![](media/image1.wmf)

Required Report - public distribution

**Date:** 3/13/2006

**GAIN Report Number:** PK6002

PK6002

**Pakistan**

**Grain and Feed**

**Annual Report**

**2006**

**Approved by:**

Howard Anderson, Agriculture Attache, US Embassy, Islamabad

**Prepared by:**

Asmat Raza, Ag Specialist, US Embassy, Islamabad

**Report Highlights**:

Pakistan\'s My 2006/07 wheat production is forecast at 21 Million Metric
Tons (MMT), due to an increase in fertilizer use, sufficient water
available for irrigation and above normal temperatures in February.
Pakistan is expected to import 0.6 MMT of wheat despite a good harvest,
primarily for the Karachi market, where inland wheat is relatively more
expensive than imported wheat due to land transportation costs. In
addition, Pakistan opened its wheat import market to the commercial
sector.

Pakistan\'s MY 2006/07 rice production is forecast at 5.2 MMT and
exports at 2.4 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 7](#stocks)

[Policy 7](#policy)

[RICE 7](#rice)

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

[Production 8](#production-1)

[Consumption 8](#consumption-1)

[Trade 8](#trade-1)

[Stocks 8](#stocks-1)

[Policy 8](#policy-1)

# Executive Summary

Pakistan's MY 2006/07 wheat production is forecast at 21 MMT on higher
expected yields following greater availability and use of production
inputs. Imports are estimated at 0.6 MMT, reflecting the government's
determination to continue an unrestricted trade policy and a domestic
market that attracts wheat and wheat flour at above market rates.

Pakistan's MY 2006/07 rice production is forecast at 5.2 MMT on higher
production of both IRRI and Basmati rice. Farmers in Sindh and
Balochistan have diverted a large acreage of Basmati rice to IRRI rice,
whereas in Punjab the major thrust is for growing Basmati rice. MY
2006/07 rice export is forecast at 2.4 MMT.

# WHEAT

# Table 1: Wheat Production, Supply and Demand

+--------------------+------+------+------+------+------+------+------+
| #                  |      |      |      |      |      |      |      |
| ##### **Pakistan** |      |      |      |      |      |      |      |
|                    |      |      |      |      |      |      |      |
| **Wheat**          |      |      |      |      |      |      |      |
+--------------------+------+------+------+------+------+------+------+
|                    | **20 | **R  | **20 | **Es | **20 | **Fo | **U  |
|                    | 04** | evis | 05** | tima | 06** | reca | OM** |
|                    |      | ed** |      | te** |      | st** |      |
+--------------------+------+------+------+------+------+------+------+
|                    | **   | **   | **   | **   | **   | **   |      |
|                    | USDA | Post | USDA | Post | USDA | Post |      |
|                    | Offi | E    | Offi | E    | Offi | E    |      |
|                    | cial | stim | cial | stim | cial | stim |      |
|                    | \    | ate\ | \    | ate\ | \    | ate\ |      |
|                    | [Old | [New | [Old | [New | [Old | [New |      |
|                    | \]** | \]** | \]** | \]** | \]** | \]** |      |
+--------------------+------+------+------+------+------+------+------+
| #######            |      | 05/  |      | 05/  |      | 05/  | MM/  |
|  Market Year Begin |      | 2004 |      | 2005 |      | 2006 | YYYY |
+--------------------+------+------+------+------+------+------+------+
| **Area Harvested** | 8200 | 8216 | 8300 | 8300 | 0    | 8300 | (    |
|                    |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | HA)  |
+--------------------+------+------+------+------+------+------+------+
| **Beginning        | 1584 | 1367 | 2450 | 2267 | 3900 | 2667 | (    |
| Stocks**           |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Production**     | 1    | 1    | 2    | 2    | 0    | 2    | (    |
|                    | 9000 | 9500 | 1000 | 1600 |      | 1000 | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **TOTAL Mkt. Yr.   | 1416 | 1400 | 800  | 600  | 0    | 600  | (    |
| Imports**          |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Jul-Jun          | 1416 | 1400 | 800  | 600  | 0    | 600  | (    |
| Imports**          |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Jul-Jun Import   | 419  | 373  | 0    | 100  | 0    | 100  | (    |
| U.S.**             |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **TOTAL SUPPLY**   | 2    | 2    | 2    | 2    | 3900 | 2    | (    |
|                    | 2000 | 2267 | 4250 | 4467 |      | 4267 | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **TOTAL Mkt. Yr.   | 50   | 0    | 50   | 0    | 0    | 0    | (    |
| Exports**          |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Jul-Jun          | 50   | 0    | 50   | 0    | 0    | 0    | (    |
| Exports**          |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Feed Dom.        | 400  | 400  | 400  | 400  | 0    | 400  | (    |
| Consumption**      |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **TOTAL Dom.       | 1    | 2    | 2    | 2    | 0    | 2    | (    |
| Consumption**      | 9500 | 0000 | 0300 | 1400 |      | 1800 | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **Ending Stocks**  | 2450 | 2267 | 3900 | 2667 | 0    | 2067 | (    |
|                    |      |      |      |      |      |      | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+
| **TOTAL            | 2    | 2    | 2    | 2    | 0    | 2    | (    |
| DISTRIBUTION**     | 2000 | 2267 | 4250 | 4467 |      | 4267 | 1000 |
|                    |      |      |      |      |      |      | MT)  |
+--------------------+------+------+------+------+------+------+------+

