THE federal decision to stop setting the minimum support price for wheat and cease the staple’s procurement operations from this year was much delayed. Politically tough as this policy shift is, multilateral lenders had been putting pressure on Islamabad to fully deregulate agricultural commodity markets since the late 1990s to address distortions impeding the sector’s productivity potential. Both military and civilian governments had resisted the shift to avoid the public fallout, until the ongoing IMF funding programme thrust it on the current administration as a key structural policy reform to be implemented by June 2026. That the government has finally agreed to gradually exit the agricultural commodity markets became clear when Punjab decided against purchasing wheat last year, despite farmers’ protests amid crashing prices.

Wheat price setting and procurement operations had been carried out since the 1960s to protect farmers from sudden price fluctuations and guarantee them a minimum return during periods of surplus and deficit. Besides, they were used to stabilise the staple’s supply to ensure food security and safeguard urban consumers by fixing retail flour prices. But these goals put a huge financial cost on the exchequer, with the centre and provinces spending a lot on procurement operations, with exceptionally high incidental expenditures on storage, freight, and interest payments on bank loans. Wastage and pilferage were other issues adding to the costs. Nonetheless, the massive subsidy the government paid as a price for its interventions in the wheat market is not the only basis for the argument for policy reforms. Its intervention in agricultural commodities, especially the wheat trade, made the sector unresponsive to changing technology and farming practices, increased price volatility, encouraged hoarding, misallocated resources, and burdened the budget. Ironically, farmers have not benefited from this policy. The bulk of subsidies was pocketed by middlemen, flour millers, and corrupt officials. The impending shift will indeed create chaos in the market in the short term before it adapts itself to the new realities. The savings will give policymakers the fiscal space to invest in high-yield seed varieties, and help farmers adopt new technologies to improve productivity, slash production costs and, consequently, consumer prices. If the government must intervene, it should only be for addressing market inefficiencies and ensuring food security.

Published in Dawn, February 8th, 2025