Wheat prices break past official ceilings

September 13, 2025 (MLN): Pakistan’s efforts to tame food inflation through price ceilings are faltering as the price of wheat and flour trading is well above government-notified levels across major cities.

The Punjab government has set an official fixed price of Rs 3,000 per 40kg for wheat and has proposed releasing public-sector stocks at a slightly lower rate of Rs 2,900 per 40kg.

For consumers, the fixed rates are Rs 1,810 for a 20kg flour bag and Rs 905 for a 10kg bag. A single roti, a staple food item, has an official price of Rs 14 across the province.

However, the reality in the open market presents a stark contrast to these controlled rates. Open market wheat prices have already surpassed Rs 3,100 per 40kg.

The cost of a 20kg flour bag has surged by approximately Rs 500 in one month alone and is trading between Rs 2,000 and Rs 2,400, far exceeding the official price.

A 10kg bag is now selling for up to Rs 1,000 or even Rs 1,200 against the fixed rate of Rs 905. The cost of a single chapati has also risen, now trading for Rs 14-15.

This divergence is further evident in online retail data, where a 20kg bag of branded flour, extrapolated from 5kg prices, can cost as much as Rs 3,340, demonstrating the chaotic and un-tethered nature of the open market.  

The existence of this significant price gap exposed the ineffectiveness of the government’s fixed pricing model. The official rate, whether Rs 2,900 or Rs 3,000, is consistently lower than the open-market price, which indicates that it is not functioning as an effective price ceiling.

 The market price remains higher because the demand for wheat and flour exceeds the supply available at the government’s controlled rate.

Is the government’s pricing decision driven more by political considerations aimed at consumer appeasement than by a realistic assessment of production costs and market forces, thereby creating a dual-market system?

The following table provides a clear, data-driven comparison of the official versus open-market prices, highlighting the dramatic contrast.

Punjab Wheat & Flour Price Disparity (September 2025)

The price disparity is not an isolated event but the result of a complex interplay between governmental policies, external shocks, and market behaviour. The crisis can be understood as a perfect storm where pre-existing vulnerabilities were exacerbated by recent events.

Inconsistent Government Policy and Shifting Directives

The current crisis was initially fueled by a policy decision that demonstrated a profound lack of foresight. The Punjab government’s decision to slash its wheat procurement target by nearly half, citing a carryover stock of 2.3 million tonnes, created an immediate market disruption.

This move caused open market prices to plummet to between Rs 3,000 and Rs 3,100 per 40kg, which was significantly below the Minimum Support Price (MSP) of Rs 3,900 set for the 2024-2025 season.

This policy, which was intended to prevent corruption, led directly to farmer distress and financial losses as they were unable to sell their produce at a fair rate.  

In a dramatic shift, the government later imposed an immediate ban on inter-provincial wheat transport under Section 144, citing the need to curb the diversion of wheat to feed mills.

This move, however, drew fierce condemnation from flour millers in other provinces like Khyber Pakhtunkhwa and Sindh, who labeled it "unconstitutional" and "economic terrorism".

They argued that the ban created an artificial shortage in dependent provinces, pushing prices even higher.

This policy directly contradicts a prior policy statement from May 2024, which had claimed there were "no restrictions on wheat transportation," revealing a pattern of incoherent and reactive governance.  

This series of events demonstrates a profound policy incoherence and a tendency toward a "firefighting" approach.

The initial decision to cut procurement and rely on existing stocks backfired, creating a separate crisis for farmers. When a new crisis emerged due to floods, the government responded with a drastic, unilateral ban.

 This pattern revealed a consistent failure to anticipate the consequences of its actions and a tendency to solve one problem by creating another.

Such an unstable policy environment deters private sector participation and long-term investment, as experts have noted, and perpetuates a cycle of instability that has historically plagued Pakistan's food security.  

External Shock of "Climateflation"

The recent floods and record monsoon rains have served as a major catalyst for the current supply shock.

An estimated 30% of national wheat stocks have been destroyed or damaged, a claim that, while disputed by some analysts who say strategic reserves were largely safe, has nevertheless fueled widespread fears of a looming shortage.

 The floods have not only destroyed crops and storage but have also severely disrupted supply chains, contributing to the price surge.

This phenomenon, now being described as "climateflation," introduces a new, non-linear variable into the economic equation.

The current crisis is fundamentally rooted in climate-induced supply destruction, a factor that cannot be addressed by traditional monetary policy alone. This suggests that the system is now vulnerable to external and unpredictable shocks.

 A sustainable solution must therefore extend beyond traditional economic policy and include a robust focus on climate-resilient infrastructure, such as modern, flood-proof silos, and the promotion of climate-smart farming practices.  

Market Manipulation

Chief Minister Maryam Nawaz has publicly accused "mafias" of manipulating the wheat trade and engaging in hoarding.

The government's subsequent crackdown, including a three-day grace period for stockpilers to declare their holdings, demonstrates the seriousness with which this issue is being addressed.

However, it is important to contextualize this behaviour. Hoarding is not simply a random act of greed; it is a rational economic response to market distortions.

The government’s decision to slash its procurement target created an oversupply that lowered prices for farmers but also made it highly profitable for middlemen to buy cheap and hold stock in anticipation of a future price hike.

The so-called "mafia" is therefore a symptom of failed policy, not its root cause. This dynamic highlights how market forces will inevitably take advantage of a poorly managed state-controlled system, demonstrating that a lack of strategic foresight creates an environment ripe for exploitation.   

The economic forces at play have a tangible and significant impact on different segments of society, placing a disproportionate burden on the most vulnerable.

The rising cost of staple foods disproportionately affects low- and middle-income households, particularly daily wage earners who rely on local eateries for their meals.

The increase in roti and chapati prices, though seemingly small at an average of Rs 2 per piece, cuts into already stretched household budgets and makes basic food items less accessible.

In a country where the population’s calorie intake is heavily reliant on cereals like wheat, rising prices force families to cut back on meals or switch to lower-quality food.

This directly compromises nutritional security, particularly for women and children, and poses a threat to public health and national productivity.

The phenomenon of "climateflation" has become a direct threat to household budgets, as climate shocks shrink harvests and drive up prices, leaving little room for families to adjust.  

Challenge of Enforcement and Its Economic Implications

In an effort to enforce price controls and address the market situation, the Government of Punjab established the Punjab Enforcement & Regulatory Authority (PERA) in July 2025, with a mandate to curb hoarding and profiteering.

The authority was planned to expand across all districts with a workforce of over 8,000 personnel. Special teams, including police and district officials, were also formed to take strict action against violators.  

However, the continued upward trajectory of prices, as captured by the PBS data, suggests that compliance remains a significant challenge. The data serves as a crucial indicator of a market reality that is not adhering to price controls.

In this context, the Sensitive Price Index (SPI) compiled by PBS provides a vital, unvarnished view of the real impact of supply chain disruptions and enforcement challenges.

 This data is a critical input for macroeconomic policymaking, as bodies like the State Bank of Pakistan’s Monetary Policy Committee (MPC) rely on comprehensive inflation data for their deliberations on interest rates. 

By accurately reflecting the prices that consumers are actually paying, the PBS data provides the necessary foundation for informed, evidence-based decisions, which are essential for safeguarding public welfare and ensuring long-term economic stability.

The government's reactive, ad-hoc approach has proven ineffective and has created a cycle of instability that undermines the trust of both farmers and millers.

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