LAHORE, Feb 5: The flour price may go up to Rs220 per 20kg in the next two months as the Punjab government is going to increase the wheat release price to Rs350 a maund next month "to avoid market distortions".

According to official sources, the price will be increased in early March. The government has decided to keep the release price on a par with the support price so that people do not purchase wheat from it to resell it at a higher price.

The decision would naturally affect the flour price.

The increase was part of government's cascading framework for wheat price that it introduced this year to pass on the burden of storage to millers and recover the costs.

Sources added that the cascading price mechanism had been evolved under donors' advice to gradually abolish subsidies. The private sector's entry into the wheat market is also a part of donors' strategy which calls for gradually phasing out government's role in wheat procurement.

Stakeholders said the millers and private parties knew that there were hardly enough stocks to meet domestic requirements. "This gives them manoeuvrability to play with the price."

The provincial food department has stocks of one million tons, which are sufficient to meet the requirements of the province. Currently, the department is providing 20,000 tons of wheat to flour mills daily. The provincial food department had increased the official quota of wheat for mills with a view to stabilizing the price of flour in the market.

The wheat quota, which was 18,000 tons from Jan 28 to 31, had been increased to 20,000 tons for Feb 6-11. The step helped overcome the shortage of flour. However, official wheat release will be reduced to 15,000 tons next week. The decreased quantity of official wheat would again squeeze the market, which may ultimately result in an increased price of flour.

The government had decided to sell wheat to the private sector including flour mills against a cascading price framework last year.

According to the official stance, the system has been adopted because millers prefer to procure wheat from the government instead of buying the crop from growers, to save money and extra effort.