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........

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