Distortions in whole wheat sector: CCP recommends gradual withdrawal of govt from fixing wheat support price

ISLAMABAD: Highlighting distortions in whole wheat sector putting small farmers at disadvantaged position and resulting into monster of another circular debt, the Competition Commission of Pakistan (CCP) has strongly recommended gradual withdrawal of government from fixing minimum support price.

The CCP’s policy note issued to government on Wednesday asked the government to bring paradigm shift in wheat releases and for resolving the looming wheat/flour crisis on immediate basis, it asked for binding flour mills to produce 100 percent flour out of 65 percent released wheat and impose ban on all other products including maida, suji, choker etc.

In background discussion with select group of reporters, the CCP’s top officials were of the view that the flour mills were not producing flour out of 65 percent released wheat and there is no proper monitoring and reconciliation mechanism, aggravating the wheat/flour shortages in the country at the moment. It was findings of the CCP that branding and packaging through effective enforcement could resolve many problem of wheat sector. The CCP found that the government fixed the support price at Rs1400 per 40kg and they procured 6.5 million tons against fixed target of 8.5 million tons. However, the market price of quality wheat hovered around Rs2200 to Rs2400 per 40kg so the real benefit of increased wheat prices were not transferred to small farmers.

The policy note also found that Chakki catered about 2/3 or 75 percent market share but flour mills were getting released wheat procured by the public sector. The flour produced by the mills is bad in quality and not considered as good quality/eatable flour.

In its policy note, the CCP recommended gradual withdrawal of government intervention from minimum support price fixation regime, consistent wheat export policy, removal of overlapping of regulatory regime between provincial and federal legislations and a level playing field in the wheat sector.

The policy note recommended that the federal and provincial governments may only intervene by making judicious use of their strategic reserves, when there is dire shortage of wheat in the market due to abnormal market conditions. It may define and experiment with the idea of expanding the role of the private sector, millers, and stockists in the procurement, trade, and bulk storage of wheat.

The government’s role may henceforth be restricted to oversight in terms of standard/quality, fostering R&D initiatives to enhance domestic as well as international competitiveness and holding of strategic stocks to be used in emergencies or stabilising the market in times of volatility.

The heavily-controlled wheat sector by government is less advantageous for small scale Chakki mills. Although the Chakki mills are the major supply chain players, they are deprived of a level playing field. Low investment, lack of capacity and inadequate opportunities in the market have closed competition for this important supply chain player, it stated.

The policy note analysed, "the analysis of last 10 years shows that the government is procuring on an average of 35% of the market surplus, ranging from 25% in 2018-19 to 43% in 2009-10. The government procurement in 2019-20 jumped to 39% of the marketable surplus as compared to 25% in 2018-19. This sharp increase in procurement in 2019-20 at support price is likely to have crowded out the private sector and created unrest for them. Furthermore any subsidy extended to mills with regard to export of surplus wheat is misused in the form of fake documentation and transactions.

Since roller mills make profits through the said manipulation, they have no attraction left to spend on fine packaging and branding of export quality products".

The policy note recommended that Chakki mills cater for 2/3rd of the total supply of wheat flour to consumers, hence they should be provided a fair share in the wheat quota (until the govt. exits the current system). This may be done gradually based on the grinding capacity of registered Chakki mills.

The Chakki mills are small enterprises and provincial governments need to consider putting in place an effective and simple procedure of registration and quota allocation. Furthermore, provision of soft loans for installation of equipment and arranging training for their technical capacity may also be considered. The increased technical capacity of this small enterprise will help in increasing the economic activity and market competition.

The policy note asked the government to address the issue of overlap in the regulatory regime by removing ambiguities in the role and responsibilities of regulators. It recommends that in each of the provinces, only one government entity should be given the clear mandate of enforcing quality parameters and ensuring adequate labelling and packaging. It also emphasizes the role of PSQCA in updating the standardisation of wheat itself to provide parameters to provincial governments to monitor the quality of wheat.

The policy note also addressed the issue of inadequate labelling that misleads a consumer by not providing product representation in a form that makes due disclosures to an ordinary consumer. It added that the requirement for unambiguous labeling needs to be strictly enforced by the provincial governments. Moreover, moisture, nutrient and other labeling requirements and the process used for grinding (dry or wet) of wheat needs to be clearly displayed on all sizes of wheat bags sold in the market.

One of the measures that provincial governments could take is to enhance transparency in issuance of quota for production of wheat flour on subsidized price. Till such time that the government’s current wheat procurement and release policy is in place, it may be useful to engage a third party for validation of actually functional mills, Chakkis selection for issuance of wheat quota, and a random monitoring of the same through an electronic system.

Another important recommendation is about streamlining the export policy and improving export potential of wheat. To this end, a strong crop monitoring, forecast and reporting system will be helpful whereas there should be strong communication between the Ministry of National Food Security and Research and the provincial food departments, provincial agriculture departments and other key stakeholders, so as to allow the government to take timely and optimum decisions in respect of wheat export.