The increase in national food price index continued its walk of shame in May 2021, staying well in mid-teens. At 14.83 percent (year-on-year), the slope has only marginally flattened since the previous month. To add insult to the injury, the jump has come on the back of increase in non-perishables, as perishable prices declined on both month-on-month, and year-on-year basis.

Not even the loudest claims of highest ever grain output has helped eased the upward pressure on price of non-perishables. One way of looking at the problem is to contest the sanctity of record output claims, a position argued in this space last week. (For more, read: “Crop output: pinch of salt” published by BR Research on 25 May, 2021). But considering that the statistical wizards at Q-block have doubled down on the earlier claim by National Accounts Committee – and their being no independent non-governmental crop surveys – it might be useful to examine the numbers prima facie. If crop output is indeed at record high, why are grain – especially wheat - prices refusing to relent?

Those sympathetic to the incumbents’ cause might point to global commodity prices runaway performance since the Covid bottom. That would be both inaccurate and a demonstration of the external locus of control that has plagued this government since day one.

Domestic wheat prices have precious little to do with global trends, considering the government tightly regulates its foreign trade; and, while international prices have only been rising since September 2020 in response to supply chain disruptions, domestic grain prices have been rising for far longer. More to the point, domestic wheat retail prices have undergone a slight correction since September 2020, but without having a desired effect on flour prices, which rose by 12 percent.

So, what’s going on? Let’s start with the least charitable explanation, which insinuates that the record grain output is to blame. Right before the start of wheat harvest season, the largest national buyer of wheat – Punjab government – increased the support price to Rs 1,800 per 40kg, an increase of nearly 30 percent over last year’s price. The GoPunjab proudly wears this measure as a badge of honour, as it believes that the higher price improved farmers’ income. No surprises then that the average consumer must pay a higher buck for government’s display of largesse towards the rural economy at their expense.

That would mean the administration’s decision to raise MSP is to blame, as it was feared and advised in this space many times: first in November 2020, and then again in March 2021. Sometimes, foresight is twenty-twenty, but let’s not cry over spilled work, considering the politically naive refused call the bluff of their shrewd rivals (For more, read: Wheat MSP: should Centre call Sindh’s bluff?).

But there may be other ways of looking at the same data. The fact that retail wheat prices have not shot up in tandem with flour prices should give the criticism some pause. In fact, May 2021 is the first time in a year when national average wheat prices are lower than flour prices, an anomaly that had previously indicated market sentiments of a shortage. That could mean the price incentive by the government has possibly led to a wheat surplus, even if at a high cost. But why are flour prices not slowing down?

Look at price data coming from Punjab’s markets to better understand that trend. For nearly a year, the CPI line item for flour showed prices from Punjab held constant at Rs 860 per 20kg, the government notified rate for subsidized flour in the province. It appears that the Punjab government has either stopped release of subsidized wheat to the flour mills, or the PBS has finally made a correction, resulting in CPI better reflecting the actual prices on ground. Reported prices are finally converging to the new normal, even if that means a delayed reflection in CPI’s reported figure.

Does that mean actual flour prices are no longer increasing? It may be too soon to declare victory. The index number for both wheat and wheat flour has increased in the Wholesale Price Index (WPI) for May 2021. Moreover, retail prices outside of Punjab – in regions where subsidized flour was previously not available – continue to inch up. Of course, the market clearing rate responds to all sorts of price signals, so a higher government declared MSP will have some upwards effect on wholesale price of the commodity. But does that rule out a grain surplus, nay record output?

Look towards price charts to get a better sense of what may be going on. The last time Pakistan had a substantial wheat surplus output was in FY17, enough to coerce the GoP to announce a freight subsidy of up to $50 per ton on export of wheat, that too in an election year! The clearest indication of surplus? For a short period, domestic retail wheat prices fell below the government wheat support rate, which had been fixed three years earlier!

If Pakistan truly has a grain surplus, watch out for the wheat retail price trend over coming months. If retail raw material prices remain substantially above MSP as they are currently, then congratulate the government for managing a higher output, but maybe save the praises of ‘record-highest’ for next year.