ISLAMABAD: The wheat flour sector is suffering due to the flawed policies and the absence of a level playing field thus resulting in frequent creation of wheat flour shortage, low quality wheat products, high prices, and exploitation of consumers, according to the Competition Commission of Pakistan.
The Competition Commission of Pakistan’s recent policy directive addresses all the problems facing the wheat sector with solid recommendations for the government to create a level playing field and upgrade the industry through modern means using the available policy tools. The anti-trust watchdog also urges to gradually reduce the government’s role from the sector and let the market forces work more efficiently so that consumers can enjoy quality products at competitive rates.
The Policy Note says that for the purpose of creating a level playing field, and given that various studies have suggested that the small grinding (Chakki) mills cater for 2/3rd of the total supply of wheat flour to consumers, they should be provided a fair share in the wheat quota (until the Govt. exits the current system). This may be done gradually based on the grinding capacity of registered Chakki mills.
The Chakki mills are small enterprises and provincial governments need to consider putting in place an effective and simple procedure of registration and quota allocation. Furthermore, provision of soft loans for installation of equipment and arranging trainings for their technical capacity may also be considered. The increased technical capacity of this small enterprise will help in increasing the economic activity and market competition.
The provincial governments may consider enhancing the supply of wheat flour by limiting production of flour to whole wheat only, against the Government issued wheat at subsidized rates. This may help achieve the following objectives: a) Relieve the Government of the exhausting exercise of monitoring and enforcing extraction ratios with its limited resources, b) Ensure that the subsidized wheat released to flour mills is converted into nutritious wheat flour for obvious health benefits. C) Increase supply of wheat flour by preventing wastage of nutritious bran and last but not the least d) promote competition between the flour mills and Chakki mills as the latter primarily produces the whole wheat variety.
The CCP recommends removal of Regulatory road blocks to synergize quality control measures. Subject to constitutional limitations, the issue of overlap in regulatory regime should be addressed mutually by federal and provincial governments by removing ambiguities in the role and responsibilities of regulators. A comprehensive review and revision in the regulatory regime is vital in this regard. In each of the provinces, only one Government entity should be given the clear mandate of enforcing quality parameters and ensuring adequate labelling and packaging, as explained above.
To ensure quality, the role of PSQCA takes on increasing importance. While the PSQCA has prescribed standards for wheat flour, whole wheat flour, fortified wheat flour, and maida, standards for wheat itself have not been updated since 1996, the PSQCA must update the standards for wheat to provide parameters to provincial governments to monitor the quality of wheat.
An important issue facing the wheat sector is the inadequate testing for moisture content. The Note says that even though the testing mechanism currently exists, it has not been duly implemented to date. In order to ensure that the moisture content does not exceed that prescribed by the Government, it may strictly enforce the formal procedure for testing of moisture content in wheat flour.
Similarly, the enforcement of adequate labelling and proper disclosure in packaging remains another bottleneck in producing quality products. The Note observes that given that inadequate labelling could mislead a consumer by not providing product representation in a form that makes due disclosures to an ordinary consumer, requirement for unambiguous labeling needs to be strictly enforced by the provincial governments. However, the mills may be provided quality adjustment time in this regard. Also with regard to wheat flour produced from Govt. supplied wheat, the packaging may clearly display the same.
Moisture, nutrient and other labeling requirements and the process used for grinding (dry or wet) of wheat needs to be clearly displayed on all sizes of wheat bags sold in the market.
Like the sugar sector, the wheat sector too is suffering due to the support price regulation. The Note says that typically a support price mechanism is applied at the farm level to avoid production shortfall in commodities that are considered essential or for import substitution. However, countries that are self-sufficient with respect to essential commodities, may find themselves at a disadvantage when a support price mechanism remains in place in the long run.
Any price fixing at the farmer’s level could potentially lead to competition issues at local as well as international level. At the farmer’s end, subjecting him to the pre-season support price, could, at the time of actual procurement deprive him of gains that could be made when the price is higher in the open market. This may go against one of the main objectives of setting the support price in the first place, ie, to protect the farmer’s interest.
From the perspective of international competition, in the event that wheat supply surpasses its demand, any support price that is set higher than the prevailing market conditions, could add to the cost of producing wheat flour such that it may not remain competitive in the international market. This results in excess stocks that are prone to wastage and spoilage, thus bearing a burden on national exchequer.
In terms of domestic market a gradual exit from support price regime would be a sustainable approach and encourage competition between traders, millers and stockists.
The federal and provincial governments may consider reducing their role to ensure food security through strategic reserves, as well as maintaining fair and transparent competition, and helping to raise agricultural productivity through research based interventions.
In the event that the Government deems it necessary to settle upon a support price, it needs to have room/flexibility in its pricing policy so that at the time of its actual procurement, the price of wheat could be rationalized for upward adjustments where market conditions so justify to protect the interest of farmers.
Furthermore, for as long as the support price mechanism exists, it may ideally be set prior to the sowing season and primarily for meeting production targets. For instance, if ever there is a production shortage of wheat in the market, the Government may consider setting a support price that could serve as an incentive for the farmer to increase or adjust its wheat growing area or production vis-à-vis other crops.
The CCP urges the government to allow only targeted subsidy. Wheat issued to flour mills by Government at subsidized rates, is done with the intention of ensuring supply of wheat flour to end consumers at affordable rates. However, due to lack of proper monitoring and enforcement deficiencies in ensuring extraction ratios, and no identification of subsidized wheat flour on its packaging, this objective does not reach its maximum potential. Also some of the subsidized wheat is sold to Chakki mills by some roller mills at market price such that its benefit does not pass on to the end consumer for whom it is intended. Government must consider exploring fool proof methods that can ensure that the subsidy provided by Government could reach its intended target i.e. the ordinary end consumer.
One of the measures that provincial governments could take is to enhance transparency in issuance of quota for production of wheat flour on subsidized price. Till such time that the government’s current wheat procurement and release policy is in place, it may be useful to engage a third party for validation of actually functional mills, Chakkis selection for issuance of wheat quota, and a random monitoring of the same through an electronic system.
The reconciliation process between the quantity of wheat released to mills on subsidized rates and the wheat flour supplied from the same, may be made more transparent and effective. This reconciliation may be achieved through special audits, or any other means that the Government may deem fit. However, any benefits resulting from the above measures may need to be balanced with the costs associated with monitoring and enforcement of the same.
Furthermore any subsidy extended to mills for exporting wheat and wheat products may be done away with as it leads to distortions in the domestic market. Minimum standards for export quality wheat and wheat products may be put in place instead, to increase international competitiveness.
Similarly, the CCP urges the government to take measures to optimize government’s intervention and reform the supply mechanism and streamline the export policy and improving export potential. A strong crop monitoring, forecast and reporting system will be helpful to this end. There has to be strong communication between the Ministry of National Food Security and Research and the Provincial Food Departments, Provincial Agriculture Departments and other key stakeholders in this regard, so as to allow the Government to take timely and optimum decisions in respect of wheat export.
The Federal Government may notify a consistent wheat export policy to allow expeditious export of wheat in years of abundant domestic supplies.
In addition, the Government may help private traders to implement a wheat standard and branding to compete in specific segments of the international wheat market. The PSQCA may also consider working closely with regional countries to harmonize the wheat standards, the CCP added.
Copyright Business Recorder, 2020
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