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Sudden rise in price of flour haunts govt

January 11, 2013

ISLAMABAD, Jan 10: A sudden surge in price of wheat flour in the market has started haunting the government ahead of elections because the increase is attributed to its decision to increase wheat support price by about 14 per cent about two months ago.

A meeting of the Economic Coordination Committee on Thursday mostly discussed the rising flour prices and decided to flood the market with large quantities of wheat from public sector godowns.

The ECC described the price hike as “artificial and speculative” and without any justification.

The meeting presided over by Finance Minister Abdul Hafeez Shaikh also decided to substantially cut federal excise duty on export of sugar for offloading surplus stocks with Rs8 billion and allowed LPG air-mix in natural gas for industrial consumers with increased cost to contain gas shortfall.

An official told Dawn that even though increased wheat support price for the current crop season was yet to become effective because the harvest was expected after three months, the market players had started taking its psychological advantage.

The surge was also triggered by Rs4.5 per kg increase in flour price announced by the state-owned Utility Stores Corporation.

As a result, the mills started selling flour at Rs750 per 20 kg (Rs37.5 per kg), with an increase of about Rs170 per 20 kg or Rs8.5 per kg over the last couple of days even though the government was releasing its wheat stocks at Rs1,125 per 40 kg (Rs28.25 per kg). The open market price went beyond Rs800 per 20 kg or Rs40-42 per kg.

An official statement after the ECC meeting said the “current price hike of Atta in the market is artificial and speculative”, adding that there was no shortage of wheat stock in the country.

The meeting, therefore, decided to immediately release one million tons of wheat to provincial governments, Utility Stores Corporation and flour mills and traders at Rs1050 per 40 kg from the stock of the 2009-10 crop and at Rs1100 per 40 kg from crop year 2011-12. It also decided to immediately supply the required quantity of wheat to all provinces.

The ECC constituted a ministerial committee comprising Minister for National Food Security Mir Israrullah Zehri, Minister for Science and Technology Changez Khan Jamali, Minister of State for Production Khawaja Shiraz, Special Assistant to Prime Minister Kamal Majeedullah and Secretary Ministry of National Food Security to explore avenues through provincial governments to ensure availability of required wheat.

SUGAR EXPORT: The ECC decided to curtail federal excise duty applicable at 8 per cent for sale in the domestic market to 0.5 per cent for export to facilitate sugar export.

The meeting was informed that the ECC had allowed in November last year to export 1.2 million tons of sugar because of surplus in the market but so far only 305,000 tons could be exported.

The balance of 895,000 tons could not be exported owing to international prices almost equal to those prevailing in the domestic market. It was stated that the huge sugar stocks were causing a decline in domestic prices, making it difficult for millers to pay off their dues to banks and farmers.

The meeting was informed that the export could earn foreign exchange of about $450 million provided it was facilitated in freight charges and federal excise duty.

The ECC allowed a total subsidy of Rs8 billion on account of reduction in federal excise duty (0.5 per cent instead of 8 per cent) and Rs1.75 per kg subsidy on freight charges subject to production of export receipts.

The domestic sale of sugar would continue to be subject to federal excise duty at the rate of 8 per cent. The freight subsidy would be paid out of export development fund.

LPG AIRMIX: In order to overcome the shortage of natural gas for industrial sector, the ECC also approved injecting of LPG air-mix equivalent to 50 MMCFD gas into dedicated network for the industrial sector.

The price impact will be borne only by the industrial sector and the domestic consumers will not be affected. It was estimated that if the impact of LPG air-mix was built into the weighted average cost of gas for all consumers, it would increase average gas tariff by about 10 per cent.

The ECC, however, decided that since the LPG injection into natural gas would be dedicated to industrial sector, the additional cost impact should also be borne by industrial consumers instead of domestic consumers who would not benefit from LPG air-mix.