Wheat flour shortage

The federal government is now looking beyond the country’s borders to solve the wheat flour shortage. The ‘push’ has come after the provinces fell significantly short of their collection targets. Of course, this surprised no one except the government’s own planners, who are now having to expedite imports to fill a gap the rest of us could see months ago. Unfortunately, high international prices are keeping importers from risking running losses due to the low domestic control price. It is indeed these same control prices that generate much of the controversy and corruption around the wheat and flour industry

Although control prices are meant to keep prices low for consumers, the reality is that they often end up acting as a disincentive for mills and exporters by cutting into their profit margins. Meanwhile, given the variance between control prices and international prices, smuggling wheat to Afghanistan and Iran is generally a lot more profitable for those who can. That last point may also explain why Khyber-Pakhtunkhwa procured less than five per cent of its wheat target.

There is now some behind the scenes wrangling over subsidising wheat imports as it is the only way for traders to make a profit given the lower local control price. This wrangling, however, has also exposed the lack of planning on the government’s part. It appears no one noticed how wide the margin between the two price points had gotten, and no subsidy was set aside, despite the budget having been prepared barely a month ago. This is a critical level of incompetence and forces the question of whether the industry would be better off deregulated from top to bottom.

If a quality oversight structure could be created, this would assure that supply issues are a thing of the past. Smuggling and hoarding would largely be disincentivised, and importing wheat would be profitable at times of domestic shortages. Consumer prices would rise, but the government could use targeted rationing to ensure poor people can afford the commodity. It would still cost less than the current plan. Only those pocketing existing subsidies would lose out. Unfortunately, they are the ones that make the policies.

Published in The Express Tribune, July 18^th, 2020.

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