AS supply-side stresses in the wheat market take hold, the country runs the risk of a difficult flour season for the next six months unless it reassesses the situation and takes corrective measures.

Current stocks, at around 4.5 million tonnes — if strategic requirement of one million tonnes is taken out — are hardly enough to see it through for the rest of the season, provided no unforeseen factors alter the calculations. Bad weather can exacerbate the situation by delaying the crop.

The exact size of the stocks is also a matter of controversy, especially in Sindh. Porous border with Afghanistan adds yet another layer of uncertainty to the longevity of these stocks.

All these factors, with each one of them individually capable of disturbing the entire national calculation, warrant a reassessment of the supply-demand equation to ensure nothing goes wrong until the next crop arrives.

Punjab, which holds the key to national food security, currently has around 3.5 million tonnes of wheat, of which around 22,000 tonnes are being supplied to mills daily for grinding.

Multiplied by 26 days (taking out Sundays, when the Food Department does not supply wheat), its release comes to 550,000 tonnes a month.

Traders believe the government needs to allow the import of 200,000 to 300,000 tonnes of wheat, at least for Karachi, which itself needs over 100,000 tonnes a month

At this rate, Punjab would have consumed 3.2 million tonnes by mid-May. But the release rate is expected to increase as the local market dries out further in the coming days and weeks, and other federating units exhaust their stocks, especially Khyber Pakhtunkhwa and Sindh.

KP, with almost negligible stocks of 200,000 tonnes, traditionally depends on Punjab. This dependence was amplified in the last few weeks when Punjab, calculating fast drainage of stocks, tried to regulate supplies through purchase permits.

Resultantly, flour prices went through the roof in KP, and the federal government had to intervene to ensure that Punjab withdraws the permit condition.

The withdrawal is, however, not without cost, as Punjab faces the risk of running out of wheat stocks. It is also feared that hugely subsidised wheat from the provincial exchequer would now find its unhindered way to KP and even to the Afghan market.

Sindh has made its own contribution to national uncertainty. It did not procure wheat this season on the plea that it has over 800,000 tonnes in carryover stocks, enough to see it through the season.

Since it had very calculated stocks, delayed releases saw exceptional hike in wheat price.

Now, despite the start of releases last week, prices are still higher. In Karachi, the price is hovering well above Rs1,700 per maund (1 maund = around 37kg) against the official price of Rs1,340 per 40kg (without gunny bags).

Theoretically speaking, 800,000 tonnes should have been enough to last until the arrival of the next crop, but rumours have it that up to 200,000 tonnes are missing in the stocks — some reports put the figure even higher.

Investigations by the National Accountability Bureau have aggravated the stock situation.

As rumours always arrive in the market earlier than traders, they gripped wheat bazaars, worsening the situation by putting missing quantity at higher than stipulated 200,000 tonnes.

Karachi is bearing the brunt more than any other part of the country and the Punjab is bracing for the eventuality two months down the line.

The federal government has asked the Pakistan Agriculture Services and Storage Corporation to contribute 100,000 tonnes each to KP and Sindh, but markets are not ready to respond to it and are keeping price volatile.

Millers contest that the prevailing volatility doesn’t stem from the market. Some of them think that commodity is far less than the requirement to keep market stable and pre-empt speculative pressures on it.

Others blame it on official mismanagement more than the actual stock condition. However, both sides now agree that federal government now needs to allow import of 200,000 to 300,000 tonnes of wheat, at least for Karachi, which itself needs over 100,000 tonnes every month.

“The trouble, however, is the 60 per cent duty that the government has imposed on the import of wheat,” says Majid Abdullah, an old hand at the flour milling industry.

The price of Ukrainian wheat is currently around Rs1,660 per maund at arrival in Karachi, and almost Rs966 per 40kg would be added to the tally in the name of duty, taking the total price close to Rs2,700 per maund.

If duty is taken off, wheat’s arrival in Karachi would be less than the current market rate. This is where the federal government needs to step in and retrieve the situation.

Only duty-free imports can set the market equilibrium right and save the situation, which cannot be left to speculative pressures, he says.

Published in Dawn, The Business and Finance Weekly, November 12th, 2019