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Evaluation of Wheat Support Price
Policy in Pakistan
By
Imran Ashraf Toor
1
Introduction
Agriculture is an important Contributor to the National Economy in
Pakistan:
Contributes a quarter to GDP
Employs 47% labor force
Over 50% of industrial production comes from agro
business
Earns (directly or indirectly) 70% of export revenues
More than 67% rural households depend on agriculture
2
Improved Wheat Varieties
•
Total Varieties Released
70
•
Yield Increase Attributable to HYVs
25%
•
Area Covered by Improved Varieties
90 % of the total
wheat area
•
Total Wheat Production (2007)
23.5 million tones
•
Total Value of Wheat Production
Rs. 250 billion
•
Value Contributed by
Improved Varieties
Rs. 56 billion
per year
3
Wheat Production Trends in Pakistan
PRODUCTION (million tons)
24
23.5
20
16
12
9.1 8.4
8
4
3.4
Local Wheat
( + ) 147 %
01948
Coordinated Efforts
( + ) 192 %
3.9
HYV
( + ) 133 %
1966
1977
2007
4
Area and Production of Wheat
1991 to 2008
25000
20000
15000
10000
5000
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
0
Area
Production
5
Yield Gap Analysis – Wheat
12
10 Mt/ha
10
8
Achievable potential
6
4
5.0 Mt/ha
2.6 Mt/ha
2
0
National Average
Yield
Progressive Farmers
Average Yield
Source: Pakistan Agricultural Research Council
Biological Yield
Potential
6
Productivity Improvement
(1950 – 2006-07)
1950
Crops
Wheat
Rice
Maize
Sugarcane
Cotton (m bales)
2006-07
Production
(million tones)
2007
Increase in
production
(in times)
3.9
23.7
6
0.8
5.0
6
0.4
9.8
24
7.8
47.2
6
1.3
14.3
11
7
What is Wheat Support Price
Support price means that minimum price for a product,
established by a government and supported by
payments to producers in the event that the market
price falls below the specified minimum.
Another definition is that support price is meant to act
as a minimum but guaranteed price for the farmers
during the post-harvest period. It is not meant to
replace the market-determined price but to correct the
shortcomings and failures of the market system during
the harvest season when prices often fall to the
disadvantage of farmers.
8
Economic justification of wheat support
prices
Neo-classical economists argue that rising prices
without other policy measures can serve the purpose
and is therefore the only viable policy instrument. But
sometimes rising prices are fruitless or even counterproductive.
The critics point out that the introduction of higher
support prices without an appropriate scale-neutral
technology or without the appropriate institutions are
unable to achieve the required results.
9
Mechanics of support price
10
Determinants of wheat support price
Current cost of production of wheat crop
(ii) Export and import price parity
(iii) Farmers’ input and output price parity
(iv) Existed domestic demand, supply and stock
position
(v) World demand, supply, stock and trade
(vi) Domestic and international market prices
(vii) Possible impact on other substitute crops
(viii) Likely impact on the cost of living of the farmers
(ix) Expected production response to prices
(x) Inclusion of risk factor such as flood or draught
(i)
11
Impact of support price on Consumer
Ghani (1998) found that the lowest income group spends
almost two-and-half times more of their total expenditure on
wheat and wheat products as compared with the highestincome group. Therefore, wheat and its products are
important items of expenditure for average income
households in Pakistan.
A rise in the price of food raises the real incomes of food
producers in the short run and lowers the real incomes of
food consumers, since in the short run the supply is fixed.
Consumer and producer prices can be separated by a system
of taxes and subsidies, but in practice there are real
constraints.
12
Poverty in Pakistan
Proportion of Population Under Poverty Line
year
1986-87
1987-88
1990-91
1992-93
1993-94
1996-97
1998-99
2000-01
Pakistan
29.1
29.2
26.1
26.8
28.7
29.8
30.6
32.1
Urban
29.8
30.3
26.6
28.3
26.9
22.6
20.9
22.7
Rural
28.2
29.3
25.2
24.6
25.4
33.1
34.7
38.9
Source: Planning Commission, GoP
13
Impact of support price on different
farmers
The composition of farmers will change as a
result of a rise in the price of food. The deficit
farmers may become surplus farmers, and
landless laborers may become urban poor.
The urban poor consumers may consume less
wheat due to increase the price of wheat. .
14
Support price impacts on market price
The effect of the volume and price of domestic
procurement on market prices of wheat depends
crucially on whether the government buys less than the
amount of wheat that farmers and traders are willing
to sell in the market.
In this case, market prices will remain below the
support (procurement) price and will be set by the
equilibrium of the supply and demand of wheat
quantities.
15
Wheat support price and inflation
High and persistent inflation is a regressive tax which
unfavorably impacts the poor part of the society and
their economic prospects.
The poor have a small number of options to protect
themselves against inflation.
16
Wheat support price and inflation
17
Input prices and wheat support price
•
Fertilizer Prices
•
Testified Seed Prices
•
Electricity use for Tubewell
•
Oil Prices use for Tubewell
•
Irrigation water supply
•
Tractor and Other farm Machinery
•
Pesticide Prices
•
Availability of Agricultural Credit
18
Shortage of wheat production inputs
* Water Shortage
* Fertilizer Shortage
* Non-availability of Agricultural Credit
* Testified Seed
* Electricity Shortage
19
Challenges related to wheat support price
1. Wheat prices in Pakistan have always remained low
relative to import wheat prices.
2. Pattern of double cropping with rice and cotton
widely practiced in Pakistan.
3. Government institutions have weak structure in
Pakistan. No coordination between agriculture
department and other departments.
4. Nor create inter-provincial harmony or work for the
well-being of the poor farmers
5. Government usually does not announce new
support price due to the involvement of great
subsidies transfer to the consumers and farmers.
20
Suggestions
1.
If the market price in a good harvest year falls below the
announced support price, which generally happens
immediately after the harvest, the government should be
obliged to purchase the whole production which is
offered by the growers.
2.
The government should recognize the complementary
role of the private sector which can play a significant role
in stabilizing prices.
3.
There is a need to design economic strategy in agriculture
to treat symptoms of the farm problem. The root cause of
the problem is the misallocation of resources between
agriculture and the rest of the economy.
21
Suggestions
4.
Investment in input delivery system (rural roads,
markets, seed, fertilizer, electricity, water)
5.
National Agricultural Research
upgrading/strengthening
6.
Dissemination of technology and farmers’ education
7.
Policy to promote corporate/commercial farming
8.
Government ould establish a strong crop forecasting
and information system. This system should
responsible to provide timely information to policy
makers and the private sector.
System
(NARS)
-
22
Conclusion
Increasing support price policy only cannot enhance
wheat production because other significant factors
like the subsidized electricity, fuel, fertilizers and
testified seed are had important rule for wheat
production.
Furthermore, severe irrigation water shortage will not
only affect the wheat-sowing process but could also
force farmers to lose interest in investing in this crop.
There is also important the availability of agricultural
loans and pesticides at affordable prices during the
harvest season. This can be only happened if
government has a better management policy.
23
Thank You
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