THE wheat shortage, amidst claims of highest-ever crop size, is once again reinforcing the need for strong government intervention.

This is the second severe crisis of the crop in less than 10 years since its procurement operation was handed over to the private sector. Private sector involvement is not bad, but it requires a strict vigil and effective anti-trust legislation, which unfortunately is lacking.

Some people, using their political clout, have earned billions of rupees by exploiting the poor farmers. The small farmers do not have adequate storing facilities, they are under pressure to sell their produce quickly for repaying high-interest loans, taken from the middlemen and dealers, and purchasing the inputs for the next cropping cycle. Consequently, majority of the farmers are at a disadvantage while disposing off their surplus production.

The handing over of wheat procurement operations to the private sector has cost heavily to the consumers. This also implies policy failure and lack of planning on the part of the government. The tendency of switching over to extra-market forces has harmed the consumers to a great extent, and benefited profit-mongers at the cost of the poor.

The writ of the government has diminished over the years and the policy-makers are continuously attributing the anarchic tendencies to the spillover effects of the market economy. The weak regulatory mechanism and poor enforcement of government writ have been exposed time and again over the last five years.

The government has encouraged storage facilities in the private sector but these facilities are being misused for hoarding essential items and creating their artificial shortage for black-marketing to reap extra benefits. The beneficiaries know that nobody has ever been brought to book. Even the government functionaries are deliberately brushing aside the possibility of any crisis and by doing so they are deliberately hiding inefficiency and mismanagement of various government agencies.

The wheat crisis has far-reaching impact on the economy. It undermines the prospects of bringing inflation to a manageable level and raises fiscal deficits.

Over the last two years, the unfair burden of higher inflation was disproportionately placed on people in the lowest income bracket; this is continuing. The upsurge in food prices is likely to throw many people below the poverty line. The government’s efforts to make economic growth more inclusive would definitely receive a setback

The current food inflation is driven mainly by wheat and wheat products. It cannot be explained by the economics of demand and supply. It is better being explained by economics of bad governance.

The effects of inflation are more social than economic due to loss of the real value of money. The prices of wheat and wheat flour have already sky-rocketed. The price of this staple food has not only direct bearing on inflation but small traders try to safeguard themselves against the fall in their real income through increased prices of their products milk, or petty services.

The industrialists in the private sector also come under pressure from their workers for rise in their wages. This causes chain reaction. One can imagine the multiplier effect of recent wheat shortage and price escalation in the holy month of Ramazan.

The government usually fixes the support price of wheat before the harvesting season. However, it has recently increased the cost of wheat released to the flour mills and wheat flour being sold through utility stores. This is also an unusual move on the part of the government.

The general criteria for determining the support price of a commodity includes the following specific dimensions: (i) cost of production of crops; (ii) export and import parity of prices; (iii) farmers’ input and output price parity; (iv) domestic demand, supply and stock position; (v) world demand, supply, stock and trade; (vi) domestic and international prices; (vii) probable impact on other competing crops; (viii) likely impact on the cost of living; (ix) production response to prices; (x) risk factor; and (xi) effect on industrial cost structure.

The government has not taken these factors into consideration.

The availability of this staple food at affordable rates is the responsibility of the government because it is an important part of the food security. The government needs to conduct a probe and fix responsibility on the culprits who hike wheat and flour prices. This is a question of credibility and commitment made to the electorate.