Flour prices maintain upward trajectory in line with wheat rates

LAHORE: Flour prices in the open market continue to rise, driven by increasing wheat prices. In just two weeks, the cost of a 20kg flour bag has surged by up to Rs250 in Punjab, as wheat prices in major cities like Lahore and Rawalpindi have crossed Rs3,000 per maund (40kg) for the first time.

The price of wheat has swelled to Rs3,200 per 40 kg in Rawalpindi against the government-notified maximum retail price (MRP) of Rs2,950. Flour millers in Lahore claim that they are forced to buy wheat at Rs3,000 per 40 kg against the notified MRP of Rs2,900.

Market insiders predict that wheat prices will continue to rise, citing a shortage of grain in the open market despite the country producing a record 31.4 million tonnes of wheat, adding that the open market shows constrained supplies as private buyers were free to sell their produce to other provinces.

Since the government lacks control over private wheat stocks, provincial governments have historically released wheat from official stocks to flour mills annually to maintain reasonable flour prices in the market.

However, owing to what many call a policy flaw, the Punjab government chose not to buy wheat from farmers from their 2023-24 crop. Hence, the provincial government is now left with limited options to control the market price of flour.

The now-disbanded provincial food department has around 2.2 million tonnes of wheat from the previous year’s crop, which cost it over Rs5,000 per 40kg. However, the quality of the stored grain is in question. Several flour mill owners have expressed concerns over what they describe as “poor quality grains”.

The government now faces a dilemma: either provide massive subsidies, costing billions of rupees, to issue wheat to flour mills or risk the stored grain running out before March 2025. Market analysts believe the government may attempt to force farmers, traders and flour mill owners to sell their wheat stocks at the government-notified price until the market is fully depleted.

Reacting to the evolving grain market situation, the Progressive Flour Millers Group (PFMG), a body of branded flour producers, claimed that the current increase in flour prices is due to soaring wheat prices across the country, including Punjab.

According to members Khaleeque Arshad, former chairman of the Pakistan Flour Mills Association (PFMA), and Majid Abdullah, the wheat price has risen from Rs2,700 to over Rs3,000 per 40kg in just two weeks. They argue that flour mills are operating according to basic market principles of supply and demand, adding that the mills were earlier selling flour at a rate that was significantly lower than the government-fixed rate of Rs1,730. This was so because millers were getting wheat at rates lower than the notified rate.

They held the view that the provincial department cannot control the free market economy, which is purely based on the demand and supply phenomenon. To provide flour at a fixed rate, they observed, the provincial government would either need to supply wheat at a lower rate or ensure affordable grain availability in the private market -- an outcome that is unachievable through pressure on farmers or stockholders.

That the Punjab government has fixed a price for private wheat sellers is in direct conflict with the minimum support price of Rs3,900 per 40kg announced by the federal government, which was not implemented. The government did not fix a guaranteed price (support price) for farmers before the harvest, but now, after the harvest, it wants to control the price at which wheat can be sold in the open market.

They added that since the Punjab government refused to purchase wheat from farmers, it resulted in a free fall of wheat rates in the open market, causing huge losses to farmers. Now that the market is taking its natural correction and farmers will benefit a little from an increase in wheat prices, authorities have jumped in to regulate the wheat market.

The PFMG condemned the show-cause notices issued by the food department over flour prices, calling them arbitrary and unjust. They demanded the withdrawal of these notices, insisting that flour prices would continue to reflect current wheat rates.