VZCZCXRO5776
RR RUEHLH
DE RUEHLH #0077/01 1101027
ZNR UUUUU ZZH
R 201027Z APR 09 ZDK
FM AMCONSUL LAHORE
TO RUEHC/SECSTATE WASHDC 3999
INFO RUEHIL/AMEMBASSY ISLAMABAD 4739
RUEHKP/AMCONSUL KARACHI 2039
RUEHPW/AMCONSUL PESHAWAR 1720
RUEHNE/AMEMBASSY NEW DELHI 0769
RUEHBUL/AMEMBASSY KABUL 0393
RUEHLO/AMEMBASSY LONDON 0124
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHC/USAID WASHDC
RUEHLH/AMCONSUL LAHORE 5146

UNCLAS SECTION 01 OF 02 LAHORE 000077 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAGR EAID ECIN ETRD PGOV PREL PK
SUBJECT: PUNJAB AGRICULTURE OFFICIALS CRITICIZE PAKISTAN WHEAT 
POLICY 
 
LAHORE 00000077  001.2 OF 002 
 
 
¶1. (SBU) SUMMARY: Senior bureaucrats in the Punjab Ministry of 
Agriculture realize that government wheat policy endangers 
Pakistan's food security and perpetuates rural poverty and 
isolation, creating fertile ground for extremists. Despite the 
cost and corruption fueled by price supports and subsidies, 
programs such as the "two Rupee roti" have popular support, 
making it difficult to end such policies. END SUMMARY. 
 
- - - 
GOVERNMENT INTERVENTION UNDERMINES FOOD SECURITY 
- - - 
 
¶2. (SBU) Punjab Food Secretary M. Ifran Elahi, Director General 
Agriculture (Extension and Agricultural Research) Dr. M. Anjum 
Ali, Punjab, and Chief Executive of the Punjab Agricultural 
Research Board (PARB) Dr. Mubarik Ali, told econoff in separate 
meetings that they believe that the federal government wheat 
price supports and import/export controls harm Punjab's overall 
agricultural production. While intended to improve 
farm-household incomes and to keep limited grain supplies in the 
country, all three officials said that government policy 
dissuaded farmers from diversifying crops; made them wary of 
global markets and risk in general; prompted farmers to rush to 
the market when the next price increase in the support price is 
implemented rather than when the market needs wheat; and 
encouraged smuggling whenever global wheat prices reached new 
highs, which decreases Pakistan's own food supply and increases 
the cost of ensuring sufficient food. As a result of these 
corrosive effects of the current wheat policy, all three 
believed that more open agricultural commodity markets would be 
more efficient and cost effective than current policies. 
 
- - - 
GOVERNMENT WHEAT PURCHASING IS RIFE WITH CORRUPTION 
- - - 
 
¶3. (SBU) A. Ali and M. Ali asserted that the government 
purchasing institution further undermined the price support's 
intended purpose of increasing farm incomes. The Pakistan 
Agricultural Services and Storage Corporation (PASSCO) buys the 
vast majority of the wheat crop brought to market, and purchases 
the wheat at a fixed price for a season. A. Ali asserted that 
brokers exploit the distance and lack of infrastructure that 
farmers face when they bring their crop to market.  The 
middlemen cajole farmers into selling wheat well below the 
government price and pocket the difference, less their own 
expenses, when they sell to PASSCO. M. Ali claimed that PASSCO 
buyers often haggle with wheat sellers rather than paying the 
full government price, and skim the balance off for themselves. 
He thought that the appointment of a former general, Maj. Genl. 
(Ret'd) Anwar Saeed Khan, exacerbated the corruption.  All three 
officials felt that storage, mechanized bulk handling, and other 
rural infrastructure improvements would be catalysts for higher 
yields, particularly if developed independently of the 
government. 
 
