Required Report - public distribution

**Date:** 3/10/2005

**GAIN Report Number:** PK5003

PK5003

**Pakistan**

**Grain and Feed**

**Annual Report**

**2005**

**Approved by:**

Howard Anderson, Agricultural Attaché, U.S. Embassy,
![](media/image1.wmf)Islamabad, Pakistan

**Prepared by:**

Asif Farrukh, Agri. Marketing Specialist, U.S. Embassy, Islamabad

**Report Highlights:**

Pakistan\'s My 2005/06 wheat production is forecast at 20.5 Million
Metric Tons (MMT), due to an early crop planting in Punjab province,
above normal widespread and well-spaced rains in January-February 2005,
and a decrease in fertilizer use. Pakistan is forecast to import 1 MMT
of wheat despite a better harvest. This is due to a reduced opening of
government stocks of MY 2005/06, and an anticipated reduction in the
procurement of government food departments. At the same time Pakistan
has opened its wheat import market for non-traditional suppliers,
including Russia.

Pakistan\'s MY 2005/06 rice production is forecast at 4.9 MMT and
exports at 2.0 MMT.

Includes PSD Changes: Yes

Includes Trade Matrix: No

Annual Report

Islamabad \[PK1\]

\[PK\]

Table of Contents

[Executive Summary 3](#executive-summary)

[WHEAT 3](#wheat)

[Table 1: Wheat Production, Supply and Demand
3](#table-1-wheat-production-supply-and-demand)

[Production 3](#production)

[Consumption 4](#consumption)

[Trade 5](#trade)

[Stocks 6](#stocks)

[Policy 7](#policy)

[Table 2: Rice Production, Supply and Demand
7](#table-2-rice-production-supply-and-demand)

[Production 7](#production-1)

[Consumption 8](#consumption-1)

[Trade 8](#trade-1)

[Stocks 8](#stocks-1)

[Policy 8](#policy-1)

# Executive Summary

Pakistan's MY 2005/06 wheat production is forecast at 20.5 MMT on higher
expected yields based on above normal rainfall pattern during crop
growing season. Imports are estimated at 1 MMT given the government's
determination to continue its unrestricted trade policy coupled with the
domestic market that attracts above market rates for wheat and wheat
flour.

Pakistan's MY 2005/06 rice production is forecast at 4.9 MMT on higher
production of IRRI rice and anticipated decrease in production of
Basmati rice. Farmers have diverted large acreage of Basmati rice to
IRRI rice especially in Balochistan province. MY 2005/06 rice export
forecast is at 2.0 MMT.

