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LAHORE, June 15: A meeting between the Punjab Food Department and millers to discuss rising flour prices on Wednesday remained inconclusive as far as the stated purpose of lowering the rate was concerned. The millers said raise in the flour price was a reflection of increase in the support price of wheat. The government had enhanced wheat support price by Rs50 per 40kg this season.
The millers used to get wheat for Rs392 till February this year, and the government has fixed an ex-mill rate of Rs233 per 20kg bag. The government has purchased wheat for Rs350 and now releasing it at Rs392. Now when the support price was up by Rs50, they said, it would naturally affect the final price.
Keeping in view the wheat support price, the flour rate should have gone up by at least Rs15 per 20kg, but it had increased only by Rs5 to Rs7 because of competition in the market, they claimed.
A temporary spike has also been created by food department’s policy of aggressive buying. With an end to stanching wheat from private parties, the wheat price may relax a little bit and that would not be of much importance.
The raise in flour price would stay because it had been caused by an increase in the wheat support price, the millers said.
WHEAT: Wheat market watchers on Wednesday warned the government against perils of its new policy of keeping a strategic reserve of two million tons and let the private sector trade in the rest of the crop.
The government, under a commitment with international financial institutions and donor agencies, want to reduce its role in wheat trade and let the private sector deal in it.
It is said to be claiming that it will keep two million tons of wheat as ‘strategic reserves’ and hand over rest of the trade to private parties.
Counting dangers of such an experiment, the market watchers, however, claim that it may backfire with massive political and social cost if handled with customary care with which the government has been dealing other sectors.
“It can turn out to be a big mistake if the government chooses to stick with this policy,” says a trader from Lahore. He maintains that the government has four million tons of wheat in its stocks and is still considering an import of 1.5 million tons to keep the flour price under check.
“If it does not feel secure with four million tons of wheat, how would it be able to stabilize market of basic staple food with half the quantity. If it limits itself to a strategic stock of two million, it would not be difficult for private sector to manoeuvre government and keep fleecing consumers,” he contends.
A miller from Lahore says the Punjab food department has at present around 2.5 million tons of wheat — it had a carry-over of around 50,000 tons. The Sindh food department has 500,000 ton and the Pakistan Agriculture Storage and Services Corporation another one million ton wheat.
The private sector has around 1.7 million tons of wheat — the millers have purchased around 1.2 million ton this season and the private traders 500,000 ton — against four million tons of official stocks. The government is importing 1.5 million tons more to keep flooding market and the prices low.
In fact, he says, the prices have already soared because the private sector knows that the government has very little margin of manoeuvring unless it places an import order.
The government will not only be losing control of the flour market but also destabilize the wheat market, says a farmer, who adds that the farmers and consumers will be the worst hit whereas the millers will keep minting money at the cost of both.
The government’s commitment to buy a certain quantity of wheat is the most crucial factor in keeping the wheat price stable in the open market. The private sector knows that the price cannot crash below a certain point because the government is there to buy it. Once this factor is gone, the private traders will purchase wheat at a price of their own choice because farmers do not have a holding capacity.
During the last five years, the price has crashed as low as 20 per cent of the support price.
The traders will buy wheat at a price of their choice and then sell flour in the similar fashion because the government departments will be out of the market, fears the farmer.
The millers know that their margin of profit lies in the flour price and not the wheat trade, says an official of the department. But in order to control the flour price, they have to monopolize the wheat trade, he adds.
