FOR the Punjab government, ambivalence is the catchword when it comes to long-term investment on infrastructure. Construction of modern silos for wheat storage is turning out to be the latest example of such behaviour.
Punjab was the first to realise the need, and plan modern silos for storing wheat because storage infrastructure and manual handling of procurement processes are archaic – involving huge discretion and corruption. It thus planned to modernise both, and conceived a plan to build highly-equipped multi-grain storage, to begin with, 350,000 tons – to be increased gradually once the public-private partnership concept takes psychological and financial roots.
The silos were expected to control supply chain losses, containing corruption (during buying, selling and storage) and standardising wheat in domestic market. Once the storage became scientific, it was expected to improve chances of export to high-end markets and diversify domestic market.
Realising the need and urgency, Punjab hired an international consultant, which, after months of hard work, produced a document – proving financial viability of the project and setting construction, operational and service standards for silos. With everything ready now, the provincial government is balking on the project. On the contrary, Sindh, which was slow to initially conceive its own version of the project, has leapfrogged the process to reportedly call for pre-qualification bids next week.
If the Punjab government is not able to make quick decisions and move forward with its project soon, it will lose its first mover advantage. It is unfortunate that a project of such importance, which is imperative for the future development of an agri-based province like Punjab is not being given the importance it deserves.
Punjab, apart from its short-term preoccupations needs to focus on long-term agriculture sector infrastructural requirements of the province. The sheer cost of its bias in favour of only ‘quick-fix political projects’ is missing the big picture. The cost of absence of wheat storage infrastructure explains the cost of this bias. Punjab purchases wheat worth around Rs100 billion every year. Its supply chain losses, as studied by the consultant are well over seven per cent. In financial terms, it means a loss of over Rs7 billion every year on total storage. Comparing it with the calculated annual rental cost of ‘high-tech silos, which can control the losses,’ makes sustenance of this loss totally unacceptable.
In case of public-private partnership projects, the province government does not need to make upfront payment of billions of rupees. Even if Punjab contributes 20 per cent equity, it would not need more than a billion rupee to kick-start the entire modernisation project. It must realise where the priorities should lie.
These actual losses might turn out to be much higher once the Punjab government is able to clear its stocks. If 7.5 per cent per annum losses are taken as a benchmark, one can well imagine what would happen when the government is able to sell its stocks that it has been carrying for three to four years now.
For reasons best known to provincial rulers, these losses are kept hidden and are quietly passed on, and as much as possible, to the consumers. These losses, hidden or obvious, would continue climbing until the province modernises its wheat storage.
As additional benefit, these new silos would be bulk storages – freeing the department from Rs2.25 billion, at the current price factor, gunny bags’ shopping every year. Though department recovers this cost from millers, it still pays mark-up for the difference of time between its purchase and recovery from millers. The millers, on their part, sell the gunny bags in open market at half of the price and pass on half of that price, which could be calculated at around Rs1.125 billion, to consumers. Since the world has moved to bulk storage, it reduces the cost of flour for the consumer on two accounts: reducing official investment and millers’ spending on gunny bags.
The need to turn the entire procurement high-tech can hardly be exaggerated. Silos around the world, also as conceived by Punjab, have the operational and information technology wherewithal to measure impurities (foreign material) and moisture content in the commodity in first place – something that Pakistan has not been to do for over 60 years.
Only such silos take human discretion out of weighing and storage process – main source of corruption in the province if the farmers and the middleman are to be believed. If weighing, impurities and moisture can be controlled through technology, it would bring a paradigm shift in the entire procurement process.
Only such a high-tech solution can improve domestic market to international standards and make Pakistani wheat acceptable in high-end markets in the world. It is only through such a technological advancement that the country can grade its wheat according to nutritional value, commonly known as protein content.
For the last six decades, Pakistan has not been able to grade its wheat as such and has been dumping every variety at the same stores. This is also precisely why it has not been able to diversify beyond a few wheat-based products. The world produces a range of products based on the varying content of wheat.
Both developed and developing worlds control their wheat markets through better storages, which, in turn, lead market to run on scientifically diversified lines.
After pushing the earlier plan out of favour for reasons best known to provincial rulers, Punjab is planning to construct silos in public sector here and there.
Even these plans are not taking off; it originally planned to construct silos for 100,000 tons, but has only been able to allocate partial resources for silos with a capacity of 30,000 tons. Even that project has not been awarded yet.
Punjab, being a food basket of the country and massive producer of staple food, must shoulder its responsibility and modernise its infrastructure. Even if it does not want to spend money on long-term projects, it must create an enabling environment to let private sector do the job and start with modernising wheat silos.
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