# 

# Production

MY2006/07 production is forecast at 21 MMT, slightly lower then last
year's record production of 21.6 MMT. The dry spell during early in the
growing season and rise in temperature during February may lower
production slightly below last year. Regardless of these factors, this
year's crop is forecast to be the second largest crop harvest on record.
This is due to increased availability of irrigation water, good
management practices and an increased application of fertilizers and
herbicides. The 21 MMT production forecast represents potential
production and assumes no further deterioration in the condition of the
crop before the harvest scheduled to begin the later half of March.

An increase in fertilizer use is one important factor that will
determine final crop size: use of urea and DAP fertilizer will increase
10% and 4% respectively over the corresponding amounts used last year.

Pakistan has emerged rapidly from the ravages of the 6-year drought.
Water available for agricultural irrigation this year is thirty three
percent greater than the corresponding period last year. Stored water
for irrigation is held mainly in two large reservoirs, Tarbela and
Mangla, for use during the summer or during the "Rabi," or 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 impose an increasingly larger
constraint on Pakistan's agricultural advancement.

In Sindh Province, the shortage of water is less severe than last year
and, since the harvest began early, the crop is in good shape. 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, 2006. 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 Planting of crop in N.W.F.P and
AJK has been affected by the devastating earthquake in October 2005, but
as the area hit by this calamity is not part of traditional grain basket
the effect on overall production will not be significant.

The 2006/07-crop output forecast of the Ministry of Agriculture (MINFAL)
is 22 MMT. The MINFAL production target of 22 MMT is based on a harvest
of 17.4 MMT in Punjab. However dry spell during first three months of
current crop and above normal temperatures during February will
negatively effect production.

## 

# Consumption

Consumption is difficult to gauge. As wheat exports are not legal,
cross-border trade with Afghanistan has been captured in domestic
consumption, whereas it disappeared as exports during 2000-03 period.
However, local officials note that 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 2006/07 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 the 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 up to 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

Traditionally, Pakistan is a wheat importer. It is expected that
imported wheat arrivals would begin in the fall of 2006 to respond to
demands in MY 2006/07, especially if there is continuity in the
government's liberal domestic sales and wheat import policy. The GOP has
announced a continuation of the more liberal trade policy set for wheat
and its products in the coming years. MY 2006/07 import volume is
projected to be same as last year. These imports primarily reflect the
needs of the Karachi market, where inland wheat is more expensive, than
imported wheat due to transportation costs. Political pressure to hold
prices may increase demand for a government release of subsidized stocks
onto the market. This leads most observers to believe that imports will
be necessary to avoid a crisis during the second half of MY 2006/07.

During MY 2005/06 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: Soft White or Medium Hard White Wheat US Grade-2 or better

/Australian White Milling Wheat/Canadian Wheat Board Western

Canadian Chappati Wheat/Russian/or Central Asian Republic

Milling Wheat

Test Weight: 78 kg/HL minimum (75Kg/HL minimum for Australia/Canada)

Shrunken, broken 5% Max. (Including heat and sprout damaged 0.5% max)

and shriveled Kernels 7% Max for Canada (including heat and sprout
damaged 0.5%

Heat and sprout damaged Max)

/insect and Fungus

Damaged grains

Protein (Whole Meal Flour) 10% minimum (11% minimum for Canada)

Moisture Contents: 12% maximum (14.5% Max for Canada, 13.5% for Russia

Foreign Matter: 1% Max. (Inorganic not exceeding 0.1%) 2.5% Max. for
Canada

2% Max for Russia

Wet Gluten 23% minimum, 27% Min. for Canada 22% Min. for Russia

Falling Number: 250 per second minimum

Color Original color, shape and texture

Mycotoxin: Aflatoxin less then 30 parts per billion

Ochratoxin less then 25 parts per billion

Zcaratononc less then 200 parts per billion

Vomitoxin less then 2 parts per billion

Dcoxynivalchol less then 1000 parts per billion

Dockage total deductible: 0.55 Max. (1.5% Max. for Australia)

Quarantine: Should meet quarantine requirements of Pakistan

Dioxin: Free

Dead/Live insects/larvae: Free

GMO: Not Genetically Modified

Heavy metals: Within WHO permissible limits

Special requirements: a) Free from Tillctia indica. Certification to be
based on Lab.

tests at load port

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 3 gms. Of Phosphine active ingredient per cubic
>
> meter volume of wheat grain or as prescribed under law of

country of origin.

