Business Recorder
Pakistan’s wheat market is being asked to perform a neat trick: absorb the state’s retreat from procurement, discover private price signals, build formal storage, attract bank finance, and protect growers from harvest-time distress, all at roughly the same time. Under the current IMF program framework, the authorities have committed to refrain from announcing support prices for raw commodities and discontinue procurement operations that crowd out private trade. That is the policy moment, with the state finally stepping back. The market is expected to step in. The question is whether anyone has checked whether the market can make money doing so. This is where the current enthusiasm for agricultural warehousing needs a colder reading. Pakistan has not suddenly discovered storage. PASSCO, provincial food departments, arthis, traders, millers and processors have been storing grain for decades, formally and informally, well and badly. The new impulse is not storage. It is the financialization of storage: warehouses, collateral managers, electronic receipts, trading platforms and bank finance layered on top of stored produce. The instinct is not absurd. Farmers need storage as do traders and processors. Grain kept in poor conditions loses quality, weight and value. PASSCO’s own storage profile lists covered storage capacity of under 0.6 million metric tons, with remaining stock stacked in the open on raised platforms. That is a serious storage-quality problem. But it is not, by itself, a commercial case for a warehouse economy. It only proves that Pakistan needs better storage. It does not prove who can pay for it. That is the slippage. A use-case is being mistaken for a market. The implied theory is familiar. Provide patient capital;subsidize the gestation period. Offer concessional loans by absorbing markup. Build formal warehouses, allowing the market time to “transition.” Once farmers and traders experience formal storage, they will leave informal storage behind. The story is clean, optimistic and administratively convenient. It is also not how markets work. The question is not whether storage is useful. It plainly is. The question is whether storage is commercially viable for the person expected to use it. Can the commodity holder pay storage, insurance, handling, quality-preservation and financing costs, and still be better off in a normal year, not only in a shortage year? That is the test. Everything else is ceremony. Storage is not magic. It is a carry trade. A farmer, trader, arthi, landlord or processor stores grain because he expects the future price to justify the cost of holding inventory. That cost is not just warehouse rent. It includes insurance, handling, quality risk, financing cost and delayed liquidity. For a liquidity-starved farmer, this is not a gentle nudge toward modernization. It is asking the weakest balance sheet in the chain to behave like a market maker. If storage only works when a supply deficit appears after harvest and prices jump sharply enough to cover production cost, storage cost and abnormal profit, then there is no storage market. There is a speculative inventory bet, which sometimes pays, but often does not. Public policy should not build infrastructure around the hope that volatility will rescue the spreadsheet. Warehouse receipt finance does not solve this. It only adds another layer. If the stored commodity cannot cover storage, insurance and quality-preservation costs, borrowing against the receipt adds markup on top of an already weak carry trade. A receipt may improve collateral discipline. It cannot turn bad inventory economics into profit. A bad carry trade does not become a good one because the pledge is electronic. This is why subsidized warehouses can mislead policymakers. Usage during a subsidized phase does not prove demand. It may only prove that someone else is paying part of the bill. This is the agricultural version of Uber and Careem promo codes:as volumes rise, the charts look respectable; and, consultants declare proof of concept. But sooner or later, the subsidy fades, buyers and sellers begin to discover true market clearing prices, and the market reveals that the user never valued the service at its full cost. The business was not changing behavior. It was renting it. There is a legitimate public-good case for better storage. Poor storage causes contamination, avoidable losses and value erosion, justifying a layer of public support. On-farm storage, aggregation points, testing infrastructure, grading standards and basic hygiene can all deserve support. But preventing waste is not the same as proving a commercial warehousing model. One is a public-loss-reduction problem. The other is a market-building problem. Confusing the two is how bad policy gets dressed up as reform. Commercial warehousing needs a different discipline. It needs users who can pay. It needs credible price discovery. It needs grades that buyers trust. It needs insurance that responds. It needs lenders who understand liquidation. It needs commodity holders who can delay sale without collapsing under liquidity pressure. Above all, it needs a price spread, quality premium or working-capital benefit that covers carrying cost under ordinary conditions. The deeper issue is competitiveness. Storage works when the commodity being stored is worth holding. It works when the cost of production, quality profile and downstream demand allow the commodity to clear the market after storage at a price that covers the cost of holding it. This does not mean every commodity must be export-competitive every season. Domestic seasonality, processing demand and quality preservation can justify storage. But the test remains unforgiving: after storage, someone must buy the commodity at a price that pays for the carry. If domestic production is structurally expensive, storage merely preserves an uncompetitive commodity for later sale. It does not make the commodity cheaper. It does not make processors pay more. It does not make imports irrelevant. The grain may sit in better conditions. The receipt may be electronic. The warehouse may be certified. The financing may be blended. The policy language may be immaculate. The underlying commodity still has to compete. The informal system is not pretty, but it is not stupid. Farmers use arthis, traders and informal storage networks because they provide liquidity, aggregation, transport, credit, risk absorption and market access. The system may be extractive and opaque, but it performs functions. Formal warehousing must beat that bundle on cost, convenience, liquidity and reliability. It cannot win simply because policy documents prefer it. The sequence matters. First, the commodity holder must have a viable reason to hold. Then storage infrastructure earns its place by preserving value that the market is willing to pay for. Only after that does warehouse receipt finance make sense as a liquidity instrument. Storing uncompetitive grain in a formal facility does not make it competitive.
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