Wheat Market in Pakistan: A Post-18th Constitutional Amendment Inquiry 1
Outline Introduction & Background Recent Literature & Gaps Methodology & Data Qualitative Assessment Quantitative Results Tasks Ahead
Area & Production of Wheat (2010) Name of Countries Production Area Harvested %age Share in (tonnes) (Ha) Production China 115180303 24256086 17.7 India 80710000 28520000 12.4 America 60102600 19278200 9.23 Russian 41507600 21639800 6.38 France 38207000 5426000 5.87 Germany 24106700 3297700 3.7 Pakistan 23310800 9131600 3.58 Canada 23166800 8268700 3.56 Australia 22138000 13507000 3.4 Turkey 19660000 8053670 3.02 Ukraine 16851300 6284100 2.59 Iran 15028800 7035020 2.31 Argentina 14914500 4373440 2.29 UK 14878000 1937000 2.29 Kazakhstan 9638400 13138000 1.48 Total of top 15 Countries 519400803 174146316 79.8 Total of other 108 countries 131480199 42828367 20.2 World total 650881002 216974683 100 Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab
Country-wise Yield (2010) S.No. Name of Countries Yield (Hg/Ha) 1 Netherlands 89092 2 Belgium 88272 3 Ireland 85990 4 New Zealand 81241 5 UK 76810 6 Germany 73102 7 France 70415 8 Denmark 66264 9 Namibia 65789 10 Saudi Arabia 65000 62 Pakistan 25528 Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab
Source: FAO STAT Percentage Change -30.0 -20.0 -10.0 10.0 20.0 30.0 40.0 50.0 0.0 1948 1951 1954 1957 1960 Volatility in Annual Yield 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Import of Wheat 4500 100000 90000 4000 80000 3500 70000 PKR Million 3000 000 Tons 60000 2500 50000 2000 40000 1500 30000 1000 20000 500 10000 0 0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 Wheat Imports (000) tons Wheat Imports (PKR Million) Source: State Bank of Pakistan
Some Recent Literature Wheat-sector Distortions Literature Issues Highlighted Policy Recommendation Dorosh (2012): Setting procurement prices too high Need for strengthening monitoring Pakistan Wheat relative to domestic prices results in and coordination across government Procurement massive fiscal costs with no benefit agencies Reforms to consumers and small farmers that do not sell wheat to government agencies Dorosh and The dispersion in NRAs among farm Salam (2007) products need to be reduced Bastin et al. 45%-50% of wheat that has been The wheat economy must be (2008) harvested is wasted, liberalized and rationalized. If it is spoilt, smuggled, or never even necessary to provide food for the enters the cash economy poverty stricken the government should do so directly with food vouchers Ali et al. (2011) Government Need to upgrade the entire supply policy has insignificant effect on chain wheat production though the sign of its coefficient is positive
Some Gaps in the Literature What have been Has the devolution What explains the the economy-wide What has changed helped any multiplicity of effects of targeted post-18 th aspects of Wheat- subsidies post- and untargeted Amendment? sector’s supply 2007/08? subsidies in Wheat chain? sector?
Methodology Situation Qualitative Quantitative Analysis Focus Group Social Accounting Existing Literature Discussions Matrix 2007-08 Dynamic Pre/post 18 th Key Informant Computable Amendment Data Interviews General Equilibrium Model Political Economy Stakeholder’s Analysis Analysis
18 th Amendment and Reversal Ministry of Food Security ECC Source: Salam (2012)
1. How much is government intervention worth? [ Disbursements to TCP and Fertilizer Sector] Subsidy to Trading Corporation of Pakistan Import of Subsidy to Fertilizer Wheat Operations Urea Producers Years PKR Million PKR Million PKR Million 2008-09 20000 31662 32000 2009-10 25500 3937 2334 2010-11 12000 4200 985 2011-12 217 44982 162 2012-13 -- 26000 3400 Source: Federal Budgets, Ministry of Finance Year Books
2. How much is government intervention worth? [ Disbursements to Utility Stores Corporation] Ramzan Package Sales of Atta Other Food Items Years PKR Million PKR Million PKR Million 2008-09 1300 500 900 2009-10 1500 1200 200 2010-11 700 3000 500 2011-12 2000 -- -- 2012-13 2000 -- -- Source: Federal Budgets, Ministry of Finance Year Books
