Wheat Market in Pakistan: A Post-18th Constitutional Amendment Inquiry

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  • 1. Wheat Market in Pakistan: A Post-18th Constitutional Amendment Inquiry 1
  • 2. Outline Introduction & Background Recent Literature & Gaps Methodology & Data Qualitative Assessment Quantitative Results Tasks Ahead
  • 3. Area & Production of Wheat (2010) Name of Countries China India America Russian France Germany Pakistan Canada Australia Turkey Ukraine Iran Argentina UK Kazakhstan Total of top 15 Countries Total of other 108 countries World total Production (tonnes) 115180303 80710000 60102600 41507600 38207000 24106700 23310800 23166800 22138000 19660000 16851300 15028800 14914500 14878000 9638400 519400803 131480199 650881002 Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab Area Harvested (Ha) 24256086 28520000 19278200 21639800 5426000 3297700 9131600 8268700 13507000 8053670 6284100 7035020 4373440 1937000 13138000 174146316 42828367 216974683 %age Share in Production 17.7 12.4 9.23 6.38 5.87 3.7 3.58 3.56 3.4 3.02 2.59 2.31 2.29 2.29 1.48 79.8 20.2 100
  • 4. 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
  • 5. -10.0 -20.0 -30.0 Source: FAO STAT 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Percentage Change Volatility in Annual Yield 50.0 40.0 30.0 20.0 10.0 0.0
  • 6. 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 Wheat Imports (000) tons Source: State Bank of Pakistan Wheat Imports (PKR Million) PKR Million 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 000 Tons Import of Wheat
  • 7. Some Recent Literature Wheat-sector Distortions Literature Dorosh (2012): Pakistan Wheat Procurement Reforms Issues Highlighted Policy Recommendation Setting procurement prices too high Need for strengthening monitoring relative to domestic prices results in and coordination across government massive fiscal costs with no benefit agencies to consumers and small farmers that do not sell wheat to government agencies Dorosh and Salam (2007) The dispersion in NRAs among farm products need to be reduced Bastin et al. (2008) 45%-50% of wheat that has been harvested is wasted, spoilt, smuggled, or never even enters the cash economy The wheat economy must be liberalized and rationalized. If it is necessary to provide food for the poverty stricken the government should do so directly with food vouchers Ali et al. (2011) Government policy has insignificant effect on wheat production though the sign of its coefficient is positive Need to upgrade the entire supply chain
  • 8. Some Gaps in the Literature What has changed post-18th Amendment? Has the devolution helped any aspects of Wheatsector’s supply chain? What explains the multiplicity of subsidies post2007/08? What have been the economy-wide effects of targeted and untargeted subsidies in Wheat sector?
  • 9. Methodology Situation Analysis Qualitative Quantitative Focus Group Discussions Social Accounting Matrix 2007-08 Pre/post Amendment Data Key Informant Interviews Dynamic Computable General Equilibrium Model Political Economy Analysis Stakeholder’s Analysis Existing Literature 18th
  • 10. 18th Amendment and Reversal Ministry of Food Security ECC Source: Salam (2012)
  • 11. 1. How much is government intervention worth? [Disbursements to TCP and Fertilizer Sector] Years 2008-09 2009-10 2010-11 2011-12 2012-13 Subsidy to Trading Corporation of Pakistan Import of Subsidy to Fertilizer Wheat Operations Urea Producers PKR Million PKR Million PKR Million 20000 31662 32000 25500 3937 2334 12000 4200 985 217 44982 162 -26000 3400 Source: Federal Budgets, Ministry of Finance Year Books
  • 12. 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
  • 13. 3. How much is government intervention worth? [Disbursements to Pakistan Agricultural Storage and Services Corporation] Years 2008-09 2009-10 2010-11 2011-12 2012-13 Wheat Operations PKR Million 286 599 600 4171 1148 Wheat Reserved Stock PKR Million --4000 4000 4000 Source: Federal Budgets, Ministry of Finance Year Books Cost Differential for Sale of Wheat PKR Million -598 ----
