August 13, 2004
First Pakistan-Russia Wheat Deal Could Be Promising
Pakistan, which ventured into unknown territory this week by ordering its first wheat shipment from Russia, could source more Russian wheat if the first order goes well, industry experts said Thursday.
And initial signs are promising.
Pakistan has been assured good quality Russian grain by the supplier, said Abdul Malik, director of the Trading Corporation of Pakistan, which had closed the first tender to buy wheat from Russia this week.
Mr Malik disclosed that Swiss trading company, Agrico Trade and Finance SA has promised to supply 150,000 metric tons of Russian wheat "according to the specification and quality we have stated in the tender."
"We have put an extra clause this time under which we will appoint international inspectors at the testing and pre-inspection stage before the wheat is shipped to Pakistan," Mr Malik said.
He said the Russian wheat being purchased will be in line with the tender requirement of soft white or semi-hard wheat and will not be the traditional red wheat common in Eastern Europe.
The shipment from Russia will be Pakistan's first purchase of European wheat and poses a serious challenge to traditional suppliers of US and Australian wheat. Trade officials said the Swiss company was willing to provide 300,000 tons of Russian wheat. But Pakistan was cautious, having never bought Russian wheat in the past. It thus decided to distribute the risk by getting the Australian Wheat Board to supply 100,000 tons and two US suppliers to ship 234,000 tons.
However, the wheat deal with Russia, which has helped Pakistan build its biggest steel mill near Karachi in the past, opens new possibilities of cooperation between the two and new sources for grain supply.
"If everything goes well, I think this will be a positive development for Pakistan-Russia trade which will allow us to diversify our trade sources," said Ishaq Subhani, head of research at the Karachi Chambers of Commerce & Industry.
Russian wheat will be supplied at $198.30 a metric ton, cost and freight, while the second lowest bid came from US-based Cargill at $214.11/ton. Australian wheat will be supplied at $217/ton.
Last year Pakistan's exports to Russia stood at $10.3 million while imports from Russia totalled $50.6 million, mostly because of huge machinery imports.
However, there is still some hesitation among local millers.
According to Shaikh Akhtar Hussain, former chairman of the Pakistan Flour Mills Association, local mills are likely to resist buying Russian wheat because they are not sure of the quality of the product.
"Our traditional suppliers in the past have been the US, Australia and Canada. I am sure a lot of flour mills will try to avoid buying Russian wheat," he said.
Quality issues have been on the forefront since Pakistan rejected shipments of Australian wheat earlier this year, alleging quality problems with the supply. The Australians rejected the claim and the issue became a sore point in trade relations between the two countries.
Pakistan plans to float a tender to buy another 500,000 tons of wheat over the next two weeks as part of its plans to bolster stocks. This comes after wheat production rose only marginally to 19.70 million tons in the current season from 19.25 million tons last season. The original target was to produce 20 million tons of wheat this year, the same level as projected demand.
The next wheat crop will be planted in October and harvested next April.
Rising wheat prices in Pakistan have been a headache for the government, fuelling inflation in the country and raising the political temperature.
Mr Hussain said the price of wheat could be controlled if the provincial government in Punjab lifts a ban on inter-province movement of wheat.
"They have surplus wheat, but they have imposed the ban on movement, which is affecting prices here," Mr Hussain said.