Pakistan’s wheat worries refuse to go away and so does its penchant for policy goof-ups. For the last few weeks, the federation and provincial governments have been competing over who damages the wheat market more. As a result, the volatility in the already unstable market has increased manifold and an overheated wheat market has set the flour market alight.

Sindh was the first to throw a spanner in the works this year when it increased the wheat procurement price from Rs2,200 per 40kg (maund) to Rs4,000 — a whopping increase of 45 per cent — on September 10. Punjab was next to raise the bar: from Rs2,200 per 40kg to Rs3,000 — an increase of 26.67pc — just three days after Sindh’s decision.

The federal government sided more with Punjab, and now three of them are locked in negotiations to find a middle path: chances are that both provinces may settle at a rate of Rs3,500 per 40kgs, an increase of 37.14pc.

Read: The food security challenge

All these prices, or even the debate around them, have impacted the market in two ways: set the price ablaze and put a premium on hoarding.

Different provincial and federal procurement prices have increased market volatility and placed a premium on hoarding

These politically-driven experiments are being carried out in a market which has been volatile ever since the wheat year started in May. To begin with, production fell this year to 26.40 million tonnes from 28.42m tonnes last year — a gap of 2m tonnes. The national calculations put the consumption at 29m tonnes, and the federal government decided in June (only a month after the start of the wheat season) this year to import 3m tonnes to bridge the gap.

Though all the provinces had procured wheat, they were reluctant to release it early for fear of facing shortages later. Punjab went for releases as early as June and subsidised it by around Rs500 per maund. Against the now standard release at Rs2,300 per 40kg, it started releasing at Rs1,765 to keep a lid on the flour prices: selling a 20kg bag at Rs980 — just under Rs50 per kilogram.

While early releases kept the flour price checked, the general perception of shortages and difficulty procuring imports activated hoarders. Although Punjab’s releases were minimal (16,000 tonnes a day) because its 5m tonnes of stocks were enough to flood the market, hoarders further squeezed supplies as prices started spiralling.

It was in this context Punjab went for further experimentation and fed an already explosive market with politically driven wheat decisions. First, it withdrew the subsidy to set a normal release price and then went for a fresh procurement price.

In practice, it meant floating four different prices: from Rs1,765 (subsidised price) per 40kg to Rs2,300 (for routine releases) to fixing a procurement price of Rs3,000 for next year to finally agreeing to the federal proposal of increasing it to Rs3,500. These decisions, each of them fully pregnant with consequences, have been taken in one month or so. Then Punjab and most of its policy planners blame private players for the insatiability in the wheat market.

Another factor that destabilised the wheat market further was the unprecedented flood this year. It affected 33m people or half a million households, mainly in rural Pakistan.

Traditional calculations maintain that 70pc of wheat production is kept in the rural houses to consume for the rest of the year. With these 500,000 households losing their wheat stocks to floods, they are returning to the market, creating additional demand and putting pressure on prices.

Though calculation of the extent of these damages and addition in demand differ widely among agencies and individuals engaged in the exercise, a loose consensus puts the figure at around half a million tonnes of wheat lost to floods.

Flour diverted from non-flood areas to flood areas in charity or official aid programmes also exerts additional pressure on the urban market, and the already overheated wheat market is now exploding.

Yet another factor impacting the market is the slow pace of imports. Out of a total of 3m tonnes of approved quantity, only 1.1m tonnes have actually arrived, with more than half of it already gone because of additional losses or demand.

So, effectively, half a million tonnes — a negligible amount given the instability and hoarders’ capacity — is available to ease the market. Understandably, it neither played a role in easing supplies nor prices.

Due to all these factors, wheat is traded for around Rs3,500 per maund, increasing by weeks. The government itself has added Rs1,300 per 40kg (if the official price of Rs3,500 is taken as a benchmark) to the price.

Aware of the situation, the private sector is doing the rest of the damage. The 15kg flour bag made from private wheat is now selling at a minimum price of Rs1,600; there is no upper limit, and that largely depends on which part of the country one buys from and what kind of profit the seller is aiming for.

On the prodding of the federal government and price pressure, other provinces (Khyber Pakhtunkhwa and Balochistan) have released wheat. While this helped the market, it did not ease it to the required level. All provinces fear delayed imports and being left without stocks towards the end of the season.

Secondly, all of them know that sowing may also be a question mark this year. Water is still to recede in massive areas of Sindh where the sowing season had already begun. With estimates that water may take another few weeks to recede, seep or evaporate, and then another two weeks to enable soil for a fresh crop, wheat sowing in Sindh is still not a sure bet.

The Sindh crop arrives early and starts contributing to the national market in March. However, with it being a doubtful option, the national supplies would be delayed by a few weeks, extending the season. All these factors restrict usage of what the country already has and wait for imports to arrive before opening the gates of official stocks.

The cumulative result of these factors, with the onus on policy confusion and failure, is that the wheat and flour market would remain unstable.

Published in Dawn, The Business and Finance Weekly, October 3rd, 2022