Huge wheat imports of 1.98 million tonnes from September 2023 to January 2024, costing $573m, by the private sector, have provided a partial price relief in various flour varieties. The private sector importers said timely imports had prevented flour from crossing Rs200 per kg.

Besides higher imports, some additional benefits could have played a major role in reducing flour prices. One is the steep fall in average price per tonne of imported wheat to $289 from $399 in 7MFY23. Secondly, the strengthening of the rupee against the dollar from Rs307 to a dollar on September 7, 2023, to Rs279 in the interbank market makes a clear case of the falling landed price of imported wheat.

Many market people believe that the full benefit of the rupee appreciation against the dollar and the drop in world wheat prices have not been passed to the consumers.

The private sector was allowed to import wheat from September 2023 to overcome the wheat shortage, curb hoarding and stabilise flour prices. At that time, the national average price of 20kg wheat flour bags was Rs2,600-3,200 followed by Rs156 per kg for fine flour and Rs1,214 for 10 kg wheat bags.

Despite imports, the price of flour has not come down substantially

After bulk wheat import, the current average price of a 20kg wheat flour bag is Rs2600-2960, while fine flour and 10kg wheat bags cost Rs156 and Rs1,255, respectively, depicting no significant change in prices. However, strict vigilance at the border has curbed wheat smuggling, and liberal imports have forced hoarders to release the stocks in the markets.

The private sector had pushed the government to allow wheat imports to overcome the wheat shortage of 2.45m tonnes as against the crop size of 27.6m tonnes that arrived in March/April 2023.

From July 2020 to January 2024, the country’s total wheat import bill stood at $3.36 billion, with the arrival of 10.5m tonnes. The private sector was first allowed to import 1.9m tonnes in FY21, followed by another chance from September 2023 onwards. The Trading Corporation of Pakistan (TCP) made the rest of the imports over four years to ensure the delivery of grain to the provinces and the Pakistan Agricultural Storage and Services Corporation.

From 2020 to 2023, Pakistan’s yearly wheat production was 26m to 27.6m tonnes. FY23 saw a jump in minimum support price (MSP) to Rs3,900 per 40kg of wheat for the growers from Rs2,200 under a Kissan Package to mitigate the impact of the losses from the 2022 floods, which was also one of the reasons for rising flour prices.

If one analyses the benefit of imports from July 2020 to June 2023 in terms of wheat and wheat flour prices, the 20kg flour bag, 10kg wheat bag and fine flour per kg rates have swelled to Rs2,500-3,000, Rs1,163 and Rs146 from Rs800-1,360, Rs507 and Rs70, respectively.

There needs to be an effective mechanism in place that can ensure market price stability, regardless of whether the government or the private sector imports wheat. The city government authorities issue fortnightly or monthly price lists, but hardly any retailers sell the commodity at government-controlled rates.

There are also no checks and balances on the smuggling of wheat and flour to Afghanistan. The government only wakes up when the wheat and flour rates hit the ceiling, forcing consumers to limit their purchases.

As the country will harvest a new crop in March-April, the economic update and outlook for January 2024 of the Ministry of Finance for Rabi 2023-24 says that wheat crop has been cultivated on an estimated area of 9.16m hectares, which has surpassed the sowing target of 9m to achieve the production target of 32m tonnes. The Rabi season crop production is expected to increase, given the climatic conditions in the country.

Based on the previous wheat hoarding and smuggling, the new government needs to make extra efforts through strict vigil at the borders besides mobilising the provincial and city governments to keep a watch on speculators, investors and market stakeholders.

Chairman of Pakistan Flour Mills Association, Sindh Zone, Chaudhry Aamir Abdullah, said the government had taken a timely decision by allowing the private sector to import wheat, which resulted in a drop in ex-mill rate fall in flour No. 2.5 to Rs 125-130 per kg from Rs 160-170 per kg.

He claimed that flour would have hit Rs200 per kg if wheat imports by the private sector were not allowed, adding that “wheat imports have prevented the private sector from blackmailing and bribes of government employees”.

He was of the view that the new wheat crop for 2024 would remain more or less the same as of 2023, but reports are coming of achieving production of 28m-29m tonnes. If wheat production is below 27.6m tonnes, the country will need to import grain in August, and the new government must consider allowing the private sector to import.

Mr Abdullah said the wheat crop may rise in 2025 due to a green revolution initiative taken by the Special Investment Facilitation Council, under which efforts are being made to sow it on new lands.

Chairman Cereal Association of Pakistan (CAP), Muzaamil Chappal said that the arrival of wheat from Russia, Ukraine, Bulgaria and Romania will cross 3m tonnes by the end of February 2024.

Pakistan had to import grain from September 2023 onwards due to the production of 27.6m tonnes of wheat as opposed to the consumption of 33m tonnes, which rose from 31 tonnes four years back.

“People have not faced any wheat and flour shortage in the last five months and paid lower prices for flour due to grain imports. Imported wheat costs Rs98 per kg compared to locally produced wheat, which costs Rs120 per kg,” said Mr Chappal.

Consumers believe that whenever millers reduce flour prices, retailers take a long time to pass on the benefit to the consumers, but they waste no time increasing prices in case millers jack up flour rates. The same situation persists in other commodities.

Published in Dawn, The Business and Finance Weekly, February 26th, 2024