Pakistan’s wheat market is undergoing a critical transformation. During the 2023–24 procurement season, the government, along with the Pakistan Agricultural Storage and Services Corporation (PASSCO), stepped back from active procurement, opting for a market-led approach. However, this shift occurred without adequate preparation or confidence-building measures for the private sector.

Private traders hesitated to procure wheat due to the government’s carryover stock of 3-4 million tons—enough to unilaterally influence market prices. Although the state claimed to liberalize the market, it continued to exert control, particularly through price caps on wheat flour enforced by Deputy Commissioner (DC) offices. This duality—market liberalization on paper but intervention in practice—left private actors operating with thin margins and high risk. Farmers, without a guaranteed public buyer, faced severe financial distress as prices dropped below expectations.

In the 2024–25 season, the government again refrained from direct procurement, but the policy landscape became even murkier. The state still controls flour prices via DC offices, distorting the wheat value chain. Farmers receive no price support, while millers and retailers operate under price ceilings that limit profitability and disincentivize investment.

Previously, the government purchased 6–8 million tons of wheat annually—equivalent to Rs. 4 billion at current farm-gate prices (Rs 2300 per maund). Transferring this procurement responsibility to the private sector necessitates reasonable profit margins. However, with cap prices on flour set between Rs. 2800-2900 per maund, the private sector can only offer Rs. 2200–2300 per maund to farmers. The Rs. 700–800 spread is required to cover transportation, storage, spoilage, and returns on investment.

The government may be trying to align domestic wheat prices with international rates (approximately Rs. 2350 per maund), but this overlooks essential logistical costs of import, and financing costs. Moreover, international prices are projected to rise before the next harvest. By that time, if the cap is lifted or enforcement weakens, private investors—rather than farmers—will reap the windfall

A genuinely liberalized market would allow private traders to offer farmers higher prices today, anticipating future profits. This would create a win-win scenario, aligning incentives and narrowing the gap between local and international markets. However, current policy uncertainty suppresses this natural market function.

Pakistan requires a balanced and rules-based liberalization strategy—one that protects producers, traders, and consumers alike. If the state fears monopolistic behaviour or hoarding, it should establish clear, pre-announced mechanisms for market intervention.

A price-band model could offer a solution:

* If local prices exceed international prices by more than 20%, the government could allow imports to cool the market.

* If they fall more than 20% below global benchmarks, exports should be permitted to support farmers and traders.

This 20% buffer reflects the cost of transportation, storage, losses, and expected returns on investment. While the percentage can be debated, it offers a rational starting point and introduces predictability. Clear pre-announced rules would provide all stakeholders—farmers, traders, and consumers—with a fair understanding of the market structure. Such rule-based frameworks would reduce the need for ad hoc interventions, avoid panic-driven decisions, and encourage long-term investment planning in agriculture.

If the government completely refrains from interfering in the wheat market—including ceasing indirect controls via DC offices—private actors would be better positioned to offer fair prices to farmers. Expecting future international price increases, they would naturally share some of those anticipated gains at the time of procurement. This would increase farmer incomes and make the supply chain more efficient, with local prices aligning more closely with international benchmarks.

Despite the promise of liberalization, one critical constraint remains: limited liquidity in the private sector. Large-scale procurement requires substantial capital—something many traders and millers lack. The government can facilitate this transition by offering subsidized credit lines to support private wheat procurement. This would ensure the private sector has the financial muscle to absorb the former role of public procurement agencies.

In parallel, PASSCO’s aging and inefficient storage infrastructure poses another challenge. Modern warehouses are essential to reducing post-harvest losses and preserving grain quality. Investments in such infrastructure could be spurred by a clear and stable policy environment, enabling private actors and public-private partnerships to participate effectively.

The government is also attempting to operationalize an Electronic Warehouse Receipt (EWR) system. In theory, EWRs could transform the wheat market by allowing farmers to store their harvest, receive a digital receipt, and use it as collateral for loans or to sell on commodity exchanges. This could enhance price discovery, reduce distress selling, and improve access to finance.

However, without a liberalized policy environment, the EWR system will struggle to gain traction. Price caps and unpredictable interventions undermine the trust required for such instruments to function. Farmers won’t store wheat in accredited warehouses if future retail prices are caped, and banks won’t lend against such receipts without confidence in price transparency and enforcement.

Pakistan stands at a crossroads in wheat sector reform. The current hybrid model—government withdrawal from procurement coupled with ongoing market control—has paralyzed the system. Farmers lack protection, private traders lack incentive, and consumers remain vulnerable to price shocks.

To build a functional and resilient wheat market, the government must commit to a consistent liberalization framework. Price interventions should be tied to clear, transparent benchmarks. Support systems such as subsidized credit and infrastructure upgrades must enable private actors to fulfill their new role in procurement and storage for at least next couple of years until their trust build on market forces.

Only by removing ad hoc interventions and empowering market forces can Pakistan build a sustainable wheat economy—one where all stakeholders have a fair stake and where food security is driven by efficiency rather than distortion.

(The writer is an ex-Chief of Research at Pakistan Institute of Development Economics (PIDE), Islamabad, Pakistan)

Note: This article first appeared in the Business Recorder on June 6, 2025.