Mehmood ul Hasan Qadir — Economist & Financial Analyst | Dubai, UAE

The Pakistan Ledger | Opinion

There is a particular cruelty in watching a country that sits atop one of the most fertile agricultural corridors in the world struggle to feed its own people — and then import wheat at premium prices to cover the gap. Pakistan’s wheat crisis is not a story of drought, climate failure, or global supply disruption alone. It is, at its core, a story of how systematic government intervention dismantled a market that, left to function with intelligent policy support, could have made Pakistan the breadbasket of Central and South Asia.

The PASSCO Paradox

The Pakistan Agricultural Storage and Services Corporation — PASSCO — was designed as a strategic buffer mechanism. What it became was a market-distorting monopsony that set procurement prices politically rather than economically. For more than two decades, PASSCO procurement prices were determined not by supply-demand equilibrium, not by international benchmark analysis, but by electoral calendars and provincial pressure politics.

The numbers tell an uncomfortable story. In the 2022–23 season, PASSCO’s support price for wheat was set at Rs. 3,900 per 40kg. International wheat prices at the time — FOB Gulf — translated to approximately Rs. 5,200–5,500 per equivalent quantity after freight adjustment. The government, in its infinite wisdom, set the procurement price below international parity, purportedly to control flour prices for consumers. What it achieved instead was a systematic disincentive for wheat cultivation expansion, hoarding by large landlords who could hold stocks and wait for provincial procurement, and a black market for wheat that cost the country far more in subsidy leakage than open market pricing would have.

The Flour Mill Cartel — Hiding in Plain Sight

Pakistan’s flour milling industry is not a competitive market. It is a cartel, structured by provincial licensing regimes that have historically limited the number of operational mills, ensuring that existing operators — many of whom have deep political connections — face no meaningful price competition. The Competition Commission of Pakistan has documented cartel-like behaviour in flour pricing across Punjab and Sindh, yet enforcement has been, to put it diplomatically, selective.

The result is a system where the government pays subsidised procurement prices to producers, sells below-market wheat to mills, and those mills do not pass the savings to consumers. The 2022–23 wheat flour crisis, when 20kg flour bags hit Rs. 2,800–3,200 in retail markets while provincial governments claimed price controls of Rs. 1,450–1,600, was not an anomaly. It was the logical endpoint of a policy structure that enriches intermediaries while impoverishing both farmers and consumers simultaneously.

The Export Policy Whiplash

Pakistan’s wheat export policy has oscillated with a frequency and incoherence that would be comical if its economic consequences were not so severe. Between 2018 and 2023, the country shifted from export bans to export allowances to emergency import permissions — sometimes within the same fiscal year. Economists at the International Food Policy Research Institute have estimated that policy-induced price volatility in Pakistan’s wheat market costs the sector between $400 million and $700 million annually in foregone productivity investment, export opportunity cost, and distorted planting decisions by farmers.

The 2020 decision to allow wheat exports — following a bumper crop — depleted strategic reserves. The subsequent 2022 shortage, exacerbated by the catastrophic floods, required emergency imports at international spot prices that were at decade highs following Russia’s invasion of Ukraine. The total import bill for wheat and flour in FY2022–23 exceeded $1.2 billion. A coherent, rules-based export policy with automatic trigger mechanisms tied to stock-to-use ratios — standard practice in commodity-exporting nations — would have saved a significant portion of this foreign exchange expenditure.

What a Functioning Wheat Market Would Look Like

The solution is not to abandon state involvement in wheat markets — no major wheat-producing nation does that. The solution is to replace discretionary, politically-driven intervention with transparent, rules-based mechanisms. Pakistan needs a commodity exchange for wheat — a properly functioning futures market where price discovery happens through trade rather than through bureaucratic fiat. The Pakistan Mercantile Exchange exists but lacks the liquidity, regulatory depth, and government commitment to function as a genuine price discovery mechanism.

Strategic reserves must be maintained through transparent, auction-based procurement rather than political price-setting. Flour mill licensing must be opened to genuine competition. Export policy must be governed by pre-announced stock-to-use ratio triggers, not by emergency cabinet decisions. And perhaps most critically, the agricultural income of wheat farmers must be protected through direct income support mechanisms rather than through price manipulation that distorts the entire supply chain.

Pakistan’s agricultural geography — the Indus plains, the climate suitability across Punjab and Sindh, the established farming community — gives it a natural comparative advantage in wheat production. We are squandering that advantage through policy choices that would baffle any first-year agricultural economics student. The market that could feed the region is being strangled by the very institutions designed to protect it. That is not a food security problem. It is a governance failure, and it demands a governance solution.

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Mehmood ul Hasan Qadir is an Economist and Financial Analyst based in Dubai, UAE. He writes on Pakistan’s economic structure, policy failures, and reform pathways for The Pakistan Ledger.