Government of Pakistan raised the support price for the upcoming wheat crop to Rs1200 per 40 kilograms ($312/ton), up 14 per cent over the existing price of Rs1050 per 40kg ($292/ton).
The increase will not have any immediate effect on current flour prices, but rather will occur next August when the government starts releasing wheat stocks to flour millers at the new rate.
Government’s decision will also increase the level of circular commodity debt, increasing pressure on an already fragile economy.
Belated Announcement Raises Doubts about Government Intentions
The decision to increase the procurement price was made after about sixty percent of the current wheat planting was completed. According to farmers’ organisations, the government is two months late in its announcement as it will have less influence on farmers’ decisions.
Pakistan’s wheat planted area has decreased by five percent during the last two years. It is however interesting to note that in spite of reduced area Pakistan has been able to maintain a steady production level. This is due to better yields as a result of the deposition of rich soils due to floods and availability of new wheat varieties.
The government’s decision to increase the procurement price has aroused suspicions from different quarters. Trade and milling industry view the announcement as a political rather an economic decision.
It’s viewed as an apparent attempt by the government to appease its rural based constituency to gain support in the next year’s upcoming general elections. Increasing support prices is perceived as a move to help the party win back rural voters estranged due to multiple issues ranging from a deteriorating energy crisis to a dwindling law and order situation.
Government sources indicate that NFSR and the Agriculture Policy Institute, after a detailed analysis and consultation with the provinces, had initially proposed to the government to retain last year’s procurement price because the price of fertilizer was the same as last year. However, NFSR later had to revise the proposal bowing to the political influence.
Concerns regarding Increase in Food Inflation
The increase in the wheat procurement price will not have any immediate effect on current flour prices, but rather will occur next August when the government starts releasing wheat stocks to flour millers at the new rate.
The flour prices have risen by 60percent since 2008 and are likely to rise by another 14 percent in August of next year. The graph also indicates the increase in the government procurement price has always resulted in a proportional increase in price of flour.
