The federal government believes that the support price of wheat at Rs. 4,000 per 40 kg announced by the Sindh government is likely to increase food inflation.
This was shared by the Ministry of National Food Security and Research in the meeting of the Economic Coordination Committee (ECC) of the cabinet chaired by the Federal Minister for Finance Ishaq Dar.
As per the handout issued by the Finance Ministry, the ECC has deferred the decision on the support price of the wheat crop for the fiscal year 2022-23.
The Ministry of NFS&R informed the ECC that wheat is the staple and a strategic crop of the country and to ensure its maximum cultivation and to achieve self-sufficiency, the government fixes its minimum support price (MSP) to assure a fair return to the farming community.
MSP for the current year was fixed at Rs. 2,200 per 40 kg and on the other hand, the Agriculture Policy Institute (API) has worked out Rs. 2,495 per 40 kg as the cost of production of the wheat crop for the average farmer and Rs. 2,427 per 40 kg for the progressive grower.
It is pertinent to note that the National Assembly Standing Committee on NFS&R also recommended that the federal government may announce the MSP of wheat not less than Rs. 3,000 per 40 kg.
Sources said that the Ministry of Food has shared the estimated costs with the provincial governments in a meeting chaired by the Minister for NFS&R and their proposals range between Rs. 2,600 per 40 kg to Rs. 3,000 per 40 kg.
Sources also said that the provincial cabinets of Punjab and Khyber Pakhtunkhwa have endorsed the price of wheat at Rs. 3,000 per 40 kg while the government of Balochistan has not announced the price yet. On the other hand, the provincial cabinet of Sindh has announced the support price of wheat at Rs. 4,000 per 40 kg.
The meeting was also informed that a cabinet committee met with Chief Minister Sindh with a request to review the MSP, however, no feedback has been received, sources added.
The ECC meeting was informed that the recommendation of the Sindh government is expected to have multi-dimensional effects, and is likely to increase food inflation.
In addition, Pakistan Agricultural Storage & Services Corporation Limited (PASSCO) may not be able to procure wheat from Sindh, while other provinces may impose a ban on the movement of wheat across borders. The growers and middleman will use the price disparity amongst provinces to distort the market and hoarding and smuggling is likely to occur, sources added.
Besides, keeping an abnormally high MSP would also hurt the finances and subsidies of federal and provincial governments. Hence, a reasonably high-profit margin, keeping in view the flood situation would be the most prudent course of action to incentivize the next wheat crop.
Meanwhile, the Pakistan Bureau of Statistics (PBS) in its reports for the period April 2022 to September 2022 has reported the average local wheat price at Rs. 2,776.66 per 40 kg. Inflation for August was 26.23 percent with the support price of wheat at Rs. 2,200 per 40 kg. In case of an increase of every Rs. 100 per 40 kg in the MSP, the estimated rate of increase of inflation would be 0.16 percent.
Therefore, in the case of the proposed MSP of Rs. 3,000, Rs. 3,200, and Rs. 4,000 per 40 kg, the estimated increase in CPI would tentatively be 1.27, 1.60, and 2.86 percent respectively.
It has been suggested that the MSP of the wheat crop may be fixed at Rs. 3,000 per 40 kg as this would provide a profit margin of 20 percent to growers or Rs. 3,200 per 40 kg, which would provide a profit margin of 28 percent to growers.
The Ministry of Food has also asked ECC to direct the provincial governments to implement the Anti-Hoarding and Anti-Profiteering Act, 1977 in letter and spirit to keep a check on inflation.
Source: Pro Pakistan