VZCZCXRO0547
RR RUEHLH RUEHPW
DE RUEHIL #5256 3470650
ZNR UUUUU ZZH
R 130650Z DEC 07
FM AMEMBASSY ISLAMABAD
TO RUEHC/SECSTATE WASHDC 3823
INFO RUEHRC/DEPT OF AGRICULTURE WASHDC
RUEHKP/AMCONSUL KARACHI 8385
RUEHLH/AMCONSUL LAHORE 4326
RUEHPW/AMCONSUL PESHAWAR 2949
RUEHBUL/AMEMBASSY KABUL 7913
RUEHNE/AMEMBASSY NEW DELHI 2456

UNCLAS ISLAMABAD 005256 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EAGR ELTN ETRD PK
SUBJECT: PAKISTAN IMPOSES 35 PERCENT DUTY ON FLOUR EXPORTS 
 
 
¶1. (U) This cable has been coordinated with Consulates Lahore and 
Peshawar. 
 
¶2. (SBU) Summary: The Government of Pakistan (GOP) has imposed a 35 
percent duty on the export of wheat products in an attempt to 
discourage exports, bolster domestic supplies and reduce the 
domestic price of flour.  Flour exports are destined almost 
exclusively for Afghanistan.  The GOP has been unable to bring down 
the domestic price of flour, prompting the move to restrict flour 
exports to Afghanistan, reported at 600,000 metric tons annually. 
End Summary. 
 
¶3. (SBU) Federal Board of Revenue Chairman Yusuf explained to the 
Ambassador and Economic Counselor during a courtesy call December 7 
that the 35 percent export duty was imposed because the cost of 
domestic flour is half that of imported flour, in part because of 
the GOP's domestic wheat support program.  As a result of the price 
differential, exports have increased, resulting in flour shortages 
and high prices in Pakistan, despite a bumper wheat crop. Yusuf 
explained that Pakistan is now importing one million metric tons of 
wheat at international prices to cover domestic shortages. 
 
¶4. (SBU) The 35 percent duty went into effect immediately.  Domestic 
wheat prices have risen dramatically in recent months, increasing 
fifty percent in the Northwest Frontier Province (NWFP) bordering 
Afghanistan.  Pakistan needs to produce over 23 million metric tons 
of wheat per year to be self sufficient.  Although the country 
produced a record 23.5 million metric tons of wheat in 2006, cross 
border trade and smuggling pushed Pakistan's wheat stockpile below 
the 23 million metric mark, prompting price increases.  Pakistan's 
wheat exports to Afghanistan have remained steady at around 600,000 
metric tons annually. 
 
¶5. (SBU) Provincial governments previously advocated central 
government intervention in the price of wheat flour.  Despite 
unsubstantiated reports of truck seizures along the border, 
Consulate Peshawar contacts report that trucks are currently 
crossing the Afghan-Pakistan border unimpeded and no ban on the 
export of wheat flour has been put into place.  The NWFP is 
dependent on wheat flour from the neighboring Punjab, Pakistan's 
most populous province.  While there is no restriction on the 
transportation of wheat flour between provinces, NWFP officials 
allege that Punjab provincial authorities are restricting the flow 
of wheat out of the province in an attempt to manipulate the flour 
supply.  Wheat flour delivery disruptions have been reported in NWFP 
markets. 
 
¶6. (SBU) Comment: The duty imposition is largely seen as damage 
control exercise by the GOP. With general elections scheduled for 
January 8, governments -- both federal and provincial -- are eager 
to bring down the cost of basic commodities, including wheat flour. 
High food prices are frequently cited in polls as the middle and 
lower classes' primary concern.  While the imposition of the duty 
will have an effect on the volume of wheat that is traded to 
Afghanistan via official channels, cross border smuggling will 
undoubtedly increase, fueled by increased demand and profits.  End 
Comment. 
 
PATTERSON