Wheat farmers are in grave difficulty. Right before harvest, the price of wheat fell more than it did last year. So much so that, as they harvest wheat, farmers are seeing wheat prices below their cost of production. This is a situation in which farmers should be able to store their grain safely until prices rise and also get the funds they need for the next crop. Last year, the government packed up its heavy footprint in the traditional wheat supply chain and announced its intention to shift to a liberalized sector: more involvement of private parties and the wheat price following market principles. This year, the Government of Punjab has announced a package to allay farmers’ pain. The impact of this package is yet to come. The focus of the package is on supporting wheat purchases by flour millers—the key buyers of wheat—and giving the smallest wheat farmers cash directly. And these are critical because farmers need wheat prices to rise to reasonable levels as soon as possible. But wheat supply chain needs a new structure. Under this package, the launch of the Electronic Warehouse Receipts (EWR) regime in Punjab provides a new structure for the wheat sector. This important component is attracting a lot of curiosity and, unfortunately, misunderstanding. Clearing the misunderstanding requires some background. Our wheat sector had a decades-old system in which the government determined the price of wheat, the government purchased of a good portion of the wheat, the government stored this purchased wheat, and then the government did on-selling of this wheat to flour millers largely in the name of cheap roti for the urban poor. This system’s capture by middlemen and the losses in the quality and quantity of government-stored wheat are well documented. And only a fraction of farmers directly benefited from these government purchases. Whenever government drove wheat prices higher, it broadly benefited all wheat farmers. But the discretion available to the government in determining the wheat price took a perilous turn when the support price was raised from Rs. 2,200 per maund to Rs. 4,000 per maund in the last election year (after Sindh’s biblical flood of 2022). Farmers got a historic windfall benefit, but this decision broke the proverbial camel’s wavy back. With this price level, interest rates also went to a historic high—north of 20 percent. The Government of Punjab’s cost of borrowing from banks to purchase wheat under the traditional system reportedly reached the vicinity of half a billion dollars a year. Reality has its own ways of taming excess. The system needed reform. But reform is not just about enforcing prices. Reform is about fundamentally changing the way business is done in a sector. And a liberalized sector also requires soft and hard infrastructure to run smoothly, give farmers a fair price, stamp out market abuse practices like hoarding, give traders only the margin they deserve, etc. The EWR regime with its linkages to the Pakistan Mercantile Exchange provides the soft infrastructure for a liberalized wheat sector. And the Government of Punjab’s package includes incentives for upgrading or constructing agri-warehousing to build a network of modern warehousing across the province. So how does the EWR system work? Farmers take the most risk in the agri value chains. And in Pakistan, where crop insurance is not widely available, they take more risk than most. Bank loans of reasonable size require collateral. The key is to remember that the farmer’s land is not his only asset. The crop is also the farmer’s asset. But collateralizing the crop requires modern, standardized warehousing run by reputable companies that banks can trust. Any reputable company putting up a warehouse in a rural area will charge farmers a reasonable rental, which will be a little higher than what farmers are used to in the informal sector. Why should farmers pay extra for this warehousing? Well, the answer is: because they will get a bank loan against the crop they deposit in the warehouse. And the crop will be insured against all perils while it is sitting in the warehouse until it is withdrawn—the warehouse operator takes full responsibility for delivering back the same quality and quantity that came in. This way EWRs give money to farmers exactly when they need them: right after the harvest that is being collateralized so they can immediately get cash to buy inputs for the next harvest (unfortunately recent writings in these pages got this timing wrong). The EWR is liquidity, since banks lend 70% of the value of the commodity represented by the EWR. In the six crop seasons that the EWR regime has been tested in Punjab, HBL and the Bank of Punjab figured out how to disburse EWR-based loans within hours of the commodity entering into the warehouse (recent writings in these pages also got this duration wrong). Even if the wheat price is at Rs. 2,200 per maund, a farmer placing his 30 maunds per acre in an accredited warehouse and getting 70 percent of its value gets a loan of Rs. 46,200 per acre which can be spent on the inputs for the next crop. So, the math works fine (recent writings mixed up the sums). But this bank loan to the farmer is neither at the middleman’s 13% a quarter (!) nor on the regular bank loan at KIBOR plus 6% (!!) per year for production loans. Banks have been lending against EWRs at a rate of KIBOR plus 2 percent or 3 percemt because lending against EWRs is safer. This lower mark-up, the insurance, and the maintenance of crop quality are some of the major factors that attract farmers and enhance their profitability. The Government of Punjab scheme picks up the entire mark-up and warehouse rental for four months after the issuance of an EWR for farmers with less than 50 acres. So where are the modern warehouses? Any self-respecting agricultural country has a nation-wide network of modern agri-warehouses which can preserve the quality of its agri-commodities, so value addition can take place. Under the traditional system, the Government only had visibility on the Food Department warehouses and scrambled to find out where the volumes are stored and how much is hidden away. The scheme includes support to investors in upgrade and construction of agri-warehouses so that a province-wide network (linked to the Pakistan Mercantile Exchange) can be developed with full visibility for trading and market monitoring. Our small farmers have very small harvests, which often cannot fill a trolley. And small-scale aggregators are the ones who collect crop from them. So, the Government of Punjab has included small-scale aggregators among those who can get financing against wheat under the EWR regime and get the subsidy for four months. This decision is a major disruptor of the traditional supply chain because it brings bank lending—and market power—to a segment of the supply chain that never had it (another key point missed by recent writings in these pages). It is true that this scheme could have been announced earlier so that farmers were able to plan their harvest and private warehouse operators—who are now actively getting involved—would have had good time to ready their warehouses. It is also true that a multi-year transition from the traditional system to this new ecosystem would have been optimal. But even with both of these, establishing a modern agri-commodity ecosystem in Pakistan is a multi-year project we would have had to be patient for. Conclusion: EWRs work, impatience doesn’t. (The writer is CEO, of Pakistan Agricultural Coalition (www.pac.com.pk). The views expressed in this article are not necessarily those of the newspaper) Copyright Business Recorder, 2025