Punjab, KP Wheat Price Gap Fuels Smuggling and Hoarding Concerns

A Rs. 680 per maund difference in government wheat release prices between Punjab and Khyber Pakhtunkhwa (KP) has raised concerns over smuggling, hoarding, and market distortions, with industry stakeholders warning that the pricing gap could further destabilize Pakistan’s already strained wheat market.

Under a notification issued on July 27, the KP government approved the daily release of 2,000 metric tons of wheat to operational flour mills at Rs. 11,200 per 100 kilograms, equivalent to Rs. 4,480 per maund, including packaging costs.

The decision was taken to address wheat shortages and rising market prices in the province.

In contrast, Punjab continues to release government wheat to flour mills at Rs. 3,800 per maund, creating a 17.9 percent price difference between the two provinces. Since KP depends heavily on wheat supplied from Punjab, market participants warn that the gap creates a strong financial incentive to divert subsidized wheat across provincial borders.

Industry representatives argue that Punjab’s lower release price encourages traders to purchase government wheat cheaply and resell it in higher priced markets, where the Rs. 680 per maund arbitrage remains profitable even after transportation costs.

They also warn that flour mills may find it more lucrative to trade wheat rather than process it into flour, undermining the purpose of the government’s subsidized wheat release program.

The pricing policy also carries a fiscal cost. Wheat procured by the Pakistan Agricultural Storage and Services Corporation (PASSCO) costs around Rs. 4,200 per maund, meaning Punjab’s release price effectively provides a subsidy, while KP’s pricing mechanism involves no subsidy.

Stakeholders say harmonizing wheat release prices across provinces is essential to prevent market distortions, protect food security, and discourage speculative trading.

Meanwhile, KP has introduced stricter compliance requirements for flour mills, including maintaining wheat moisture levels below 13.5 percent and installing CCTV systems with at least 30 days of video storage to curb diversion and improve transparency. Punjab’s Food Department did not comment on its lower wheat release price.