Cheap flour will come at a price

ECC defers decision on provinces’ import requirements due to huge subsidy needs

Shahbaz Rana August 22, 2020


The federal government may not have an easy solution for reducing the soaring wheat prices and for refilling the commodity’s depleting stocks due to involvement of multiple stakeholders and huge budgetary cost of imported wheat, which may delay arresting the rising pricing trends.

 The Economic Coordination Committee (ECC) of the Cabinet on Friday decided to pick cost of wheat import only to the extent of federal entity while pending a decision on the import requirements of the provinces due to huge subsidy needs.

“The ECC has allowed the Trading Corporation of Pakistan (TCP) to place an order for import of 200,000 tons of wheat in the public sector,” said a handout issued by the Finance Ministry after the meeting.

It said the arrival of 700,000 tons of wheat in the next couple of months would help defuse price volatility, overcome shortage and discourage hoarding of this essential commodity in the country.

The decision cannot be described as one which may help to arrest prices of the wheat and wheat flour, as the Ministry of National Food Security and Research had sought the ECC’s nod for import operations of 1.5 million metric tons wheat.

The ECC has already allowed importing 1.5 million metric tons wheat but decision about operational issues remains pending.  Wheat prices that were Rs1500 per 40 kg in the market two years ago have now increased to Rs2,000 – showing a 33.3% increase in price.

Similarly, the wheat flour price that were Rs900 per 20 kg in August 2018 has increased to Rs1,400 per 20 kg –a surge of Rs500 or 55.5% within two years.

What Food Ministry asked for?

The import of 1.5 million metric tons wheat requires Rs75 billion. Another Rs11.2 billion to Rs22.5 billion are also required for picking the price differential between local and imported wheat, depending upon the wheat release price.

The food ministry had proposed that the wheat release price –the price at which the governments provide wheat to mills for grinding –should be fixed either at Rs1,600 or Rs1,700 per 40 kg. It added that the current release price of Rs1,475 was unrealistic and resulting in hoarding of the commodity.

Its second plea was that the imported wheat should be supplied on cost sharing basis. The Finance Ministry should pick PASSCO cost –the federal grain management organization – and the provincial governments should pick their shares for the wheat being consumed in their provinces.

In case of Rs600 per 40 kg subsidy, the total subsidy is estimated at Rs22.5 billion; in case of Rs400 cost sharing the subsidy amount will be Rs15 billion and in case of Rs300 per 40 kg, the subsidy will be Rs11.25 billion.  The amount is inclusive of shares of all provinces and the federal government.

However, due to subsidy implications, the ECC did not take a decision, except allowing the TCP to import only 200,000 metric tons of wheat.

The first shipment of wheat of 260,000 metric tons is expected to arrive by end of this month and the next shipment of 565,000 metric tons is hoped to reach in October, according to food ministry.

The ECC further tasked the National Food Security and Research secretary along with Minister for Economic Affairs Khusro Bakhtiar to consult with the provincial governments whether they would like to purchase any amount of wheat at the rates offered to the TCP by global suppliers since the global wheat prices generally remain on the lower side in the months of July and August.

Overall, the availability of wheat has been reported at 26.1 million metric tons, including carrying forward stocks and there is a “shortfall of 1.4 million metric tons”.

Public sector wheat stocks have plunged to 6.32 million metric tons –down by 1.23 million metric tons or 16.4% compared with the same period of the last year, admitted the government on Friday.

On average market wheat prices stood at Rs1,867 per 40 kg and maximum prices have increased to Rs2,000. The Pakistan Bureau of Statistics (PBS) has reported wheat prices at Rs2,028 per 40 kg.

The government wheat support price is Rs1,400 and there is glaring mismatch between both the prices after PTI government exported 5.5 million metric tons of wheat and wheat products within first year of coming into power.

The PBS has also reported maximum wheat flour prices at Rs14,00 per 20 kg bag – orRs70 per kg.

 The food ministry summary showed that in Punjab, the public sector wheat price was Rs1,475 per 40 kg while the actual price in the market was up to Rs2,010 per 40 kg, which was the highest among all provinces.

 In Sindh, wheat was available up to Rs1,970 per 40 kg, in Khyber Pakhtunkwa (K-P) also at Rs1,970 and Balochistan at Rs1,880. But the wheat flour price was Rs995 per 20 kg in Punjab, Rs1140 in Sindh, Rs1,200 in KP –the highest – and Rs1,150 in Balochstan.

The TCP has estimated the financial cost of 1.5 million metric tons of wheat import at Rs75 billion –Rs2,000 per 40 kg.

The food ministry contacted the provincial governments to secure their endorsements for import of wheat as per their needs. The PASSCO has endorsed import of 500,000 metric tons, provincial governments of Punjab 700,000 metric tons and KP 300,000 metric tons.


But Punjab has demanded that it should be provided the imported wheat at Rs14,00 per 40 kg –Rs600 or 30% less than the imported cost.

The Minister for Food Security has also contacted Russia for import of 200,000 metric tons of wheat on the government-to-government basis, which would allow the government to swiftly import the quantity.

It was also proposed that the Sindh government may be asked at the highest level to waive excise and taxation charged of 1.25% on the import of wheat. The provinces should also notify exemption of anti-hoarding act on imported wheat.

 The Federal Board of Revenue (FBR) should be asked to reduce withholding tax at 0.25% and treat it as full and final settlement on the import value of the wheat during this fiscal year.

The ECC also took up a proposal for the import of sugar through the private importers in view of fast depleting stocks of sugar which currently stood at 1.2 million tons but were likely to exhaust by early November 2020, according to Finance Ministry handout.

 The ECC decided to reduce the levy of sales tax and other duties on the import of sugar by the private importers to keep the landed cost at the lowest possible level to allow a fair and affordable price to the consumers.

The ECC also discussed and approved a proposal by the Finance Division for fixation of dividend on the State Bank of Pakistan (SBP) shares and allowed the bank to provide dividend at the rate of 10% on the face value of the SBP shares in the bank’s annual accounts for the year ended June 30, 2020.

This has been done to provide Rs936 billion SBP profit in the last fiscal year.


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