Procurement policy faces reality

Two years ago, the Punjab government decided, in principle, to discontinue direct wheat procurement from farmers. This decision was driven by the mounting financial burden of outstanding debt — incurred for wheat procurement but compounded by delayed repayments — which had surged to Rs680 billion by June 2023. Consequently, annual interest payments alone reached approximately Rs110bn in 2023–24. This raised serious concerns about the sustainability of the government-led procurement system.

Aiming to improve the situation, the government last year placed significant emphasis on introducing the Electronic Warehouse Receipt (EWR) system. However, it failed to deliver the intended outcomes. As a result, a new private-sector-led procurement system has been introduced this year.

The initiative seeks to achieve three key objectives: maintaining strategic reserves of three million tonnes, stabilising the wheat market, and ensuring farmers receive Rs3,500 per 40 kg — close to import parity prices, though not fully aligned with rising production costs. However, this marks a clear contrast with last year, when farmers were compelled to sell at Rs2,000–2,200.

Nevertheless, the newly designed system — built around a few selected private companies — failed to take off in time. Even by mid-April — when roughly 40 per cent of the crop was harvested, market arrivals peaked, and prices fell to around Rs3,000 per 40 kg — farmers remained exposed, forcing many into distress sales.

As prices recover and farmers begin to receive better returns, the government is resorting to measures that run counter to market economy and deregulation principles

In fact, the government overlooked the changing dynamics of wheat harvesting. With the increasing use of combine harvesters and the growing risk of erratic rainfall in March and April, farmers now rush to complete harvesting as early as possible. As a result, the harvesting window in any given district has narrowed to barely a month. This leads to a sudden surge in market arrivals, temporarily disrupting the demand-supply balance, followed by a sharp decline within days. Such conditions require a well-prepared, agile, and timely response from any government-supported intervention in the wheat sector.

This delayed execution drew strong criticism from stakeholders. Farmers, in particular, feared yet another failed intervention following the EWR experiment — especially as the 3m tonne procurement target itself appeared too small to effectively stabilise the market.

The delay, however, was followed by an unexpected shift in market dynamics. Wheat prices began to rise in the third week of April. By the fourth week, prices in several grain markets had crossed Rs3,500, with premium-quality lots fetching even higher rates for domestic consumption.

Several factors are driving this upward trend. First, reported yields in various districts are three to five maunds (40 kg) per acre lower than last year. A heatwave shrivelled the grain, while untimely rains in March caused lodging, adversely affecting both yields and grain quality.

Second, last year’s sharp price differential between April–May and December–January — nearly doubling within eight months — has encouraged stockists (licensed or otherwise) and flour mills to aggressively procure wheat in anticipation of similar windfall gains as last year. Moreover, farmers with holding capacity are opting to retain their produce, releasing only limited quantities to meet immediate financial needs.

This behaviour is further reinforced by lower crop yields and a sharp decline in the country’s opening wheat stocks at the time of harvest — around 2m tonnes this year, compared to over 4m tonnes last year. Therefore, according to conservative estimates, the country may face a wheat shortage of 2-4m tonnes this year.

Third, their expectations are further shaped by global uncertainties. The ongoing war in Iran and disruptions in fertiliser supplies across several countries may reduce global production of crops that serve as substitutes for wheat, potentially pushing wheat prices higher. World Bank commodity price data shows that wheat prices have already risen from $250 to $276 per tonne between January and March 2026.

Against this backdrop, the government now faces a fresh challenge: achieving its procurement target of 3m tonnes. With procurement centres becoming operational too late and harvesting now drawing to a close, the target appears increasingly difficult — especially when farmers are receiving Rs3,500 per 40 kg at the farm gate.

To keep prices in check, the government has reportedly resorted to heavy-handed administrative measures in several districts after April 29. This raises an important question: when wheat prices fell close to Rs3,000 — causing losses to farmers — the government remained largely inactive. Now, as prices recover and farmers begin to receive better returns, it is resorting to measures that run counter to market economy and deregulation principles.

A similar pattern was observed last year. In the initial months, district-specific price controls (Rs2,800 – 2,900) were imposed, and legal action was taken against those violating them. However, when prices surged even beyond Rs4,500 in December and January, and large stockists offloaded their inventories, the government largely tolerated the situation.

Under these circumstances, farmers fear that, in a bid to meet procurement targets, the government may resort to coercive measures, including the forced seizure of their stocks — a troubling scenario in which producers, despite duly verified output through crop ‘Girdawari’, could be compelled to sell against their will.

This raises a fundamental question: has the government’s procurement policy failed? Many believe it is not a failure; rather, it could not be properly tested this year, as it was primarily designed to ensure that farmers receive Rs3,500 per 40 kg. However, market forces — beyond the government’s expectations — had already pushed prices to that level.

Nevertheless, these developments underscore the need for the government to develop its analytical capacity — grounded in computer-based scientific modelling rather than a simplistic incremental approach — to estimate supply, demand, and future prices, while properly accounting for a wide range of interrelated national and international variables in formulating policy and strategy.

Khalid Wattoo is a development professional and a farmer, and Dr Waqar Ahmad is a former associate professor at the University of Agriculture, Faisalabad.

Published in Dawn, The Business and Finance Weekly, May 4th, 2026