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National wheat prices appear to have finally plateaued. For the week ending 09-July, 10kg wheat bag price as tracked by SPI recorded its slowest increase in 8 weeks, rising by just 0.45 percent. Have the brakes been finally pushed on the rollercoaster spiral that began 4.5 months ago, or is the respite temporary?

No confirmation exists whether Punjab Food department – the single largest buyer of the crop – managed to achieve its procurement target of 4.5 million tons. The fanciful target, in part, contributed to the speculation, as it crowded out the private sector commercial transactions. Meanwhile, because the Food department is also the de facto price-setter, private buyers also chose to remain on the side lines, waiting for the official issue price to be announced, which is usually indicative of the direction market prices may take for the rest of the year.

Historically, the Wheat Release Policy is announced around September, as carryover stock from last season coupled with commercially procured wheat meets the requirement during the intervening months once harvest ends by Apr-Jun. Also, between 2012-2018, monthly wheat price fell by 5-20 percent between months of February and June, indicative of balanced/surplus stock position. Last year, prices had stayed unchanged, finally going on an upswing of 5 percent this year.

The preponed announcement of Wheat Release Policy by Punjab government earlier this month has finally brought some stability to the market. Issue price has been set at Rs 1,600 for 40kg, which translates into Rs400kg per 10kg bag. The subsidized release rate is at a 20 percent discount from prevailing market rate and may help bring retail prices down.

Because government commodity operations have historically subsidized wheat procurement by private sector, the anticipation of higher government procurement quota may have also played a role in keeping commercial procurement on the low.

On the flipside, higher official procurement target also meant that growers should be more interested in finding a willing buyer in the shape of Food department, instead of private sector buyers, who usually manage to negotiate a discounted rate, especially in years of surplus. It appears that both players – flour mills and growers – have been partly successful in their objective. Except there is a risk.

In absence of publicly available statistics of wheat stock position with the Food departments, early announcement of Wheat Release Policy also carries the risk of fuelling the speculation fire. Lack of private sector transactions have already raised these fears, coupled with news of poor yield, and missed output and procurement target from the farming sector. Market-based price movements also suggest that the crop is in short supply. Meanwhile, the mirage of food self-sufficiency has inflated the national ego, preventing admission to the contrary.

That a free-trade regime will not only improve price discovery but also generate consumer surplus by giving access to cheaper foreign-origin imports has been reiterated in this space ad nauseum (For more, read “Wheat: from mishandling to next crisis”, and “What’s wrong with importing wheat?”, published by BR Research earlier this year). But those are long term challenges that will not resolve themselves in a year, lest a month.

In absence of broad-based scientific surveys regarding wheat consumption trends and national demand, it will be hard to forecast the extent of shortfall purely relying on historical data. In the interim, the government can do itself a favour by making public information regarding release prices, flour mill quotas, and weekly stock position with the Food departments. Thereafter, the direction of market-based price movements will allow private sector to take advantage of duty-free imports, if needed.

If Pakistan is facing a serious shortage, information symmetry may very well lead to a one-off price spiral but will curb volatility in future. Yet, if the babus decide to bring down the hammer of price control, they will in effect be deciding in favour of speculation.