, therefore, I cannot offer any explanation why people invest in setting up a flour mill.
There are 80 flour mills in Karachi with a total grinding capacity that is three times of the actual wheat flour requirement. In Mumbai, the Indian mega city, with population almost equal to Karachi if not more, has only 22 flour mills. As compared to Karachi, Mumbai is closer to wheat growing areas of Maharashtra.
Like Karachi, Pakistans capital Islamabad is also located far away from wheat growing areas and its population is much less. Yet there are about 20 flour mills.
One explanation offered by a market analyst is that flour millers and wheat traders do not operate for Pakistan market only.
For years together, Afghanistan gets wheat and wheat flour from Pakistan. Pakistani wheat is said to be reaching Moscow and many countries of Central Asia.
In the current season, when there is a global wheat shortage and flour price is said to have touched Rs22 to Rs25 a kg in some parts of India, as much as two million tons of wheat and wheat flour is said to have been transported across the border.
Only the other day, Punjab Chief Minister Chaudhry Pervez Elahi said in a talk show that Pakistani wheat and wheat flour bags were being seen in Afghanistan and parts of Central Asia.
Way back in 1997, the Punjab food minister after returning home from Russia had disclosed that he saw for himself wheat flour bags of Pakistani mills in Moscow stores.
Millers jokingly call Afghanistan the fifth province of Pakistan for which not only wheat and wheat flour but cooking oil, ghee and importable items are indented.
A premature decision to export wheat by the government and a bumper wheat crop set the ideal conditions for speculators and more enterprising millers to go for quick money spinning.
Even a suspension of export in May could not stop outflow of wheat and wheat flour.
An outflow of wheat and wheat flour pushed up prices within domestic market.
It has all been milk and honey for speculators and millers this season so far, the market analyst said.
What keeps the millers in business despite partial capacity utilisation is the subsidy element that gives good margin in trade.
The Punjab government is giving Rs16 billion subsidy while Sindh is likely to offer anywhere up to Rs6 to Rs7 billion on wheat trading.
The NWFP and Balochistan governments also offer good amount of subsidy on wheat trade.
The Sindh chief minister announced on Friday Rs250 million additional subsidy on wheat and wheat flour trade during Ramazan.
Murtaza Jatoi said this subsidy would be given to millers at the rate of Rs125 on 100 kg bag. The millers will be asked to fix ex-mill price at Rs13.50 during Ramazan.
Millers have been asked to open at least one fair price shop outside their mills. In Karachi, there will be more than 70 such fair price shops.
But these remain cosmetic measures for Ramazan. For round the year, as a market watcher said, the consumers are at the mercy of traders, millers and food bureaucracy.
The flour mills remain a thriving business for many political families and retired armed forces personnel because the government provides a good cushion for exploring market far and wide.
Business circles now openly say that there is a strong caucus of about a dozen persons. This caucus has a few stock brokers, a few brokers and grain merchants who exploit the situation to their advantage and make quick money at the cost of 160 million helpless consumers.
Grinding of wheat much higher than consumption -DAWN - Business; September 23, 2007
