Another IMF Condition Met as Pakistan Govt Exits Wheat Procurement System

Introduction: A Major Shift in Pakistan’s Wheat Policy

Pakistan has taken another significant step under the International Monetary Fund (IMF) program by exiting the wheat procurement process, ending decades of state-led wheat purchases and the support price mechanism. This policy shift marks a historic change in how wheat — Pakistan’s most critical food crop — will be bought, stored, and priced.

Under the new arrangement, the federal and provincial governments will no longer directly procure wheat, and prices will now be determined by market forces and international benchmarks. The decision aims to reduce fiscal pressure, control food-sector circular debt, and comply with IMF reform conditions.

This article explains what the decision means, why the IMF pushed for it, how wheat prices will now be decided, and its impact on farmers, consumers, and the economy.

What Is Wheat Procurement and Why It Matters?

Understanding Wheat Procurement in Pakistan

For decades, Pakistan’s government played a central role in the wheat market by:

• Announcing a support price before every harvest
• Buying wheat directly from farmers
• Storing wheat through PASSCO and provincial food departments
• Releasing wheat to flour mills at a fixed rate

This system was designed to:

• Protect farmers from low prices
• Ensure food security
• Stabilize flour prices

However, over time, it became financially unsustainable.

Why Did the Government Exit Wheat Procurement?

IMF Conditions and Economic Pressure

The IMF has long argued that Pakistan’s wheat procurement system:

• Distorts the market
• Encourages inefficiency
• Creates massive fiscal losses
• Adds to public debt

Under the IMF program, Pakistan agreed to:

• End price controls
• Reduce subsidies
• Shift to market-based pricing

The IMF has now explicitly prohibited the federal government from fixing a wheat support price, forcing Pakistan to fully exit the procurement system.

Key Highlights of the New Wheat Policy

1. No More Government Wheat Purchases

• Federal and provincial governments will not buy wheat directly
• No official support price will be announced
• Farmers will sell wheat in the open market

2. Private Company to Handle Wheat Purchases

• A private company will purchase wheat on behalf of:
  • Federal government
  • Punjab
  • Sindh
  • Khyber Pakhtunkhwa
  • Balochistan
• The company will also manage financing and storage

3. Government Will Pay Only Service Charges

• The government will not finance procurement
• It will pay only service charges
• Expected annual savings: Rs. 570 billion

Wheat Stock Allocation Under New System

Under the revised arrangement, Pakistan will maintain emergency wheat reserves only, capped at 6.2 million metric tons:

Region	Wheat Stock Allocation
Federal Govt	1.5 million tons
Punjab	2.5 million tons
Sindh	1.0 million tons
Khyber Pakhtunkhwa	0.75 million tons
Balochistan	0.5 million tons

These reserves are meant only for emergencies, not for routine market intervention.

End of PASSCO’s Role in Wheat Procurement

Previously, PASSCO (Pakistan Agricultural Storage and Services Corporation) played a central role in wheat procurement and storage.

Problems With PASSCO System

• Heavy reliance on bank guarantees
• Delayed government payments
• Rising food-sector circular debt
• Current circular debt: Rs. 270 billion

The IMF and government believe removing PASSCO from procurement will:

• Reduce inefficiencies
• Improve transparency
• Cut long-term losses

How Will Wheat Prices Be Determined Now?

Market-Based Wheat Pricing Explained

Under the new policy:

• Wheat prices will be linked to global market trends
• The Ministry of National Food Security will use international benchmarks
• No fixed minimum or maximum price

This means:

• Prices may rise or fall depending on supply, demand, and imports
• Farmers will face price risk
• Consumers may see price volatility

Impact on Farmers: Relief or Risk?

Potential Benefits for Farmers

• Freedom to sell wheat at market prices
• Opportunity for higher prices in shortage years
• Less bureaucratic interference

Major Concerns for Farmers

• No guaranteed support price
• Risk of exploitation by middlemen
• Price crashes during bumper crops

Small farmers are particularly vulnerable, as they lack:

• Storage capacity
• Market access
• Bargaining power

Impact on Consumers and Flour Prices

Will Flour Prices Increase?

Experts warn that flour prices may become more volatile due to:

• Removal of government price control
• Dependence on global wheat prices
• Speculation in open markets

However, supporters argue:

• Market competition may improve efficiency
• Reduced government losses may stabilize inflation long-term

Why the Government Calls It a “Necessary Reform”

The government believes exiting wheat procurement will:

• Reduce fiscal deficit
• End food-sector circular debt
• Improve transparency
• Align Pakistan with global agricultural markets

Officials say Rs. 30 billion has been allocated only for service charges, compared to hundreds of billions previously spent on procurement and storage.

IMF’s Broader Reform Agenda in Pakistan

This decision is part of a larger IMF-driven reform plan that includes:

• Energy subsidy reduction
• Market-based exchange rate
• Privatization of SOEs
• Tax reforms
• Agricultural market liberalization

Wheat procurement exit is considered one of the most politically sensitive reforms.

Risks and Challenges Ahead

1. Market Manipulation Risk

Without government oversight:

• Hoarding may increase
• Cartels may dominate wheat trade

2. Food Security Concerns

In times of:

• Crop failure
• Climate disasters
• Global price shocks

Emergency reserves may prove insufficient.

What Experts Are Saying

Economists are divided:

• Pro-reform analysts say this will modernize agriculture
• Critics warn it could hurt farmers and poor consumers

Many suggest:

• Crop insurance
• Targeted subsidies
• Strong market regulation

to reduce risks.

Conclusion: A Historic But Risky Decision

Pakistan’s decision to exit wheat procurement marks a turning point in agricultural policy. While it fulfills an IMF condition and promises massive fiscal savings, it also introduces uncertainty for farmers and consumers.

The success of this reform will depend on:

• Market regulation
• Protection for small farmers
• Effective emergency planning

Without safeguards, this IMF-driven reform could create new challenges even as it solves old ones.

FAQs – Wheat Procurement Exit & IMF Conditions