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July 3, 2020

Wheat and flour crisis: Powerful hoarders amassed 5mmt wheat illegally

Top Story

July 3, 2020

ISLAMABAD: Scores of powerful hoarders have illegally stockpiled over five million metric tons wheat this year, officials of the Ministry of National food Security and Research reveal.

"Hoarding of wheat is a major concern this (harvesting) season,” a senior official of the ministry told this correspondent, asking not to be named. “An estimated five million metric tons of wheat is being kept unlawfully either by an influential middlemen, businessmen or flour mills owners,” he said.

The development happened at a time when price of wheat flour surged by an alarming 65 percent in the open market during past 21 months; an unusual indicator that exposed government’s weak strategy over mechanism of controlling essential commodities’ prices.

Large quantities of the crop have been hidden in rice mills, sugar mills, spinning mills and warehouses owned by influential individuals, the official added. Most of these warehouses and mills are located on the bordering areas of the four provinces, namely Kashmore, Sadiqabad, Rahimyar Khan, Bhakkar, Dera Ismail Khan and Peshawar, amongst others. “These hoarders have strong political backings,” the senior official explained, “And a few are even in the current government,” he added.

A flour bag weighing 20 kg was available for Rs640 (ex-mill price) during Sept 2018 which has now jumped up to Rs1,050 to Rs1, 070 per bag in the open market in Punjab, Sindh and Balochistan, while in KP it is touching up to Rs1,100 to Rs. 1,150, weeks long investigation by The News revealed on authority. Over 30 percent increase in flour prices was witnessed in past four weeks as price of a 20kg bag shot up from Rs810 to Rs1,070, revealed official figures.

Pakistan has missed its target of wheat procurement by around 20 percent this year. The government set a target of lifting 8.2mmt wheat, which was 32 percent of the total production, but it could only procure 6.6mmt.

“Extra profit of billions of rupees was directly going into pockets of middlemen, hoarders, traders, flour mills owners and artees,” informed officials further said, adding that total amount of additional profit could not be counted but it must be over Rs100 billion in past four months.

Wheat flour prices alarmingly started soaring up since July last year, as the official record showed that a 20kg flour bag was being sold at Rs854 in open market during August 2019, Rs908 during January 2020, Rs912 during April 2020, Rs972 during first week of June this year and now this 20kg flour bag has crossed upwards of Rs1, 045. Official statistics also reveal that the provincial food departments have had 20 percent less stocks as compared to last year which was 7.8mmt. Departments have stockpiles of 6.9mmt wheat as on June 17, 2020, according to official data.

Punjab procured 4.08mmt this year, lower than the 4.9mmt is lifted last year. Similarly, Khyber Pakhtunkhwa procured 0.44mmt, a decline from 0.96mmt last year. However, Sindh and Balochistan picked up a larger share of the crop, compared to 2019. This year, Sindh procured 1.2mmt, while last year it only got 0.8mmt. Balochistan procured 0.92mmt.

The federal government has decided to import 3mmt wheat, a record quantity for the first time in eleven years, in an attempt to quell escalating prices and to replenish its stocks in anticipation of decline in surpluses by end of this year. The Economic Coordination Committee (ECC) of the cabinet has already given a go ahead for import of 0.5mmt wheat, a move happening for the first time since 2009. As per official data, Pakistan has been collectively maintaining up to 8.386mmt surplus wheat since 2009 to 2018. Food departments recorded storage of 5.584mmt surplus wheat during 2009-10, 6.01mmt during 2010-11, 4.119mmt during 2011-12, 2.498mmt during 2012-13, 3.376mmt during 2013-14, 4.955mmt during 2014-15, 5.03mmt during 2015-16, 6.015mmt during 2016-17, 5.989mmt during 2017-18 and 1.336mmt surplus wheat during 2018-19.

Meanwhile, the administration in all districts have set in place measures to penalise hoarding, in order to ensure there is no shortage of the food crop in the country. Interestingly, government officials claim that the Pakistan Flour Mills Association lifted an estimated 2mmt of the crop, but the PFMA chairman told The News that he only purchased 60,000 to 70,000mmt from the open market as the provincial food departments did not allow the Association to buy more.

Pakistan is likely to consume 27.47mmt of wheat from April 2020 to April 2021, according to official statistics. But the total production in the country was only 25.457mmt.

However, if Pakistan were to import wheat to fill the shortfall in demand, it could end up paying Rs1,963 per 40kg, official figures reveal. The price of the ‘Red Hard Winter’ variety of wheat, grown mostly in the United States, would be $266 per ton, including freight charges of $50 per ton. Moreover, imported wheat will be available in cities like Multan with an additional cost of Rs100 per 40kg, on account of transportation charges, official documents noted.

According to Dr Aslam Gill, the former wheat commissioner, wheat has now become a political commodity, the same as sugar. “Politically influential people have been hoarding wheat in huge quantities to control the market,” Gill said. “Price hike is not due to any deficiencies in the supply chain, rather it is due to millers and the middle men’s monopoly. Also, the failure of the food department to check such practices.”

This year, the state-run Pakistan Agricultural Storage and Services Corporation (Passco) and provincial governments set up 1,162 wheat purchasing centres across the country. The centres were to facilitate farmers to sell their crops at fixed rates.

Separately, the Ministry of National Food, Passco and secretaries of food departments of provinces set the wheat procurement target of Passco at 1.8mmt wheat, of which purchase for Punjab was 4.5mmt, Sindh 1.4mmt, Balochistan 1mmt and KP 0.45mmt.

But due to the scarcity of the crop, Passco will now be releasing 0.25mmt of wheat to flour mills to ease the shortage and the resulting price hike. However, they fear that an early release of wheat to flour mills and hoarding of surplus wheat may lead to another crisis during October and November this year. As per the general practice, Passco releases wheat to mills around August every year, not earlier.

Fresh price hike further burdens the consumers after earlier increases in flour prices went unnoticed, Asim Raza Ahmad, chairman PFMA said. If flour mills do not get permits for wheat procurement within this week, the price of flour within the province will rise upwards once more, he feared.

The country produced 249.556mmt wheat during 10 years while its domestic consumption remained at 241.17mmt wheat during those seasons. Pakistan exported record 10.5mmt wheat during past ten years while it imported only 1mmt wheat during this period, revealed official figures exclusively obtained by this correspondent.

Thus millers say a 20kg wheat bag cost Rs960 in the open market while its grinding charges remain Rs80 to Rs90 conclusively covering all the charges.