Flour mills have already started flexing their muscle
Another wheat crisis is looming in Pakistan, much similar to the one that hit the country last year. Fearing a shortage of wheat, the Trading Corporation of Pakistan has already opened tenders for its import between April and August. Surprisingly, Punjab, the major wheat-producing province, has decided to procure wheat 22% less than its target for the previous year, citing adequate availability. This appears to be counterintuitive. Lower public procurement of wheat will leave a much larger share of it to be procured by private stockists and flour mills.
With the wheat procurement season just around the corner, flour mills have already started flexing their muscle in order to procure and stock wheat in excess of their allowed quotas. This measure is being touted by them as the solution to hoarding, which resulted in skyrocketing of prices from Rs1,400/40kg (or Rs35 a kg) to well above Rs2,000/40kg (or Rs50 a kg) last year. However, it will only serve to change the face of the hoarder from that of the private stockist to the mill owner. The inquiry into the 2020 wheat crisis sheds ample light on this illegal practice. During that crisis, mill owners acted no differently than the private stockists. They, too, hoarded their stock and traded it for higher prices instead of milling it into flour. This had further aggravated the shortage of supply to consumers.
While the government has since resorted to importing wheat to ensure its supply, this can only be considered a stop-gap measure. Pakistan produces wheat in excess of its consumption requirements every year. The issue lies with its management. The Ministry of National Food Security along with the provinces is responsible to maintain sufficient wheat stock for food security and price stabilization and acts as an exclusive buyer until it has purchased sufficient stock for this purpose. Last year’s crisis was precipitated because wheat was exported during the harvest season which put pressure on the domestic supply. When the harvest season was over, not enough wheat was available with the government to release to flour mills to stabilize prices. This in turn was due to the failure of the government’s procurement drive, primarily because private stockists were allowed to operate while the government was still struggling to procure enough stock. The provincial and district administrations failed to ensure that flour mills milled its available wheat stock into flour.
This is again likely to be the case. The international wheat prices have climbed up consistently over the past year since supply has been affected by duties on wheat exports by Russia, the top wheat exporter, and is further likely to be affected by unfavorable weather conditions in the US and Australia, who are also major exporters of wheat. Hovering at $250-270, the current international prices are 30% higher than last year’s. These high international wheat prices, coupled with the domestic glut of wheat in the coming months due to low government procurement and simultaneous import of wheat by the TCP, will create an irresistible incentive for private stockists and flour mills to maximize their profits from their domestic wheat purchases either by export or smuggling to neighboring Afghanistan. This will put pressure on the domestic wheat price after the harvest is over, making hoarding a lucrative option again. In the absence of adequate public wheat stocks, it will be an uphill task for the government to manage adequate wheat supply when the privately held stock becomes scarce.
If a similar crisis is to be averted this year, a simple two-step approach has to be adopted by the government. Firstly, the Ministry of National Food Security must ensure that adequate wheat procurement targets are set and private buying of wheat is only allowed after crossing this critical milestone. This will provide stability in wheat supply and prices through timely release of wheat to flour mills. Secondly, the provincial food departments and district administrations must ensure milling of the available stock and its subsequent availability to consumers.
— The writer is an Inland Revenue deputy commissioner and can be reached on twitter @DrNaumanAnees