3. How much is government intervention worth? [ Disbursements to Pakistan Agricultural Storage and Services Corporation ] Cost Differential for Sale Wheat Operations Wheat Reserved Stock of Wheat Years PKR Million PKR Million PKR Million 2008-09 286 -- -- 2009-10 599 -- 598 2010-11 600 4000 -- 2011-12 4171 4000 -- 2012-13 1148 4000 -- Source: Federal Budgets, Ministry of Finance Year Books
4. How much is government intervention worth? [ Disbursements for Tube-wells and Tractors ] Benazir Green Sindh, Punjab and Balochistan Tractor Tractors Year Khyber PKR Millions Scheme Scheme Pakhtunkhwa PKR Millions PKR Millions PKR Millions 2008-09 2044 4994 -- 2000 2009-10 2157 5732 -- -- 2010-11 -- -- 2000 -- 2011-12 -- -- -- -- 2012-13 870 4000 2000 -- Source: Federal Budgets, Ministry of Finance Year Books
5. How much is government intervention worth? [ Subsidy on Sale of Wheat ] FATA Gilgit Agency Years PKR Millions PKR Millions 2008-09 195 600 2009-10 216 660 2010-11 233 655 2011-12 255 744 2012-13 270 775 Source: Federal Budgets, Ministry of Finance Year Books
6. How much is government intervention worth? [ Crop Loans and Remission Grants ] PKR Millions Crops Loan ZTBL Years Insurance Flood Affected Areas AJK Earthquake affectees loans 2008-09 -- -- -- -- 2009-10 -- -- -- -- 2010-11 292 -- 53 400 2011-12 500 3802 -- -- 2012-13 500 -- -- -- Source: Federal Budgets, Ministry of Finance Year Books
7. How much is government intervention worth? [ GST Subsidy and Loans Written-off ] PKR Millions GST subsidy for Write-off Loans, Years protected consumers Flood Affected Millers & Traders 2008-09 4302 -- 2009-10 5704 -- 2010-11 -- -- 2011-12 -- -- 2012-13 -- 256 Source: Federal Budgets, Ministry of Finance Year Books
8. How much is government intervention worth? [ Provincial Subsidies - I ] PKR Millions Punjab Baluchistan Years Wheat Agriculture Atta Tubewells 2010 -- 2,500 -- -- 2011 -- 3,073 -- -- 2012 2,500 -- -- -- 2013 3,000 -- 300 3,000 Source: Provincial Budgets and White Papers
9. How much is government intervention worth? [ Provincial Subsidies - II ] PKR Millions Khyber Pakhtunkhwa Sindh Years Food from Agricultural Wheat Wheat Transportation Punjab Subsidies 2010 -- -- -- -- 2011 2500 2500 3,391 1,680 2012 2,000 -- -- 2,505 2013 2,500 -- -- 3,015 Source: Provincial Budgets and White Papers
10. Total Government Intervention in Wheat Market Post-18 th 80000 Amendment 70000 60000 PKR Million 50000 40000 30000 20000 10000 0 2009 2010 2011 2012 2013 Note: Excludes support to urea or fertilizer sector in general In FY 2012 total government intervention in wheat market was USD 754 million
How Government Intervention Promotes Rent-Seeking?
How Government Intervention Promotes Rent-Seeking? • Case-I: Farmer needs to sell to PASSCO – Farmer goes to revenue officer to obtain certificate of land authetication – The certificate is then submitted to PASSCO for obtaining the bardana bags – After filling farmer comes back to PASSCO for finally selling the output – PASSCO can reject if specifications not met • Case-II: Farmer avoids above mentioned hassle and sells to middle man – Middle man gains by buying at low and selling at a higher government-set price – The impact of subsidy ultimately doesn’t reach the grassroots farmer
How we Modeled Intervention? [Simulation: Economy-wide Impact of Subsidies] • Issue-I: Targeted Vs. Untargeted Subsidies • Issue-II: Subsidies Vs. Second Best (e.g. Vouchers) • Issue-III: Tax financing Vs. foreign borrowing to finance subsidy
How we Modeled Intervention? [Data and Simulation Design] • Social Accounting Matrix 2007-08 – Pre-18 th Amendment economic structure • Simulation Design – Between 2009 and 2012 • 11 percent annual average increase in subsidy stock
How we Modeled Intervention? [Dynamic Computable General Equilibrium Model] • Model Specifications – Intertemporal model: Dissou and Didic (2011), Ahmed et al. (2012) – Households and firms which are both classified under constrained and non-constrained categories – Labour supply is inelastic and mobile across industries – Representative firm is assumed to exist in each industry – Composite output marketed domestically and abroad (exports) • Dynamic Features – For each period all markets are assumed to clear • Wages and prices clear factor and goods markets • Foreign Borrowing at global interest rate – Results: First Period (1 st Year), Mid-Term (20 Years), End-Period (40 Years)
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