# WHEAT

# Table 1: Wheat Production, Supply and Demand

+---------------+------+-------+-------+-------+-------+-------+------+
| Pakistan      |      |       |       |       |       |       |      |
|               |      |       |       |       |       |       |      |
| Wheat         |      |       |       |       |       |       |      |
+---------------+------+-------+-------+-------+-------+-------+------+
|               | 2003 | Re    | 2004  | Est   | 2005  | For   | UOM  |
|               |      | vised |       | imate |       | ecast |      |
+---------------+------+-------+-------+-------+-------+-------+------+
|               | USDA | Post  | USDA  | Post  | USDA  | Post  |      |
|               | Offi | Est   | Off   | Est   | Off   | Est   |      |
|               | cial | imate | icial | imate | icial | imate |      |
|               | \[O  | \[    | \[    | \[    | \[    | \[    |      |
|               | ld\] | New\] | Old\] | New\] | Old\] | New\] |      |
+---------------+------+-------+-------+-------+-------+-------+------+
| Market Year   |      | 05    |       | 05    |       | 05    | MM/  |
| Begin         |      | /2003 |       | /2004 |       | /2005 | YYYY |
+---------------+------+-------+-------+-------+-------+-------+------+
| Area          | 8094 | 8000  | 8200  | 8216  | 0     | 8300  | (    |
| Harvested     |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | HA)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Beginning     | 1438 | 1467  | 1584  | 1367  | 2534  | 2267  | (    |
| Stocks        |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Production    | 1    | 18200 | 19000 | 19500 | 0     | 20500 | (    |
|               | 9192 |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| TOTAL Mkt.    | 47   | 2000  | 1500  | 1400  | 0     | 1000  | (    |
| Yr. Imports   |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Jul-Jun       | 47   | 2000  | 1500  | 1400  | 0     | 1000  | (    |
| Imports       |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Jul-Jun       | 14   | 1000  | 0     | 373   | 0     | 500   | (    |
| Import U.S.   |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| TOTAL SUPPLY  | 2    | 21667 | 22084 | 22267 | 2534  | 23767 | (    |
|               | 0677 |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| TOTAL Mkt.    | 193  | 300   | 50    | 0     | 0     | 0     | (    |
| Yr. Exports   |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Jul-Jun       | 43   | 0     | 50    | 0     | 0     | 0     | (    |
| Exports       |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Feed Dom.     | 400  | 400   | 400   | 400   | 0     | 400   | (    |
| Consumption   |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| TOTAL Dom.    | 1    | 20000 | 19500 | 20000 | 0     | 20400 | (    |
| Consumption   | 8900 |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| Ending Stocks | 1584 | 1367  | 2534  | 2267  | 0     | 3367  | (    |
|               |      |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+
| TOTAL         | 2    | 21667 | 22084 | 22267 | 0     | 23767 | (    |
| DISTRIBUTION  | 0677 |       |       |       |       |       | 1000 |
|               |      |       |       |       |       |       | MT)  |
+---------------+------+-------+-------+-------+-------+-------+------+

# 

# Production

MY2005/06 production is forecast at 20.5 MMT, or 5 percent above last
year's crop, due to an expected increase in area and yield. This year's
crop planting was early due to less acreage under sugarcane and farmers'
efforts to expand early planting to improve wheat yields. The main
driving force has been the good returns to wheat experienced by farmers
for two years in a row. This year's crop is forecast to be the second
largest crop harvest. This is due to a one percent increase in area
planted, above normal rainfall from January through early March 2005, an
increased application of herbicides and above normal irrigation from
rains compared to the corresponding period of last year. The 20.5 MMT
production forecast represents potential production and assumes no
further deterioration in the condition of the crop before the harvest
scheduled to commence the later half of March.

Pakistan has emerged rapidly from the ravages of the 4-year drought that
many be considered the worst since the world's largest contiguous
irrigation network became operational in the 1970\'s. Water available
for agricultural irrigation currently is normal, compared to 20 percent
below normal for same period a year ago. Stored water used for
irrigation is held mainly in two large reservoirs -Tarbela and Mangla,
during the summer for use during "Rabi," or the winter growing season.
About two-thirds of the country's water for irrigation is sourced from
snow and glacier melts, with the remainder derived from seasonal monsoon
rains.

Since the irrigation system was completed in the 1970s, demand has
increased by more than 50 percent while storage capacity has decreased
one-third due to silting. This has left per capita availability at a
fraction of its original level. As a result, chronic shortfalls in water
available for irrigation are expected to play an increasingly larger
constraint on Pakistan's agricultural advancement in the absence of more
systematic planning and water management resources.

In Sindh Province, where the shortage of water is less severe than last
year and where the Pakistan harvest begins early, the crop is good. In
this province ground water in most areas is alkaline and not fit for
tube well irrigation, necessitating a greater reliance on canal water.
In the Punjab province, where extensive tube well irrigation is
utilized, the crop is generally considered to be in normal condition as
of March 9, 2005. With the bulk of the Punjab crop about to enter the
grain-formation stage moderate temperatures and sunlight during the
month of March will be critical for the success of this year's output.
The condition of the highland crop, which comprises 10 percent of total
production, is in better shape compared to last year's crop.

The 2005/06-crop output forecast of the Ministry of Agriculture (MINFAL)
is 20.2 MMT. The MINFAL production target of 20.2 MMT is based on a
harvest of 16.9 MMT in Punjab. However, Punjab province scientists and
farmers groups disagree with this revised size of harvest. The market
apparently agrees with the Punjab locals as open market prices of Rupees
11,250 per metric ton are significantly above the official procurement
price of Rupees 10,000 per metric ton, with only 3-4 weeks to start bulk
wheat harvest in Punjab.

