It is wheat plantation all across the country, and the raw material price has shifted gears, taking a sharp reverse. Twelve months ago, raw material prices had started precipitous rise around the same time. What is different this year?
Like most stories, this one also started with media speculation, some of which, was false. Permission to export carry forward surplus from prior period in 2019 followed by an abrupt ban was interpreted as government giving “unidentified and unscrupulous traders” an opportunity to mint money at the expense of consumers. The situation was exacerbated by speculation about disappearing of stocks under provincial food departments, compounded by fear mongering over crop lodging caused by untimely rains in some areas.
The price spiral that followed opened floodgates that could not be closed until last month. From inquiry committees, to fact finding missions, administrative actions against hoarders, price fixing at retail levels, pandemic led slowdown in consumption, and permission to import from international market; nary a trick in government’s bag helped to arrest the precipitous rise in price of Pakistan’s favourite cereal.
Until now. It is crucial to remember that the rise in recent months was fuelled by across-the-board speculation that the government would increase wheat support price up to Rs 2000 per 40kg to ensure parity with landed cost of imported wheat. Fortunately, better sense has prevailed at the federal level.
To borrow the cliche from 9 o clock talk shows, folks in Islamabad seem to have finally gotten Economics 101 right this time. Because the officially notified price acts as a price floor, by setting it at a low level, the government has ensured that wholesale and retail prices also converge in the same direction.
It is no surprises then that the moment government announced its firm decision to maintain price at Rs 1,650 per 40kg, prices have begun to fall – long before the next harvest. That prices are declining at the time of cultivation, also means that seed will become cheaper, hopefully lowering cost of production for ongoing season.
That the government in Islamabad has managed to show spine demands recognition. Whether it goes on to show that the influence of the infamous “farm and landlord lobby” among the electables is waning, still remains to be seen.
Why? Because the government made another fatal mistake last season, that must not be repeated this year. It increased support price twice by Rs 50, each; once, at the beginning of the season in October, and the next right before harvest in March.
While the increase in price before government procurement and secondary market trading begins ultimately benefits the growers, an increase at the time of harvest can no longer translate into increase in supply – as sowing season is well past.
This means that if the government eventually gives in to farming lobby pressure any time the next quarter, it will ensure that retail price rise in a spectacular fashion. Will they? Only time can tell.