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Evaluation of Wheat Support Evaluation of Wheat Support Price Policy in PakistanPrice Policy in Pakistan

By By

Imran Ashraf ToorImran Ashraf Toor

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IntroductionIntroduction

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

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Improved Wheat VarietiesImproved Wheat Varieties

• Total Varieties Released 70

• Yield Increase Attributable to HYVs25%

• 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 Rs. 56 billion Improved Varieties per year

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Wheat Production Trends in PakistanWheat Production Trends in Pakistan

3.9

8.49.1

3.4

23.5

0

4

8

12

16

20

24

PRO

DU

CTIO

N (m

illio

n to

ns)

1948 1966 1977 1978 2007

Local Wheat( + ) 147 %

HYV( + ) 133 %

Coordinated Efforts( + ) 192 %

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Area and Production of Wheat Area and Production of Wheat 1991 to 20081991 to 2008

0

5000

10000

15000

20000

25000

Area Production

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Yield Gap Analysis – WheatYield Gap Analysis – Wheat

10 Mt/ha

5.0 Mt/ha

2.6 Mt/ha

0

2

4

6

8

10

12

National AverageYield

Progressive FarmersAverage Yield

Biological YieldPotential

Achievable potential

Source: Pakistan Agricultural Research Council

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Productivity Improvement Productivity Improvement (1950 – 2006-07)(1950 – 2006-07)

CropsCrops

19501950 2006-072006-07 20072007

Production Production (million tones)(million tones)

Increase in Increase in production production (in times)(in times)

WheatWheat 3.93.9 23.723.7 66

RiceRice 0.80.8 5.05.0 66

MaizeMaize 0.40.4 9.89.8 2424

SugarcaneSugarcane 7.87.8 47.247.2 66

Cotton (m Cotton (m bales)bales) 1.31.3 14.314.3 1111

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What is Wheat Support PriceWhat 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.

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Economic justification of wheat Economic justification of wheat support pricessupport 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 counter-productive.

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.

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Mechanics of support price

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Determinants of wheat support priceDeterminants of wheat support price

(i) 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

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Impact of support price on ConsumerImpact 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 highest-income 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.

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Poverty in PakistanPoverty in Pakistan

Proportion of Population Under Poverty Line

year1986-

871987-

881990-

911992-

931993-

941996-

971998-

992000-

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

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Impact of support price on different Impact of support price on different farmersfarmers

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. .

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Support price impacts on market priceSupport 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.

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Wheat support price and inflationWheat 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.

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Wheat support price and inflationWheat support price and inflation

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Input prices and wheat support priceInput 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

1919

Shortage of wheat production inputsShortage of wheat production inputs

* Water Shortage

* Fertilizer Shortage

* Non-availability of Agricultural Credit

* Testified Seed

* Electricity Shortage

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Challenges related to wheat support Challenges related to wheat support priceprice

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.

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Suggestions 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.

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SuggestionsSuggestions

4. Investment in input delivery system (rural roads, markets, seed, fertilizer, electricity, water)

5. National Agricultural Research System (NARS) - 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.

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ConclusionConclusion

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.

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Thank You