Pakistan’s new crisis: Wheat flour at Rs 62 has driven inflation to 14.6%, a 12-year high

Dodgy estimations of wheat produce, failure to curb exports, hoarding & profiteering by agents has resulted in a dramatic rise in wheat prices in Pakistan.

File photo of Pakistan PM Imran Khan | Facebook | Imran Khan

New Delhi: Since assuming power in 2018, Pakistan Prime Minister Imran Khan has been forced to grapple with one economic crisis after the other. Now with Pakistan’s skyrocketing inflation, which hit a 12-year high of 14.6 per cent in January, Khan has to yet again deal with another crisis that risks rocking the boat.

Food inflation, which has risen from 1.58 per cent in January 2019 to 16.3 per cent in December, has been the single biggest driver of Pakistan’s rising consumer inflation. While prices of a range of perishable and non-perishable items — from pulses and sugar to fruits and vegetables — have gone up, wheat has been the most instrumental in driving up the country’s inflation.

Dodgy estimations of wheat produce, a failure to curb exports, and hoarding and profiteering by agents has resulted in a dramatic hike of wheat prices. The severity of the crisis can be assessed by the fact that Pakistan’s commentariat now uses the phrase, “wheat a minute”, whenever the Khan-government talks about the virtues of the China Pakistan Economic Corridor (CPEC). 

Food, especially wheat driving inflation

At 14.6 per cent, Pakistan is experiencing its highest inflation-level in over 12 years. The last time the country experienced inflation this high was back in 2007-08, when it was a massive 17 per cent.

Some of the drivers of inflation have been the rise in prices of food items (16.3 per cent), transport (14.3 per cent), and footwear and clothing (10.5 per cent). The rise in global crude oil prices has further added to the country’s inflation woes.

But among the above-mentioned factors, the rapid hike in food inflation seems to be the single-biggest driver of Pakistan’s rising inflation.

“Earlier round of perishable food price hike – such as tomatoes and onion – is now followed by hike in non-perishables – wheat and sugar. The diversion between rural at 16.3 per cent – and urban at 13.4 per cent, is growing. The rural poor is facing the brunt with food inflation at 24 per cent,” noted a report in the Business Recorder.

Most Pakistanis still live in rural areas, and for the Imran Khan government, what seems to be making matters worse is that they face an even higher rate of food inflation than their urban counterparts. The hike in the price of wheat and wheat flour has had the most detrimental political ramifications for the government.

Wheat accounts for 72 per cent of an average Pakistani’s calorific intake. “With per capita wheat consumption of around 124 kg per year, (it is) one of the highest in the world,” noted a report in the Dawn.

The Khan government was warned by respective authorities as early as May 2019 about a looming wheat crisis, but the government’s failure to effectively deal with it has led to the recent price hikes. 

In January 2020, the price of fine flour was Rs 62 per kg, while ether mill flour was being sold between Rs 62-70/kg, according to the retailers’ association. In comparison, the prices in June 2019 were Rs 37 and Rs 41 respectively.

Failure of wheat procurement, illegal exports

A large number of Pakistani farmers grow wheat, but owing to small sizes of landholdings and lower productivity, most of them struggle to make a decent income from their harvests. As a consequence, the government runs a large-scale wheat procurement programme, which involves buying the yield from farmers at a minimum support price.

The actual onus of making procurement, however, lies with provincial governments, and most of the wheat farmers reside in Punjab and Sindh.

“The wheat consumption requirement on a monthly basis in the whole country stood at 2 million tons so the overall production of around 24.7 million tons (in 2019) was sufficient for meeting all domestic requirements,” noted a report in the daily The News.

Regardless of adequate production, the crisis was set in after the Sindh government failed to procure wheat from farmers. “Because different officials were facing NAB (country’s corruption watchdog) probe on account of procurement of wheat and other investigation agencies, so they decided not to procure wheat last year,” added the report.

What further affected the wheat supply were the alleged ‘illegal exports’. While the Khan government had allowed only 200,000 to 400,000 tonnes of wheat exports, the actual numbers were around 640,000 tonnes.

Even after the government enforced a wheat export ban on 25 July 2019, the exports continued to soar. Between July and December, 48,083 tonnes of wheat was exported from Pakistan. According to reports, most of wheat was being exported under the guise of maida and suji.   

The news of shortfalls in procurement by the Sindh government, coupled with soaring exports as the country’s wheat buffers continued to deplete led to a market panic. This opportunity was used by stockists and profiteers to indulge in hoarding and has led to a dramatic price hike.

In Pakistan, wheat is sown during September/October and the produce starts to arrive in the market by March/April. There are still two months before the fresh stock of wheat arrives, and until then the Khan government has to devise ways to deal with a worsening crisis.