LAHORE: The flour prices seem to have shot through the roof this Ramazan; in the first week of the holy month, the price of a 20kg flour bag has gone up by a whopping Rs30, with government, unwilling, or unable, to stem the trend.

On June 20, the Pakistan Flour Mills Association (PFMA) announced its first hike of Rs10 for each 20kg bag, citing increasing wheat prices. Barely two days after it, was the second raise of Rs10. On June 25, came the third increase – on the same pretext – taking the bag price up from Rs710 on June 19, to Rs740 by June 25.

According to the millers, the wheat price has gone up from pre-Ramazan Rs1,200 to Rs1,325 per 40kg during the same period, forcing them to reflect the hike in the output.

Releasing govt’s wheat stocks may bring price down

“It is a usual scene; a few big stockists creating speculative pressure by trading among themselves and increasing price daily by more than Rs30 per 40kg,” explains a miller from Lahore.

“Since they (the stockists), along with big millers, hold most of the stocks, their impact on market sentiment is huge. Once the news of rising prices is spread, the smaller hoarders naturally join in and hold their stocks in hope of better prices. This is precisely what has happened, otherwise the country, both private and public sectors, is having massive stocks. There is no commercial reason for this price increase, except for hoarders’ speculation and its impact on the market,” he insisted.

“In the days to come, flour market would be rigged further,” fears another miller. “The provincial government is releasing wheat at Rs1,120 per 40Kg for Ramazan subsidy package and 20Kg bag, under this package, is being sold at Rs660. The price differential between subsidised flour bag and normal supplies is Rs80 per bag – a huge incentive for corruption. As this differential grows, more and more subsidised wheat would find way into other market, becoming source of minting money for the millers. They are sure to get their pie if market is controlled through official intervention,” he warned.

“The Punjab Food Department is having well over five million tonnes of wheat lying in its stocks,” says Majid Abdullah of the PFMA.

“What are they meant for if not stabilising the market? Currently, it is more of a matter of availability rather than price. If the government opens its stocks, which are massive by any stretch of imagination, big and small hoarders would also be forced to throw their stocks in the market. Once the government decides to start releasing wheat, it may not be able to do so more than 10pc of total requirement because the private sector, which is holding stocks, in the hope of windfall, would see its hopes dashed and start selling its stocks. It is just a matter of threatening the private sector with public stocks, rest would fall in place automatically,” he hoped and suggested: “The government can easily release two million tonnes, which it carried over from last year. The government had purchased it at Rs1,200 per 40kg and was releasing at Rs1,280 per 40kg. If it repeats its performance, it may not take long to get things settled down.”

Asim Raza of the PFMA, however, thinks that price increase is “just a market correction, nothing unusual”. The government would only be able to release wheat when market price exceeded its planned release price, otherwise the official wheat would only add to price, he said.

“The government purchased it at Rs1,300 per 40kg. It may be releasing it at a price anywhere between Rs1,350 to Rs1,400 per 40kg. The market price is still at Rs1,325 per 40kg. The government is waiting and allowing the market to come up to the level of its releases,” he claimed.

Published in Dawn, June 28th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play