- - - 
PUNJAB MILLS NEED CONSOLIDATION AND MODERNIZATION 
- - - 
 
¶4. (SBU) All three officials also condemned the state of 
Punjab's wheat mills, and laid the blame on government policy. 
Elahi and M. Ali both said that the federal fixed "release 
price" of wheat, and the provincial government policy of 
distributing wheat to mills based on capacity rather than 
population served or sales, effectively killed all profit 
incentives and competition. The mismatch has resulted in milling 
overcapacity and inefficiency. Elahi further asserted that these 
inefficiencies made flour more expensive, which adds to the cost 
of the government's flour subsidies. He also noted that mills 
game the timing of government price changes, and hoard supplies 
until prices increase. Elahi and M. Ali both alleged that 
politically powerful mill owners perpetuate this system. 
 
- - - 
SASTI ROTI IS GOOD POLITICS BUT BAD ECONOMICS 
- - - 
 
¶5. (SBU) Elahi and A. Ali noted that farmers themselves consume 
or barter 65 to 75 percent of the wheat crop. Farmers, Elahi 
said, may be poor, "but they will not go to sleep on an empty 
 
LAHORE 00000077  002.2 OF 002 
 
 
stomach."  Government policy has failed to improve crop 
production, and the limited surplus crop for market exposes poor 
urbanites to scarcity and inflation. Although Punjab Chief 
Minister Shahbaz Sharif implemented the "sasti roti" or "two 
Rupee roti" program to keep the price of Pakistan's staple bread 
low for the vulnerable urban poor, the scheme misses its target, 
Elahi and M. Ali both observed. All tandoors (bread makers) 
within certain areas receive subsidy payments, whether or not 
they and their customers need it. Moreover, as the price of 
flour goes up, the cost of the subsidy goes up. What began as a 
Rs 10 million per day social welfare program could balloon to Rs 
24 million per day by mid April. Elahi called the program bad 
economics and bad food policy, but he also realized that ending 
the program could spark urban unrest. In fact, as an indication 
of its political significance, the press has reported that 
recently restored Punjab Chief Minister Shahbaz Sharif has 
floated the idea of implementing a "one Rupee roti" program. 
 
- - - 
LACK OF CAPITAL HURTS YIELDS 
- - - 
 
¶6. (U) One issue elicited almost identical comments from all 
three officials: access to capital. All three argued that giving 
farmers access to capital to acquire seed, fertilizer, and other 
inputs on a timely basis could dramatically improve 
yields. Credit mechanisms could also alleviate farm household 
cash flow problems, easing the urgency to harvest and sell their 
crop whenever the government sets a new price. M. Ali noted that 
the rush to convert crops to cash also causes a cash flow 
problem for the Punjab government. All three officials supported 
similar programs that would give farmers relatively low-cost 
access to limited amounts of credit using little more than their 
potential crop as collateral. A. Ali also saw potential in such 
credit mechanisms to help establish cooperatives and drive rural 
development in general. A. Ali and M. Ali said that they have 
participated in specific programs experimenting with credit 
access. 
 
- - - 
COMMENT: FREE MARKETS AND U.S. SUPPORT ARE THE WAY FORWARD 
- - - 
 
¶7. (SBU) COMMENT: The prescription offered by all three 
officials was similar: less government intervention, more open 
markets in agricultural commodities, and substantial U.S. aid 
for rural development and agricultural institutional capacity 
building. Elahi extolled the virtues of an expired USAID program 
that built bulk storage and handling facilities some twenty 
years ago. M. Ali believed that profit incentives can drive 
research, and he lauded the impact of U.S. support for 
agricultural education institutions, especially the University 
of Agriculture, Faisalabad.  A. Ali saw potential for U.S. 
assistance in improving Punjab's agricultural extension 
services. U.S. aid in rural development is most welcome, 
according to these officials. Such support could go a long way 
to winning the hearts and minds of ordinary Punjabis, especially 
those in poor, rural areas prone to exploitation by extremists 
eager to entice followers with easy money. However, all three 
officials also cited the same obstacle to progress: politics. 
They seemed eager to find a way to make structural changes to 
Punjab's agricultural economy without having to go through 
politicians or the federal government. END COMMENT. 
LOWE