Punjab releases subsidised wheat to flour mills

LAHORE: The Punjab government has started releasing wheat to the flour mills from its storage facilities at a significantly reduced price, which may result in grain pilferage. In an effort to ease the burden on consumers, the provincial government has declared the release of wheat from its reserves to flour mills at a subsidized cost of Rs3,000 per 40kg.

According to the policy decision, wheat will only be allocated to the operational flour mills, with the price of a 20kg flour bag set at Rs1,810, and a 10kg flour bag priced at Rs905. The cost of 100 grams of tandoori roti has been set at Rs14 in the province.

Each mill will receive 20 bags per body quota, which is relatively low considering the demand and supply situation. While the goal of stabilizing flour prices for consumers is evident, the structure of the policy introduces considerable economic distortions and threatens to undermine the food security it aims to safeguard.

The essence of the issue lies in the significant gap between the government’s release price and the current market rates. By setting the release price at Rs3,000 for 40kg — a full Rs800 less than Punjab’s market price of Rs3,800 and approximately Rs1,000 lower than prices in neighboring provinces — the government has unintentionally created a profitable opportunity. This price discrepancy is not trivial; according to market experts, it represents a significant divide that encourages rent-seeking behavior and illegal profit-making.

The most pressing danger is profiteering and smuggling of subsidized wheat across provincial borders. When a commodity can be purchased officially for Rs3,000 in Punjab and sold unofficially for Rs4,000/Rs4,200 in Sindh, Khyber Pakhtunkhwa, or Balochistan, a strong black-market incentive emerges. This could result in official wheat, meant for consumers in Punjab, being diverted to other areas, undermining the purpose of the provincial reserves and potentially leading to artificial shortages within Punjab itself.

Moreover, the policy promotes corruption and inefficiency in the milling sector. The 50 percent quota tied to a mill’s daily grinding capacity creates a detrimental incentive for less efficient mills. Rather than processing the wheat, these mills can easily earn a risk-free profit of Rs800 per 40kg by reselling their subsidized quota to larger or more efficient competitors. This corrupt behavior not only misappropriate a crucial resource but also punishes efficient operations and cultivates a culture of graft instead of competition.

Market insiders have suggested that the Punjab government’s subsidy exemplifies good intentions undermined by poor execution. The substantial underpricing of wheat serves as a strong economic lure for leakage and corruption.

To ensure the policy’s success, the release price needs to be adjusted to reduce the disparity with the market, and effective monitoring systems must be established to guarantee that the wheat reaches its intended recipients — the public c— rather than enriching speculators and dishonest millers. Without these adjustments, the scheme may worsen the issues it aims to address.

One of the most detrimental long-term effects is the direct undermining of the government’s own indicative price of Rs3,500 per 40kg for farmers in the upcoming harvesting season. With the sowing season approaching, this action signals to farmers that the government’s price assurances are unreliable. Why would a farmer invest in a crop if the state itself devalues grain just before planting? This loss of trust could result in decreased sowing, worsening shortages in future seasons.

For millers, the directive poses significant economic challenges. How can a miller who has bought wheat at Rs3,800, or is holding stock purchased at Rs3,500, compete with government-subsidized flour?

The government’s request for millers to “contribute” overlooks recent history. Last year, when mills with Rs4,000 wheat were compelled to match a Rs3,000 price, they suffered severe losses without compensation, said market insiders.