LAHORE, May 8: Wheat price started sliding in most of Punjab on Sunday after reports that the federal government might pick up incidental charges and issue wheat to millers on support price. In a recent meeting at the Minfal (Ministry of Food, Agriculture and Livestock), all provinces evolved a consensus that the federal government should foot the bill of wheat storage if it wanted to keep flour prices under a tight leash. Minfal recommendations would go to the Economic Coordination Council (ECC), which would take final decision in this regard.

Commenting on the rationale of the consensus, an official of the ministry claimed that the government wanted to keep food prices under a tight control keeping in view voters’ reaction in the fast-approaching local bodies election. It knew that it could not restrict wheat movement to keep the price down as it would alienate farmer voters. It also could not let the wheat price hit the roof as it would further squeeze the urban population and might affect government-backed candidates in urban centres, he added. Finding itself between devil and the deep sea the government decided to invest in wheat storage and keep prices down, he said.

The decision, if and when taken by the ECC, would hardly cost it Rs5 billion. The amount is peanuts when seen in the backdrop of the subsidy that it paid to the organizations like Wapda, which cost the tax payers almost Rs2 billion a month.

The government was also aware of the fact that it had to spend Rs24 billion on wheat import to meet shortfall this season, so it found it prudent to invest Rs5 billion and keep domestic market under control rather than paying Rs24 billion later and that too in foreign exchange, the official said. “The government’s preference to keep the price down is contradictory in nature,” says a former finance minister from Punjab. On the one hand, under pressure from donors, it wanted to pass on all the charges it was accruing on basic food items to the consumers, while on the other, it wanted to keep prices down without subsidizing any sector of wheat trade, he said. The contradiction could not be resolved under the present policy preferences, he said, adding that the sooner this contradiction was resolved the better.

“During the last few years the millers have realized that the huge profits they have become accustomed to lie in flour price not in wheat trade,” says a wheat trader. To monopolize flour prices, the millers had to ensure that the government’s stocks were kept on the lower side, he said. Once the government was not in a position to go for liberal releases, they could charge consumers at their will. The government, on its part, could not break the cycle because of policy commitments to donors, which demanded space for private sector. The net result is pressure on flour prices. The government decision to pick up storage charges would be the first serious attempt to dent the nexus, he hoped.

The government departments have almost all of the factors in their favour this year vis-a-vis private sector, says an official of the Punjab Food department. Interest rates for private sector almost doubled this year. The State Bank had made it clear to investors that they had to retire commodity finance by January 31, much before end of the season, and shortage expected to hit the market. Much trumpeted crop size should also have been worked as a deterrent for private investors. But, all these factors could not stop hike in wheat price during the last week or so. It took a huge policy reversal (subsiding wheat storage) by government to bring wheat price down. Price has started falling back into rational parameters now, and hopefully remain there for the rest of the season, he hoped.