Wheat & Flour Industry of Pakistan

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wheat-flourWheat has always been a rich part of our culture as in most Pakistani households; wheat flour is consumed almost thrice daily, making it the most demanded raw food in Pakistan. The northern areas including Rawalpindi and Islamabad are wheat deficit areas as supply comes from the central Punjab. The major wheat consumption area is the northern region which is supplied wheat from the Punjab, however, the wheat processing takes place in flour mills situated in Islamabad and Rawalpindi. Thanks to the generous government policies regarding wheat subsidy, the Rawalpindi areas are now surplus in wheat milling capacity by 400%. The government is giving a series of heavy subsidies on wheat and they supply wheat at the footsteps of the flour mills on a daily basis, leading to surplus. Since the smaller flour mills owners get adversely affected by these subsidies, they have been pleading to the government to halt the subsidy and let the market mechanism (demand and supply) prevail as it is the most efficient system. No doubt government interference is harmful as wheat flour is consumed on a large scale in Pakistan regardless of rich or poor, and proves to be political dynamite for the government if it chooses to get its way through monopolistic means such as wheat hoarding.

Due to extensive government intervention and non prevalence of free market mechanism, a severe wheat crisis occurred a few months back. The previous government made a mistake by projecting a higher GDP for Pakistan. Being an agricultural nation, a large proportion of our GDP depends on agriculture production and wheat crop forms a major chunk of it. So in order to show a healthy GDP growth rate, the government showed or predicted a wheat crop holding 23.5 million tons, which was not the case. They projected this figure without actually considering the ground realities, which were unfavorable regarding wheat production. As a result, the food and agriculture ministry started exporting wheat imagining the industry was in surplus. After exporting the first few tons, they were quick to realize that the country was in a dire deficit situation. Timely warnings kept coming from the Flour Mills Association, due to their involvement in the wheat industry on a grass root level and they knew the actual position of the industry very well, unfortunately, no one lent an ear to their cautionary notions. Consequently, when the nation finally started seeing the plunge, the wheat was already in deficit. Since the government wasn’t expecting a shortage and had no plans to import the deficit wheat, they delayed the import and that decision brought crisis in the country in the form of acute wheat shortage.

Currently, flour mill business stays inconsistent, as the only consistent thing happening in the market are the ups and downs. These days when the industry is almost four times in surplus, only the most grounded mill owners can survive in the market, other players have to improve their technologies, efficiency and their relationship with customers, otherwise they will be wiped out from the market. However, taking advantage of the government policies which is providing subsides to every flour mill and no one is weeded out, several new players are entering the market even with small investments. If the government takes off its hand from major wheat stocking and every flour mill stores the wheat according to their annual business requirement, no new players will enter the market easily. An air of competition is waved in the current situation. Everyone tends to survive because of availability of wheat in surplus. According to some small flour mill owners, the government policies are not much favorable for the industry. On the other hand, government is stocking wheat to protect the farmer from colossal losses, as farmers lack proper warehouses to store wheat, so to protect the wheat and the farmer, government buys all the wheat from farmers and then supplies to the mills. If the government doesn’t purchase in bulk from farmers, the prices will crash. Two main objectives of the government for this bulk buying is to save the farmer from losses and keep the prices in the urban areas stabilized. When the harvest season comes round the corner, the government buys 60% to 70% of the wheat from farmers as the remaining 30% is utilized by the farmers and their families in rural areas, and some portion is used for the seed. Government interference in the form of bulk buying is not only an economic matter but a political matter as well.

The consumption of wheat totally depends on population of the regions it is consumed in. Today the industry is producing five times more than it used to produce in 1947 because of increasing population. Punjab is the hub of wheat production and it feeds almost the entire country. Baluchistan is 100% in wheat deficit, Sindh is producing about 10% to 20% of its requirement and NWFP is also producing 10% to 15% of its requirement, the rest is either supplied from Punjab or it is imported. Most of the wheat is being imported from Ukraine, which is in no comparison to Pakistani wheat.

This year government has allowed the private sector to directly import the wheat from other countries. Recently private sector has imported about 300,000 tons of wheat from Ukraine. But the wheat from Ukraine is not of very good quality.  Now the government has relaxed the regulatory duties to encourage the private sector to import wheat itself.

If an entrepreneur wants to setup a flour mill on a small scale, he should have an initial investment of Rs5 to 6 crores. The construction of building would cost around Rs.2 crores and machinery for small scale mill would cost around Rs.2.5 crores. The land price is not included in this amount as it varies from place to place. So Rs.5 crores plus the land cost would be required to setup a small scale flour mill. Overall, the wheat/flour industry is in good health.

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