Grain market in turmoil

Terms such as “highest ever prices” and “record increase” have become clichés over the past three years, but such are the times we live in. According to PBS, national average wheat price rose by 18 percent in the wholesale market over the last month, the largest-ever such monthly rise since at least 2011 if not longer. Pakistan’s grain market is in turmoil, and there is precious little administrative actions can do about it.

Per PBS, wholesale wheat prices have risen by nearly 60 percent over the past 12 months, with at least six more months to go before the next harvest season. In fact, bulk of this increase – up to 48 percent - has taken place in the past five months alone, post-arrival of the 2022 rabi season crop. Although massive, such increases have become increasingly common in the local wheat market. Readers will remember that wheat prices shot up by 31 percent between April and September 2020, following the flour shortage earlier that year.

Back then, the impact from flour price spiral was partly mitigated by less turbulent rise in other food and feed grains. Wholesale rice index, for example, rose by 12 percent during 2020, while maize prices rose by just 8 percent during the same year. Now, however, prices of these food grains are also catching up, as the shortfall in wheat supply looms larger and larger every subsequent season.

Consider, for example, maize prices have risen by as much as 63 percent in the local wholesale market over the last 24 months, with bulk of rise – nearly 34 percent – taking place since the outbreak of war between Russia and Ukraine in late February 2022. Meanwhile, rice prices have also increased by 38 percent over the past 24 months, of which 23 percent increase has followed since April of this year alone.

Although the relatively mild increase in rice prices may bring some comfort, it masks the staggering rise in locally consumed varieties over the past one year. According to grain markets data from Faisalabad, price of varieties such as Super Basmati (new) have more than doubled over the past 12 months alone.

Even so, an average increase of over 40 percent in prices of three primary grain commodities – used for both food and feed purposes – raises serious concerns of spill-over effect in wider food prices.

For both maize and rice, the severe price increases are taking place following a year of record production, when national output of both cereals crossed 9 million metric tons in FY22. In fact, Pakistan’s rice and maize production has averaged CAGR of 8 percent over the past five years, yet is not rising nearly fast enough to stabilize prices in the local market.

Meanwhile, the massive jump in wheat prices in just one-month – that too during off season – may indicate pricing in of forecast lower output next season, as risk of traditional wheat acres in Sindh remaining inundated during the sowing window looms large. Pakistan may be able to mitigate some of that shortfall through pricier imports – supplied to consumers at a subsidy – but a spill over in other food commodities may only be delayed for so long. Pakistan’s population is caught in the throes of a vicious price spiral in food CPI, while decisionmakers have zero out-of-the-box solutions to offer other than throwing money at the problem.