Supply glut lowers flour prices

LAHORE

The wheat supply glut pushed flour prices comparatively low in 2015, providing relief to consumers, but posed a threat to the farming community in the 2016 procurement campaign as a heap of grain with government agencies may adversely affect their buying.

The average wholesale price of wheat flour in open markets in Punjab province stood at Rs 721 per 20 kg on 1st January, 2016, which is at least Rs 10 per bag lower than the price recorded exactly a year back. On 1st of January, 2015, average wholesale price of 20 kg bag in the province was registered at Rs 731, as per official data.

Conversely, wholesale prices of wheat are slightly higher in open market this time of the year but wheat flour prices are more depressed in the market. However, market insiders believe that wheat flour could even be cheaper from present level if the provincial government provided greater subsidy on official price with an aim to reduce piles of grain stocks. At one hand, the flour price could be reduced significantly and on the other hand, wheat could be exported to at least traditional markets of neighboring countries.

Such a policy should have been adopted in the second quarter of 2015 in order to create space for storage of the upcoming wheat crop. According to an estimate, surplus availability of wheat at the arrival of new crop in April 2016, could be as high as 50 lakh tons in the country. The grain’s carryover stock could be at one of the highest levels if compared with previous years’ data. Punjab alone is expected to carry forward about 25 lakh tons of wheat followed by Pakistan Agricultural Storage and Services Corporation (PASSCO) and Sindh Food Department.

The huge stock available with government agencies would seriously hinder their ability to buy greater quantity of wheat from the farmers during coming procurement campaign. Thus, it is feared, the interest of farming community could be hurt due to possible crash of buying price.

According to market insiders, it is a flaw in our governance that whenever we face oversupply of any commodity, we used to remain insensitive to the evolving situation. We usually feel more reactive to short supply but to oversupply despite the fact that both situations require policy intervention if we really want to create enabling environment for all the stakeholders.

In this backdrop, it is a harsh reality that provincial government as well as center failed to tackle the problem of oversupply of wheat as ‘crisis of plenty’ badly erodes viability of grain business in recent years. Consequently, wheat exports has remain a distant dream despite government's efforts in the last six months or so. They complained that the mechanism of rebate on wheat export was ill-planned and could not help in boosting international trade of the commodity. It is feared that glut in wheat trade would continue to undermine interest of farmers for the next couple of years if the government fails to take appropriate remedial measures. In this situation, the government should revise export policy. Besides encouraging private exporters, efforts should be made to sell wheat under government-to-government deals.