KARACHI, Jan 11: The Sindh food department’s decision taken earlier this week to fix the ex-mill rate of wheat flour at Rs17 per kilogram in consultation with flour millers, was overturned on Thursday when a meeting of the federal ministry of food, agriculture and livestock (Minfal) expressed a consensual view that the current rate of wheat in the market was over Rs20 per kilogram.

Senior officials of food departments of the four provinces and Minfal attended the meeting held in Islamabad. It put off the decision to announce a support price of wheat for the next crop, but urged Minfal to procure seven million tons of wheat at Rs600 per ton. The meeting was expected to announce a support price of Rs500-550 for 40kgs, but agreed “unofficially” that wheat was being sold at Rs800 per 40kg in the market.

“Now that the food bureaucracy of all four provinces agrees that the current market rate of wheat is Rs800 for 40kgs (Rs20 per kilogram), how can wheat flour be sold at Rs17 plus,” said a miller. He was asked why flour was not being sold at Rs17.50 per kilogram fixed by the city government.

Another argument in support of the current high flour prices in the market is that significant quantity of wheat is being imported at $450 to $500 a ton. “Offering flour at Rs17.50 means a hefty subsidy from the budget, which the present caretaker government cannot afford,” a Jodia Bazaar commodity trader said.

Analysts attached with banks and financial institutions said that speculators, commodity brokers, traders and millers, in active connivance with the government, were responsible for turning the “wheat plenty” situation into “wheat scarcity’’ and the consequent price jump.

“After minting money from wheat trading and smuggling over the last 10 months, the big business has put the government in a situation where it finds it difficult to announce a support price for the next wheat crop in advance,” a market analyst said, explaining the Minfal’s tentativeness.

“This is creating further confusion,” he said, warning that a more severe crisis in store after spring harvest when rural commodity brokers would go on a buying spree with bags full of money.

Over 80 per cent of wheat farmers have small landholdings and have no access to bank credit. They depend entirely on local commodity brokers and landlords for loans given at a rate of 120 per cent in the form of inputs -- priced at twice the market rate.

During the last harvest, the government offered Rs425 in support price for a maund, but small farmers in Sindh and the Seraiki belt of Punjab were paid less than Rs350 for a maund.

“The government could hardly procure 4.3 million tons of wheat from farmers last season while rural commodity brokers bought the bulk of the quantity,” recalled a wheat market watcher.

Speculators, traders and millers held sway over the wheat and flour market last season and the government watched helplessly. “Top government functionaries claimed having with them the names of wheat hoarders and that soon there will be raids on their stocks, but nothing of this sort happened,” he said.

Worth noticing is a warning given by the FAO and carried by the State Bank of Pakistan in its recently released quarterly report on economic performance during July-September 2007. “The FAO projects that despite an increase in global wheat production, prices will increase further,” the report says, explaining rise in prices may also be due to increased cost of production.

The report said that rising petroleum prices had pushed up input costs of agricultural crops and increased demand for crops used to produce biofuel.

But the FAO has some words of consolation. It predicts an easing of wheat prices if production increased and consumption remained static.

All said and done, a harvest of 24 million tons of wheat next spring should see an injection of Rs500 billion into the rural economy. A bulk of this money -- Rs425 to Rs450 billion -- will go, at least, to 60 big landlord families while 80 per cent of the small landholders will share among themselves the remaining Rs50 to Rs75 billion.