Among Pakistan’s best trades of 2025 was the Great Wheat Hustle. Those who bought wheat from farmers at Rs 2,200 per maund on May 15 and sold to flour millers at Rs 4,500 per maund on August 30 laughed louder than anyone in the agriculture sector.

That’s doubling your money in three months or so—an annualized return north of 400%. But most of the beneficiaries of this hustle had nothing to do with the wheat trade. They just happened to have liquidity plus a warehouse to store the wheat in. Farmers mostly do not have modern warehousing for their own major crop. They watched in anger from outside this frenzied playpen.

The Great Wheat Hustle of 2025 was brought to you by those who seek to achieve wheat deregulation while neither changing the structure of the wheat supply chain (i.e., how the wheat moves physically), nor shifting the structure of the wheat market (i.e., how the wheat is priced and traded). The point to remember is that, to work properly, a deregulated supply chain requires the relevant soft infrastructure (digital systems for pricing and trading) and hard infrastructure (modern warehousing with testing plus logistics).

In any country, the wheat supply chain is basically about collecting wheat from farms across the country at harvest time (late March to late May in Pakistan), storing it while preserving its quality, and delivering it to millers who process it over the course of the year for products consumers need. In Pakistan, the predominant wheat product is flour with which the common bread or roti is made in every Pakistani household. There are multiple ways for the wheat supply chain and the wheat market system to be structured to deliver this basic flow of wheat; which of these ways a country chooses depends on its policy preferences, its ambitions, and the whims of the strongest influencers of policy.

Since wheat is a staple for the Pakistani household and is planted on more than 80% of Pakistani farms each winter, our government’s policy preference is first and foremost to keep the wheat price in a band: not low enough for farmers to lose money on their wheat crop and not so high that roti goes out of the average Pakistani household’s reach.

Hence in the traditional wheat market structure in vogue since the 1960s, the government purchases about a quarter of the entire wheat crop and places it in its traditional warehousing. Farmers keep nearly a half of their wheat for their own family use over the year. So, a little more than a quarter of the wheat is traded in our wholesale markets to reach flour millers. You can imagine the farmer placed at one end and middlemen of increasing size all the way to the other end: from the beoparis in villages to the arhtis and stockists in the mandi’s all the way to the Government or the super arhtis in the biggest cities who are suppliers to the largest flour millers and traders.

The wheat price between these buyers and sellers is benchmarked by the price at which the largest buyer—the government—buys. By and large, the wheat market system is: the government’s buying price at harvest time rippling across our age-old wholesale markets (mandi’s) where physical, non-transparent auctions take place with sinister pricing practices by traders who exploit the lack of testing/standardization of commodities.

How does the structure of the wheat supply chain shape this market system? Let’s start with the single largest buyer: the government. The wheat warehousing owned by the provincial and federal governments mostly uses medieval storage technology from the era of the Mughal Emperor Akbar the Great: cement platforms with pyramids of wheat bags on them covered by tarpaulin sheets. A smaller portion of government storages are flat warehouses and a miniscule portion is silos which are not operational. Practically, none of these has modern testing facilities for checking the quality of wheat coming in. Therefore, the quality of wheat is compromised as soon as it leaves farms. Does anyone need to care about quality of wheat if the largest buyer doesn’t?

Since wheat quality is not a policy preference, the wheat supply chain generally does not test for quality. It doesn’t help that the vast majority of wheat storages across the countryside—particularly those close to farmers—are extremely basic shop-and-shutter operations. In this traditional supply chain, only the leading flour millers have storages that look like they belong in a modern wheat supply chain: well-maintained flat warehouses and silos both with testing labs. The result is that it is not easy to add value to our wheat into higher-price products.

So visualise the wheat as moving fast out of the farmer’s hands and sticking for longer in millers’ and traders’ hands. Reason: farmers do not have access to storages where their wheat can be tested, graded and standardized—but millers do. In this supply chain structure, how do you expect the farmer’s wheat to be priced and traded—even around the government-set benchmark? Arbitrarily! And in favour of the one who has money to buy wheat, not in favour of the farmer!

As they say in the trade, finance is the golden thread that makes the wheat move across the supply chain. And who typically has finance? It is certainly not the farmer but those who have access to bank borrowing or speculator money. In this traditional supply chain and market structure, finance only enters at the sticky end—where millers have storages in which they can collateralize their wheat. The farmer’s end remains the slippery one with no modern warehousing near the farms where the farmer’s wheat can be standardized and collateralized.

With the current structure of the wheat supply chain, the wheat market structure cannot be a single national wheat market where graded and standardized wheat can be sold by farmers to buyers from anywhere in Pakistan. The current variegated wheat supply chain can only support local markets where buyers can come and physically check the quality of wheat they are buying. Large buyers say they have to involve up to six people in purchases to ensure they are getting what they are paying for. That’s buyer beware to the power six!

The wheat supply chain’s current structure promotes mistrust not only from market players but also from the government. The government has very little visibility on wheat stocks other than what is in the government’s own storages or among flour millers who are required to declare their stocks to government. The new arrangements proposed by the government under which the private sector will procure wheat stocks for the government is not very different from the traditional wheat supply chain in substance. Its main efficacy will be to ensure that the wheat price does not crash at harvest time and it will achieve this through private warehouse operators.

So with the old wheat supply chain structure and the old wheat market structure, we can largely expect the old outcomes to continue. Farmers will be forced to make distress sales at wheat harvest time to those who have access to capital. The quality of wheat will continue to be compromised from the day it leaves the farm. And modern value addition from wheat will remain a dream. Is there a path to this dream?