## 

# Consumption

Consumption is difficult to gauge. As wheat exports are not legal,
cross-border trade with Afghanistan has been captured in domestic
consumption again, whereas it disappeared as exports during 2000-03
period. However, local officials note around 1,000 MT of wheat and wheat
flour is still moving across the border to Afghanistan from different
points daily. Further, customs data do not report export to Afghanistan.
Therefore, MY 2004/05 consumption estimate has been increased to absorb
the cross-border trade with Afghanistan and Iran.

Prior to September 2004, domestic flour and bread prices generally
remained stable due to adequate government and privately held stocks.
However the quick draw down of government-held stocks and very limited
availability of supplies in the open market have combined to nudge wheat
and wheat-based product prices upward.

Consumer preferences are shifting, from traditional flat bread to
western style loaf bread, particularly in urban areas where it is viewed
as a convenient breakfast food, and from traditional home-ground flour
to commercially produced flour. The change in preference from higher to
lower extraction flour is translating to greater consumption of wheat.
Demand for specialized products also is expected to increase in response
to changing lifestyles more supportive of western-style fast food chains
recently introduced into the country.

Pakistan's wheat milling industry is privately owned. Principal milled
products include "midda" (which is a 72 percent extraction flour used
for loaf bread and other products) and "atta" (which is an 82 percent
extraction flour used for flat breads). For quality and price reasons
millers prefer to mix local semi-hard white wheat with imported soft
white wheat at a 60:40 rate. Although consumers traditionally prefer
white bran wheat, millers can blend up to 20 percent bran wheat to
produce "atta" and up to 10 percent to produce "midda" while still
producing an acceptable product.

Under ongoing reforms the government is removing itself from regulating
the market and is reducing the remaining consumption subsidy offered for
wheat. With the market better able to set price, the advantages accrued
for buying from or selling to the government is declining. With removal
of many restrictions on wheat transportation and storage, the government
is creating an environment better able to facilitate trade. Further, the
State Bank of Pakistan (Central Bank) now authorizes commercial banks to
provide private sector financing for 50 percent of the wheat stocks. If
the government stays on course, barring a natural disaster, this year's
wheat market should be regulated only by stock availability and
international price.

## 

# Trade

Pakistani may not be able to enter into export market for the next
couple of years. Traditionally, Pakistan is a wheat importer. It is
expected that imported wheat arrivals would commence from the fall 2005
to cater demands in MY 2005/06, especially if the government's liberal
domestic sales and wheat import policy continue. The GOP has announced a
continuation of the more liberal trade policy set for wheat and its
products in the coming years. MY 2005/06 import volume is projected to
be larger based on a combination of a smaller than initially projected
MY 2004/05 ending stock, a more moderate MY 2005/06 crop than
forecasted, stronger open market prices and stronger domestic demand.
Political pressures to check prices may increase demand for government
release of subsidized stocks onto the market, which leads most observers
to believe that imports would be necessary to avoid a crisis during the
second half of MY 2005/06.

During MY 2004/05 the Ministry of Food, Agriculture and Livestock
(MINFAL) redefined its wheat specifications to be used for government
tenders. Revised specifications and type follows (note the specs call
for GM free and new crop wheat):

Type: Medium Hard White Wheat/Red Wheat

Test Weight: 76 kg/HL minimum

Protein: 10% minimum

Moisture Contents: 12% maximum

Foreign Matter: 0.5% maximum

Wet Gluten: 23% minimum

Falling Number: 350 per second minimum

Shrunken & broken Kernel: 2% maximum

Damaged grains: 0.5% maximum

(sprouted, heat damaged etc)

