| In Pakistan,
value addition by the wheat sector during 2012 in agriculture and GDP stood at
12.5 and 2.6% respectively (GoP 2013). Citing reasons of food security in 2012,
the Government increased the wheat procurement price to USD 10.50 per 40 kg.
The Government maintains several forms of subsidies which in turn have made
wheat a preferred crop for farmers. However, these subsidies are blamed for
distorting production incentives across agriculture, industry and services
sectors, producing budgetary deficits and fuelling inflationary pressures.
Analysis of all
these factors has become important after the 18th Amendment in Pakistan’s
Constitution wherein the provincial governments are empowered to make their own
decisions regarding wheat sector management. Other than wheat subsidy, the Government
is also involved in wheat price setting, its procurement at sub-provincial
levels, wheat imports, wheat export curtailment and inter-provincial wheat
transfers. Further, the Government extends its financial support for tractors,
seed and related inputs.
Though the
provincial governments have eliminated the role of middle-men in the wheat
market on paper, however, the middle-men continue to operate through documents
of small and medium farmers. Further work is needed to eliminate the role of
middle-men so that the poor can take advantage of wheat subsidies. The opinion
of small farmers regarding procurement price and subsidy is also important.
Small farmers consider subsidy a better option than procurement prices on
multiple grounds. First, benefit of a higher procurement price goes to the big
landlords because small farmers consume most of the wheat for domestic
consumption. Second, the rise in procurement price is smaller than price hikes
in wheat inputs. Third, a higher procurement price also increases the rent of
land.
Post-harvest
losses are very high in Pakistan,
Bastin et al. (2008) state that 45-50% of wheat is wasted, spoiled, smuggled,
or never even enters the cash economy. Though the stock of wheat is sufficient
in Pakistan,
consumers are paying high prices for flour. In Sindh, flour millers purchase
wheat at cheaper rate from the Government and sell it at expensive rates in the
open market to earn high profits. Such practices result in higher wheat prices
resulting in food insecurity.
Overall, the
present study aims to estimate the overall size of public sector intervention
in wheat sector to provide perceptions of actors involved in the wheat sector
supply chain using a dynamic computable general equilibrium model. It also aims
to analyse the economy-wide impacts of subsidies in wheat sector, and to
provide policy recommendations for careful withdrawal of public sector from the
wheat sector based on study findings and literature from other countries.
References
Bastin,
G.Q. Sarwar, S. and Kazmi, Z.A. 2008, ‘Wheat-Flour Industry in Pakistan’,
Discussion Paper, September, Competitiveness Support Fund ,
accessed 7 November 2013.
GoP 2013, ‘Economic Survey of Pakistan 2012-2013’,
Ministry of Finance, Government of Pakistan, Islamabad, Pakistan,
, accessed 7 November 2013.
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