According to a news report in the Business Recorder of September 4, the government has decided to increase the issue price of wheat to flour mills by one rupee per kilogram from the existing Rs 8.50 to Rs 9.50 for the current financial year.
The decision has automatically signalled a rise of one rupee per kilogram in one stroke in the price of wheat flour which is the staple food item for the people at large in Pakistan. When the issue price of wheat was Rs 8.50 per kilogram, the mills were selling wheat flour at prices ranging from Rs 10 to Rs 12 per kilogram in the market.
The rising trend in the flour prices this year was triggered by the fact that wheat was sold at around Rs 11 to Rs 12 per kilogram in the open market. As reports indicated in recent weeks, the flour mills were purchasing part of their wheat requirements from the open market because the provincial food departments were not supplying wheat to the flour mills for one reason or the other, including the low level of stocks in the government godowns in Sindh and the NWFP.
Thus the official price of wheat could not be strictly maintained by the provincial governments.
The confusion over the pricing of wheat was caused this year due to active participation of private traders in the procurement of wheat directly from growers by offering a higher price than what was paid by the provincial governments.
The official procurement price was Rs 350 per maund of 40 kilograms which came to about Rs 8.75 per kilogram. On the other hand, the private sector purchased wheat at over Rs 10 per kilogram from the farmers. As a result, both the Punjab government and the Sindh government could not meet their targets of procurement during this season.
It was perhaps for this reason that the Punjab government was compelled to restrict movement of wheat out of the province.
The situation has seemingly drifted in favour of private traders who were encouraged to resort to hoarding of wheat with the intention of unloading their stocks when the shortage of the commodity heightened and prices rose further.
The current circumstances are largely reflective of the acute shortage of wheat for those flour mills which generally operate on supplies from the provincial food departments at the official price.
This has led to the government's decision to increase the issue price of wheat to flour mills by one rupee per kilogram.
Moreover, instructions have been issued to the provincial food departments to release wheat quota to flour mills on a daily basis.
This is bound to add to uncertainties and therefore the prices of wheat flour may rise further in the market.
The private traders are taking advantage of the relatively low stocks with the provincial governments, and are successful in maintaining higher prices at around Rs 12 per kilogram, specially in Sindh.
Meanwhile, the TCP has reportedly purchased wheat from foreign suppliers at prices ranging from $198 per tonne to $217 per tonne which works out to a price range of Rs 11.80 per kilogram to Rs 13 per kilogram as landed cost.
The prices of imported wheat are apparently on the higher side as compared to the official procurement price paid by the provincial governments to farmers. The private sector's success in maintaining a substantially high price level, is likely to further add to price inflation in wheat because of the high prices of imported wheat.
The government is seemingly compelled to raise the issue price of wheat supply to flour mills.
The government has no option but to increase the issue price of wheat or else be prepared to spend millions of rupees to subsidise the sale of wheat flour to the people at large.
Since the price of imported wheat will be higher by a minimum of Rs 3 per kilogram, the subsidy on one million tonnes of imported wheat would come to about Rs 3 billion.
Therefore, the government would naturally like to avoid the burden of subsidy on wheat and therefore wheat flour prices in the country are likely to continue rising up to the harvest of new wheat crop by March next year.