Edible grains other 1% maximum

Color Original

Mycotoxin: Not more than 5 parts per billion

Dockage total deductible: Over one half of one percent

Quarantine: Should meet quarantine requirements of Pakistan

Ergot: Nil

Dioxin: Free

Dead/Live insects/larvae: Free

GMO: Free

Heavy metals: Within WHO permissible limits

Special requirements: a) Minimum lot size 25,000 metric ton

b\) Free from Kernel bunt and Striga weed

c\) Fit for human consumption

> d\) Treated with phosphene at or immediately prior to loading at
>
> the rate of 10 ounces of active ingredients per 1,000 bushel
>
> of wheat
>
> e\) Fresh crop stocks

During MY 2004/05 MINFAL contracted to import 1.4 MMT of wheat. Due to a
delay in scheduling imports, and a smaller than anticipated stock level,
open market wheat prices now average around 15 percent higher than
official government prices. Prices are not likely to drop as reportedly
based on anticipation of record crop because of growth in demand from
rising population. Reports of wheat flour shortages in many parts of the
country are now appearing.

The United States traditionally has been the primary wheat supplier to
the Pakistani market for quality and reliability reasons. Australia,
however, has made significant inroads into this market through the use
of predatory pricing, cheap freight and credit, and other non-market
tactics. Canada is an occasional supplier to this market. The Australian
Wheat Board Ltd. (AWB) considers Pakistan to be a premium market. The
AWB often commands a premium of \$10 or more in this market over
better-quality U.S. soft white wheat (SWW) FOB prices by virtue of its
freight advantage. The AWB also receives an additional premium through
the manner in which Pakistan tenders (asking for C&F offers). Although
June is when U.S. prices are lowest and the government already has a
clear idea on the local crop size and import requirements, the GOP
generally waits several months before buying. As a result, Pakistan buys
more wheat late in the year via large tenders. Although U.S.
participation in these tenders ensures the required competition, timing
is such that the tender offers are much higher than necessary. Pakistan
could save significant foreign exchange by procuring earlier in the
summer when prices are more attractive. With an increasingly liberalized
environment, the private sector is likely to apply a stronger business
orientation in their buying decisions.

Import duties/taxes are as follow:

Wheat - zero import duty, zero sales tax

Wheat flour - 10 percent import duty, 15 percent sales tax on import

Export duties/taxes are as follow:

Wheat flour - 15 percent export duty

# Stocks

The GOP holds most stocks through various provincial food departments.
MY 2005/06 opening stocks of the government food departments have been
forecast at 100,000 MT only. MINFAL is satisfied with the marginal
opening stocks based on estimate of a larger than initially estimated
harvest of MY 2005/06 crop.

# Policy

MINFAL has announced it will continue the current policy for wheat
procurement and trade through the new marketing year. Wheat and wheat
products can be traded freely and banks can finance such trade.

