System of Hall and Distribution of Wheat

Lahore:

Support price a lot helps the agricultural community. In the presence of a surplus of wheat, prices usually decrease. For example, the stock of wheat became a surplus in 2024, as the government bought a smaller amount of farmers. As a result, the price of wheat began to decline despite the announced support price of RS3,900 per 40 kg.

Since the stock of wheat remained in a surplus in 2024, the price continued to decline gradually. Many farmers possessed their stocks of wheat pending that prices would recover. However, this did not happen. Prices were reduced to approximately RS2,800 per 40 kg before the arrival of a new cultivation in March 2025.

Adequate production and supply of wheat plays a central role in stabilizing food prices. If the supply of wheat decreases, it will increase food prices. Despite the conditions of drought in the outgoing winter, the production and supply of wheat remained adequately.

The international price of wheat decreased by about 9% from March 2025 to May 2025. However, the domestic price was reduced by RS2,800 per 40 kg to Rs2,200 per 40 kg due to the absence of support price.

The support price normally benefits big farmers as they have access to the reins of power. Middle farmers also receive benefits as they can keep their cultivation. The benefits of small farmers depend on the existing stock of wheat. If the new cultivation is in a short period of time, small farmers have benefits from support price. Otherwise, they have their cultivation less than the support price. Therefore, there is a differential effect of supporting the support price on farmers.

The main purpose of the support price is food security. The government holds a stock of wheat to stabilize prices. If prices go up to the domestic market, the visible hand of the government releases some of the share capital to reduce them. Therefore, price stability is achieved through a buffer stock mechanism.

The best way to keep the buffer stock is through domestic cultivation. If currency stocks are low and the lack of wheat occurs, the government must import the commodity, which will further accelerate stocks.

In addition, the international offer, the submission of bids, the shipment and the transfer of wheat to ports would take time and then loading and transporting them within the country. This delay could be politically expensive for the government.

The support price also motivates farmers to cultivate crops that require steps in an economy. Wheat is not a cash crop and farmers have the potential to go to other crops, provided that their expenses are not met. Since farmers have experienced two consecutive years of price crash, the probability is high so that wheat will not grow next year. In the absence of support price, the arable wheat area will be reduced next year.

Food granules affect about 70% of the population in Pakistan. If prices are mitigable, the government will be based on its public distribution system for price stabilization. Here the role of the Utility Store Corporation (USC) is decisive. Its presence and promotion across the country act as a deterrent to speculation and price. Those who consider USC as drag on resources live in a mythical world.

In short, the wheat support price and the public distribution system go hand in gloves to stabilize wild changes in food prices. Exit from this market system will be politically expensive. Let’s see how policy makers respond to the evolving situation.

The writer is an independent economist who worked on SDSB, Lahore University of Management Sciences (Lums)