> e\) Fresh crop stocks, free from rodent's residues and poisonous
>
> Seeds

f\) Radioactivity within WHO permissible limits

During MY 2005/06 MINFAL contracted to import 0.8 MMT of wheat. Due to a
record production and heavy procurement by the private sector, vis-à-vis
government, the prices initially remained above the support price, but
due to slow releases at the close of MY 2005/06 prices showed declining
trend. Government stocks are still maintained due to less demand from
the private sector. Recently Karachi has emerged as a market for the
imported wheat as cheaper wheat from Russia and Central Asian Republics
is touching the market after the relaxation of wheat import
specifications during the last year.

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). Due to
relaxation in wheat import specifications Russia and Central Asian
Republics have also entered into Pakistan's wheat market. 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 high. 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 - zero percent import duty, zero percent sales tax on import

Export duties/taxes are as follow:

Wheat flour - zero percent export duty

# Stocks

The GOP holds most stocks through various provincial food departments.
MY 2006/07 opening stocks of the government food departments have been
forecast at 1.5 MMT. MINFAL is satisfied with the marginal opening
stocks based on good harvest estimate and reports of sufficient stocks
by the private sector.

# Policy

Government of Pakistan has announced to allow duty free import of wheat
and wheat flour by the private sector in accordance with the prescribed
specifications. 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**    |       |       |       |       |       |       |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+
|             | 2004  | Re    | 2005  | Est   | 2006  | 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       |       | /2004 |       | /2005 |       | /2006 | /YYYY |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Area        | 2519  | 2500  | 2530  | 2575  | 0     | 2580  | (1000 |
| Harvested   |       |       |       |       |       |       | HA)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Beginning   | 243   | 428   | 158   | 748   | 168   | 692   | (1000 |
| Stocks      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Milled      | 5020  | 4920  | 5500  | 5500  | 0     | 5200  | (1000 |
| Production  |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Rough       | 7531  | 7381  | 8251  | 8250  | 0     | 8100  | (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       | 5263  | 5348  | 5658  | 6248  | 168   | 5892  | (1000 |
| SUPPLY      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 2450  | 1800  | 2825  | 2891  | 0     | 2400  | (1000 |
| Exports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Jan-Dec     | 2650  | 1800  | 2800  | 2891  | 0     | 2400  | (1000 |
| Exports     |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL Dom.  | 2655  | 2800  | 2665  | 2665  | 0     | 2750  | (1000 |
| Consumption |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| Ending      | 158   | 748   | 168   | 692   | 0     | 742   | (1000 |
| Stocks      |       |       |       |       |       |       | MT)   |
+-------------+-------+-------+-------+-------+-------+-------+-------+
| TOTAL       | 5263  | 5348  | 5658  | 6248  | 0     | 5892  | (1000 |
| D           |       |       |       |       |       |       | MT)   |
| ISTRIBUTION |       |       |       |       |       |       |       |
+-------------+-------+-------+-------+-------+-------+-------+-------+

# Production

MY 2006/07 rice production is forecast at 5.2 MMT based on expected
improvement in yields and expanded planting of IRRI rice. In MY 2005/06,
Basmati production totaled 2.55 MMT, (up 2000 MT over the previous year)
and IRRI production totaled 2.9 MMT (up 199000 MT over the previous
year).

During MY05/06 a record production was achieved, as during the year
water availability was 46% more compared to the last year. Water
availability during the critical March-May period will depend on the
amount of precipitation in the catchment areas. 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 50 percent of the
crop is destined for local consumption while the remainder is exported.
The government does not maintain official grade standards for rice.
Annually an estimated 150,000 metric tons, 40 -100% broken is used in
poultry feed.

## 

# Trade

Pakistan is a major exporter of rice. MY 2006/07 export volume is
projected at 2.4 MMT, consisting 0.8 MMT of Basmati and 1.6 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 2005 Pakistan exported 814,857 MT
(812,507 MT in CY 2004) of basmati rice and 207,639,6 MT of IRRI rice.
The increase in rice trade (mainly in coarse rice) is 58% as compared to
the last year. This increase is mainly due to increase in production and
favorable market conditions.

# Stocks

MY 2005/06 ending stocks are projected to marginally decrease due to
increase in exports. 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.