RICE

# 

# Table 2: Rice Production, Supply and Demand

+-------------+-------+-------+-------+-------+-------+-------+-------+
| *           |       |       |       |       |       |       |       |
| *Pakistan** |       |       |       |       |       |       |       |
|             |       |       |       |       |       |       |       |
| **Rice,     |       |       |       |       |       |       |       |
| Milled**    |       |       |       |       |       |       |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+
|             | 2003  | Re    | 2004  | Est   | 2005  | For   | UOM   |
|             |       | vised |       | imate |       | ecast |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+
|             | USDA  | Post  | USDA  | Post  | USDA  | Post  |       |
|             | Off   | Est   | Off   | Est   | Off   | Est   |       |
|             | icial | imate | icial | imate | icial | imate |       |
|             | \[    | \[    | \[    | \[    | \[    | \[    |       |
|             | Old\] | New\] | Old\] | New\] | Old\] | New\] |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Market Year |       | 11    |       | 11    |       | 11    | MM    |
| Begin       |       | /2003 |       | /2004 |       | /2005 | /YYYY |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Area        | 2400  | 2460  | 2400  | 2500  | 0     | 2500  | (1000 |
| Harvested   |       |       |       |       |       |       | HA)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Beginning   | 45    | 45    | 470   | 428   | 720   | 748   | (1000 |
| Stocks      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Milled      | 4900  | 4848  | 5000  | 4920  | 0     | 4900  | (1000 |
| Production  |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Rough       | 7351  | 7273  | 7501  | 7381  | 0     | 7351  | (1000 |
| Production  |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| MILLING     | 6666  | 6666  | 6666  | 6666  | 6666  | 6666  | (1000 |
| RATE        |       |       |       |       |       |       | MT)   |
| (.9999)     |       |       |       |       |       |       |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 0     | 0     | 0     | 0     | 0     | 0     | (1000 |
| Imports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Jan-Dec     | 0     | 0     | 0     | 0     | 0     | 0     | (1000 |
| Imports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Jan-Dec     | 0     | 0     | 0     | 0     | 0     | 0     | (1000 |
| Import U.S. |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 4945  | 4893  | 5470  | 5348  | 720   | 5648  | (1000 |
| SUPPLY      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 1775  | 1715  | 2000  | 1800  | 0     | 2000  | (1000 |
| Exports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Jan-Dec     | 1800  | 1958  | 2100  | 1800  | 0     | 2000  | (1000 |
| Exports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL Dom.  | 2700  | 2750  | 2750  | 2800  | 0     | 2850  | (1000 |
| Consumption |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Ending      | 470   | 428   | 720   | 748   | 0     | 798   | (1000 |
| Stocks      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 4945  | 4893  | 5470  | 5348  | 0     | 5648  | (1000 |
| D           |       |       |       |       |       |       | MT)   |
| ISTRIBUTION |       |       |       |       |       |       |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+

#  

# Production

MY 2005/06 rice production is forecast at 4.9 MMT based on expected
improvement in yields and expanded planting of IRRI rice. In MY 2004/05,
Basmati production totaled 2.53 MMT, (not different from last year) and
IRRI production totaled 1.96 MMT (up 60,000 MT over the previous year).

Water availability during the critical March-May period is expected to
be good. If a cut in water distribution during this period occurs, the
affect would be more pronounced on the IRRI rice acreage than the
Basmati. The IRRI rice generally is grown in areas that rely heavily on
canal irrigation, while Basmati is grown in areas employing large-scale
tube well irrigation. Based on the source of the water input and current
water availability situation, both types of rice are expected to be sown
on time. Since 2000, the government discontinued setting a procurement
price for paddy and milled rice, and abandoned rice procurement through
state trading enterprises.

# Consumption

Rice is not a staple commodity in the Pakistani diet. Its consumption is
increasing slowly as compared to that for wheat. About 60 percent of the
crop is destined for local consumption with the remainder exported. The
government does not maintain official grade standards for rice. Annually
an estimated 150,000 metric tons, 40 -100 percent broken, is used in
poultry feed.

## 

# Trade

Pakistan is a major exporter of rice. MY 2005/06 export volume is
projected at 2.0 MMT, consisting 800,000 MT of Basmati and 1.2 MMT of
IRRI rice varieties. All trade is conducted by the private sector, as
the state owned Rice Export Corporation was abolished in early 90's.
Today, another state trading agency, the Trading Corporation of Pakistan
(TCP), plays a limited role in the rice trade by facilitating
government-to-government exports through the private sector. The GOP, in
consultation with the Rice Exporters Association of Pakistan (REAP),
established a quality review committee to certify the quality of
Pakistani rice prior to shipment in an effort to boost the image of
Pakistani rice, especially that of Basmati rice. Based on preliminary
figures, in CY 2004 Pakistan exported 812,507 MT (823,242 MT in CY 2003)
of basmati rice and 973,565 MT of IRRI rice. The decrease in IRRI rice
trade in CY 2004 was due to less price competitiveness of bullish
domestic market. Pakistani Basmati rice traders are optimistic that the
EU concession on Basmati rice import tariff will help to negotiate new
contracts in CY 2005.

# 

# Stocks

MY 2005/06 ending stocks are projected to increase due to marginally
better harvest. All stocks are held by the private sector and are in
small lots.

# Policy

There is no restriction on rice exports. For rice imports there is 10
percent import duty and 15 percent sales tax.