Yes! There are many in Pakistan who dream of an agri-supply chain with modern warehouses at every 100 kilometers across Pakistan’s rural areas—as in any modern agricultural country. If the wheat supply chain can be upgraded with modern warehousing near farms with digital linkage to a national commodity exchange, farmers will also be able to collateralize their wheat against a loan, if they choose, and hold on to it till prices rise after harvest. Even if they sell right at harvest time, they will be able to sell to a national landscape of buyers rather than just the traders of their local market. And the quality of the traded wheat would be preserved. With stocks visible to the government, hoarding will be greatly reduced.

The foundation of such a wheat supply chain has already been established through the Electronic Warehouse Receipts (EWR) regime by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan with support from the International Finance Corporation (IFC, part of the World Bank Group) and Pakistan Agricultural Coalition. Over the past eight seasons, this eco-system has seen Rs 25 billion worth of corn, rice paddy, rice, and wheat tested and standardized by multiple accredited warehouse operators owned by some of Pakistan’s leading business groups. And against nearly half of these commodities, over Rs 8 billion of loans have been disbursed mainly by HBL and the Bank of Punjab—they typically lent Rs 70 against Rs 100 of collateralized commodity value. No bank lost money on these transactions and returns have been strong for millers, traders, and farmers who invested in agri-commodities through EWRs.

So a successful proof of concept of the EWR eco-system has been achieved over the past four years. The banks started this four-year period with lending against EWRs at KIBOR plus 6 percent and soon started lending at KIBOR plus 2 percent-2.5 percent against EWRs. Warehouse operators started this experience at 15-20 percent warehouse utilization and have been able to attract volumes to reach an average of 63 percent of warehouse utilisation—including some at over 90 percent! So this regime is ready for scale-up.

Now is the perfect time for policy-makers and regulators to shift gears for crop supply chains and take the victory lap for Pakistan. Major business groups of Pakistan are ready to invest in agri-warehousing. The Federal Government and the Government of Punjab have already enlisted leading private business groups to conduct warehousing for their strategic reserves of wheat. This builds a great foundation for encouraging sustained investment in accredited agri-warehousing which will make Pakistan’s agriculture sector more export-worthy. This will also bring farmers more financial access and returns. So what’s keeping us from scale-up?

We’ve seen that millers have the sticky end of the supply chain. They are able to secure financing by pledging stock in their own warehouses to banks who have long-standing relationships of trust with these millers. On the slippery end of the supply chain, farmers do not have near-farm modern warehousing to collateralise their stocks in. And for decades we have heard that farmers are stuck with middlemen who have better access to capital and charge farmers mark-up effectively above 50% per annum. This presents a clear case for intervention by policy-makers and regulators to upgrade these agri supply chain.

As a reference, remember what the State Bank of Pakistan did when it wanted foreign exchange companies to clean up their act and fix major deficiencies in Pakistan’s foreign exchange space? The State Bank didn’t ask the owners of foreign exchange companies what incentives they needed to change their wayward behavior. The State Bank simply did what regulators do: it issued regulations that re-defined how the foreign exchange business will be conducted with higher standards for foreign exchange companies to follow. Soon, all such companies fell in line. Similarly, to address the longstanding issues with our agri supply chains and constraints in agri-lending, it is time for the State Bank to issue regulations that require a transition of pledge-based lending by banks to the EWR eco-system. This will also advance the Prime Minister’s goals of digitization and documentation of the economy.

The sticky end of the wheat supply chain (and any agri-commodity supply chain really) needs to be brought into this modern eco-system. Banks cite a few risks associated with this. First, that if a bank lends a large amount against EWRs and there is default by the borrowers, how can banks off-load these EWRs smoothly? For this, the corporate regulator SECP can develop a mechanism for defaulted EWRs to be off-loaded on the Pakistan Mercantile Exchange—the national digital exchange for commodities which can quickly move on this path.

The other risk banks identify is about warehouse operators. They say that the leading Pakistani players are easier to trust than others. The government can easily help mitigate this risk by providing a first loss guarantee for EWR-based lending by banks for the first three years. As a track record develops, this risk should taper down.

Finally, the government policymakers can encourage the private warehouse operators involved in its strategic wheat reserve initiative to invest in a network of modern warehouses preferably closer to farms. This would be similar to what the government of India started in February 2024: a five-year nationwide programme to add 70 million tons of modern warehousing both flat and silos with strategic financial support from the government. Pakistan already has a great precedent for this in the form of its Financing Facility for Storage of Agricultural Produce (FFSAP) administered by the State Bank which allowed borrowing for upgrade/construction of warehouses at 6% mark-up (the rest was picked up by the federal government). The provincial governments can also train their own food department inspectors to not raid warehouses accredited under the EWR regime since that is a clear destroyer of investor confidence.

The age of 400% annual returns on agri-commodities for non-farmers must come to an end. The EWR eco-system can not only deliver this but also draw investment in the agriculture sector, increase farmer financial access and profitability, create formal jobs in rural areas, and reduce post-harvest losses across Pakistan. It’s proven to work at the Rs. 25 billion level. Now, its scale-up requires a coordinated initiative between policymakers and regulators to (1) give confidence to warehouse operators, (2) give comfort to banks, and (3) attract farmers to shift from the old way to a new system that is clearly beneficial for them.

Farmers must benefit more from their crops. For such outcomes, the agriculture sector needs to adopt the new supply chain structure and new market structure under the EWR regime that works globally and has already been proved to work right here in Pakistan.