WITH the field temperature rising close to 40 and the wheat crop maturing quickly, the Punjab Food Department should pull its socks up.

Setting a procurement target of four million tonnes — though the federal government had earmarked for the province a target of 4.5 million tonnes — it will start procurement from April 20.

All reports indicate a good crop, if not bumper, and it would be a tough job for the authorities. For the government, it would be a tight rope walk — balancing between procurement pace and ensuring a reasonable market price.

The current wheat price of Rs1,200 per 40kg is relatively reasonable given the high moisture content (10 to 15pc) in the early crop harvest. But once the crop starts drying, thrashing picks pace and supplies surge, price crash cannot be ruled out.

However, early estimates suggest that Punjab would be harvesting over 20m tonnes of wheat this season, leaving a tradable surplus of around 7m tonnes.Out of it, the formal sector would be procuring 5m tonnes (the Punjab Food Department 4m tonnes and Passco another million tonnes). The rest would be in the market. The private sector, in all probability, would be waiting for the both official agencies to get out before joining the procurement drive to maximise its profits by encashing on possible price crash.

The department, on its part, would have two issues to deal with: managing massive carry-over stocks of 2.7m tonnes and the new purchase, and administrative issues of the procurement drive. It means that the entire indoor storage may not only have been consumed but around 400,000 tonnes may be lying in the open. The entire new purchase would have to be stacked under open skies — a huge risk by any stretch of imagination.

Punjab would also know that at the end of the procurement, it would be left with 6.7 million tonnes of stocks, even if it does not have to raise the target. If the crop turns out be bigger than estimates, the provincial government has to increase the target and it would only be stretching itself to financial and infrastructural breaking point. That is why it is keeping the target on the lower side, but this low target would have psychological cost for the market.

Adding to its woes is the removal of patwari from the procurement trail this year. This low-rung revenue official used to play an all-important role in finalising the priority (for procurement purposes) list for gunny bags distribution and return of wheat. Though there were lots of complaints against him, the department has had the benefit of his utility. In his absence, the fear factor, which he used to represent in rural areas, will also be gone, doubling pressure on the officials of the department.

Apart from these hiccups, the millers are bound to purchase a part of wheat because of some in-built profits that they make. With the Punjab government purchasing wheat at Rs1,300 per 40kg, it is bound to release it later in the year at least at Rs1,350 per 40kg to recover a part of its expense on loan servicing. If the price crashes to anywhere between Rs1,100 to Rs1,200, it would create a cushion of Rs200 per 40kg for the private sector — which comes to Rs5 per kg. This is a huge incentive by any calculation for a few months of wheat storage. Most of the millers, especially smaller ones, don’t make that much money on their mill operations.

With all other commodities experiencing low cycle, wheat is a relatively sure business bet. The millers are thus bound to purchase whatever they could afford and lessen the load of the official agencies and political cost for the government.

Published in Dawn, Business & Finance weekly, April 18th, 2016