Increase in flour prices

The government has increased the wheat issue price for flour-mills, from Rs 10,000 to Rs 10,750 per tonne for 2005-06, and fixed the flour price (at Rs 250 per 20-kg bag) as pointed out in the official announcement, the increase now effected exceeds the upward revised issue price, on monthly basis, under the cascading formula, which had been introduced last year.
This formula, it will be noted, relates to the release of quotas to the mills, under which wheat prices are adjusted every month to absorb storage and handling expenditure. Quoting reliable sources, a news report has it that the government conveyed to the millers early this month that they should strictly to follow the official price pattern to ensure availability of flour to the consumers at fixed rates from December to April, that is, when prices usually shoot up.
However, although the government has been in touch with the millers and wants smooth supply of atta to the consumers at fixed rates, the scheme has become irrelevant, at least, in Rawalpindi region where flour price is already much higher than the official rate.
It will be noted that earlier last week the Punjab Flour Mills Association Chairman, Haji Ibrahim, had indicated the mill-owners would increase flour prices by Rs 6 a bag in the near future. Holding the government responsible for high flour prices, he had pointed out that the millers had been demanding early release of the wheat quota from the government godowns to help them control the prices at the retail level, but the demand was yet to be fulfilled. He had also alleged that the millers were buying wheat from the open market at high rates, and that in the given situation they were left with no other option but to pass on the additional cost to the consumers.
Recalling that the PFMA had held a meeting with the Chief Minister of Punjab in Ramazan, apprising him of the rising flour prices, despite the latter's hint of early release of wheat from the Punjab food department's godowns, the situation had not improved.
Of course, the mill owners do depend on the open market for wheat from April to October every year, but for the remaining period of five months from November to March they rely on the stocks available with the provincial food departments and Passco. This does not appear to have been possible this time. Needless to point out, the resulting situation has become worrisome.
It was some four months ago when Prime Minister Shaukat Aziz, while reiterating the commitment to provide the public with essential goods at cheaper prices, had made a pointed reference to the high prices of wheat flour then prevailing. Elaborating on preventive and remedial measures taken to arrest this trend, among other things he had referred to directives issued to provincial governments to improve wheat supply, as slow supply of commodities led to shortages.
At the same time, he had said that the provinces had been assured that in the event of any shortage of wheat, his government would ensure its enough supply. Again, pointing out that the government was proceeding aggressively in the matter, he had said that a group met every week, under his chairmanship, to review the prices of 11 items, including wheat flour. That effort was supplemented by another committee, under the chairmanship of Dr Salman Shah, to review the prices of essential items.
It will thus be noted that all the efforts put together appear to have fallen short of the requirement. For one thing, reference in this regard, may be made to the millers' claim that flour prices would have been lower in the region if the Punjab Food Department had started issuing wheat quota to them. For, as they contend, they normally get wheat quota from the government godowns in August every year to ensure that flour prices do not exceed a certain limit but this time they are yet to get the quota.
It will be recalled that the food departments of Punjab and Sindh and the Passco were reported to have purchased 2.4 million tonnes of wheat till May 10, that is, 50 percent of the year's procurement target of 4.8 million tonnes. The private sector and the flourmills were also reported to have been aggressively buying fresh wheat from the open market, competing with the public sector, which was paying minimum support price of Rs 10 per kg to the farmers.
It will thus be seen that almost all the measures adopted to influence the behaviour of prices in a manner inconsistent with the interplay of market forces of supply and demand, have met with failure as before.
As earlier pointed out in these columns, measures like price control, rationing and other deviations from the market economy system, may have only limited roles in extraordinary situations, but they remain irrelevant in normal times. It is high time the government concentrated on speedy development of market-based economy in all its manifestations to ensure against erratic behaviour of prices, particularly of the food items.