Dear rentiers, meet corn exports

28 February 2024

Published in: Business Recorder

According to SBP, Corn (maize) has become one of the largest exported commodities (HS code 4-digit) excluding textile and rice in the current fiscal year 2023-24. In fact, according to central bank’s database, foreign exchange receipts against corn exports during 6MFY24 have already exceeded earnings from traditional exporting categories such as surgical instruments and leather goods, barely trailing behind export earnings of copper and ethanol.

As per monthly trade statistics published by the Bank, corn exports became the second largest food export out of Pakistan after rice during H1-FY24, leaving behind earnings from traditional non-rice food export categories such as fruits, vegetables, aquatic products, and livestock meat. 12M corn exports during calendar year 2023 breached the $300 million mark for the first time in history, rising from export earnings of less than a million dollar just five years ago (in 2018).

That corn exports have shot up to top-three non-textile exports out of Pakistan in just a few years is both a cause of celebration and embarrassment. Celebration, because corn exports came out of nowhere: and without any facilitation or ‘enabling environment’ offered by the government. Embarrassment, because the state of non-textile exports is so poor, that even incremental exports of $300 million per annum qualify as a news-worthy development.

Although the state of Pakistan’s agriculture draws considerable ire of commentators, FY24 will be the first time since FY21 when Pakistan will earn additional $1.5 billion from incremental cereal (rice + maize) exports, which will more than balance the annual billion-dollar bill of wheat imports. In fact, if the current trend holds, FY24 may also be the first time when export earnings from rice, corn, and sugarcane derivatives (molasses, ethanol) would exceed aggregate import bill of wheat and cotton. That should make for an interesting observation for all those commentators who lament the conversion of crop patterns from wheat-cotton to rice/cane/corn over the last decade, due to subpar profitability of the former combination.

Of course, some of the success of rice and corn is attributable to opportunistic developments. Rice exports are enjoying decade high prices because of an export ban instituted by India last year. Similarly, corn exports are a consequence of ban on soybean import, which reduced demand for corn meal from poultry and feed segments overnight. Earnings from rice and corn exports may very well diminish by the next fiscal if these anomalies (both outcomes of state restrictions on foreign trade) correct themselves.

But notice how unlike other rentier segments, the corn value chain did not cry hoarse or ran print ads of ‘industry on brink of collapse’, even though it was state policy that led to demand collapse from feed industry. Instead, corn processors found themselves to be naturally competitive in the international market when local demand declined, possibly without qualifying for any concessional finance or export facilitation schemes. And unlike other industries which routinely complain that the agro-value chain in Pakistan doesn’t meet international standards, or just isn’t safe enough to be exported due to contaminants such as aflatoxins, corn producers found no such challenge, finding demand for Pakistani grains in Malaysia, Viet Nam, and Sri Lanka, among many other destinations.

Most commentators attribute Pakistan’s failure to grow exports from non-traditional categories (other than textile) to expensive energy, overvalued currency, and skewed preference of state intervention. But from dairy to poultry and livestock meat that have failed to break in to the export market under the pretext of failure to meet standards and weaknesses in value chain, to local investment banking & finance talent that fails to crack advisory roles for multinational clients, it is just as much a story of corporate laziness and becoming beholden to abnormal returns from a captive domestic market.

With corporate earnings season in full frenzy, watch out for those who celebrate record profits, even as the real economy comes to a grinding halt. A corporate sector addicted to the domestic market is just as much the cause of poor export performance as is bad economic policy. Don’t excuse one while vilifying the other.