  • 14. 4. How much is government intervention worth? [Disbursements for Tube-wells and Tractors] Year Sindh, Punjab and Khyber Pakhtunkhwa PKR Millions PKR Millions 2008-09 2009-10 2010-11 2011-12 2012-13 2044 2157 --870 Source: Federal Budgets, Ministry of Finance Year Books 4994 5732 --4000 Green Tractors Scheme PKR Millions Balochistan Benazir Tractor Scheme PKR Millions --2000 -2000 2000 -----
  • 15. 5. How much is government intervention worth? [Subsidy on Sale of Wheat] Years 2008-09 2009-10 2010-11 2011-12 2012-13 FATA Gilgit Agency PKR Millions PKR Millions 195 216 233 255 270 600 660 655 744 775 Source: Federal Budgets, Ministry of Finance Year Books
  • 16. 6. How much is government intervention worth? [Crop Loans and Remission Grants] Years 2008-09 2009-10 2010-11 2011-12 2012-13 Crops Loan Insurance --292 500 500 Flood Affected Areas ---3802 -- Source: Federal Budgets, Ministry of Finance Year Books PKR Millions ZTBL AJK Earthquake affectees loans ----53 400 -----
  • 17. 7. How much is government intervention worth? [GST Subsidy and Loans Written-off] PKR Millions Years 2008-09 2009-10 2010-11 2011-12 2012-13 GST subsidy for protected consumers 4302 5704 ---- Source: Federal Budgets, Ministry of Finance Year Books Write-off Loans, Flood Affected Millers & Traders ----256
  • 18. 8. How much is government intervention worth? [Provincial Subsidies - I] PKR Millions Years 2010 2011 2012 2013 Wheat --2,500 3,000 Punjab Agriculture 2,500 3,073 --- Source: Provincial Budgets and White Papers Baluchistan Atta ---300 Tubewells ---3,000
  • 19. 9. How much is government intervention worth? [Provincial Subsidies - II] PKR Millions Khyber Pakhtunkhwa Years Sindh Agricultural Subsidies Wheat Wheat Transportation Food from Punjab 2010 -- -- -- -- 2011 2500 2500 3,391 1,680 2012 2,000 -- -- 2,505 2013 2,500 -- -- 3,015 Source: Provincial Budgets and White Papers
  • 20. 10. Total Government Intervention in Wheat Market Post-18th Amendment 80000 70000 PKR Million 60000 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
  • 21. How Government Intervention Promotes Rent-Seeking?
  • 22. 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
  • 23. 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
  • 24. How we Modeled Intervention? [Data and Simulation Design] • Social Accounting Matrix 2007-08 – Pre-18th Amendment economic structure • Simulation Design – Between 2009 and 2012 • 11 percent annual average increase in subsidy stock
  • 25. 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 (1st Year), Mid-Term (20 Years), End-Period (40 Years)
  • 26. How we Modeled Intervention? [Dynamic Computable General Equilibrium Model] • Elasticities and related parameters – Substitution elasticity of CES households function (0.7%) – Substitution elasticity of first and second level CES production function (0.5 and 0.4% respectively) – Rate of depreciation (12%) – Output elasticity of public capital (0.3) – Share of public investment in total investment (28%), population growth rate (1.8%) – World real interest rate (6%) – Share of constrained households in • Consumption (57%) • Labour income (71%) • Income taxes (9.5%) • Government transfers (10%).
  • 27. Macro-level Results – Percentage Change Variables Real GDP Wage rate Price of capital good Household consumption Myopic Forward looking Total Investment Public Private Myopic Forward Total capital stock Public Private Myopic Forward Total exports Total imports Income of myopic households Labour income Capital income Government revenue First Period 1.26 2.46 1.15 0.95 2.69 0.28 0.37 0.79 0.23 1.53 0.09 0.06 0.13 0.03 0.25 0.01 -2.37 1.99 2.69 2.46 2.72 4.22 Mid-Term 1.05 2.40 1.10 1.09 2.20 0.61 0.12 -0.04 0.18 1.09 0.07 0.12 -0.04 0.17 1.08 0.07 -2.49 1.70 2.20 2.40 1.05 3.57 End-Period 1.06 2.40 1.10 1.09 2.20 0.62 0.14 -0.09 0.22 1.09 0.12 0.12 -0.04 0.17 1.09 0.08 -2.47 1.69 2.20 2.40 1.04 3.52
  • 28. Sectoral Results – I (Percentage Change) Wheat Gross Output First period 23.37 Short run 23.80 Long run 23.81 Investment First period Short run Long run Export First period Short run Long run Imports First period -40.87 Short run -40.96 Long run -40.96 Domestic Demand First period 23.37 Short run 23.80 Long run 23.81 Other Crops 2.10 2.40 2.40 Agri Processin g Cotton 2.12 2.41 2.41 -1.43 -2.74 -2.73 3.15 1.23 1.26 -7.27 -2.63 -2.63 -0.60 0.26 0.27 3.20 4.34 4.35 -2.08 -4.15 -4.15 5.06 4.73 4.73 0.95 0.31 0.30 2.19 2.47 2.47 2.07 2.30 2.31 Manufact Livestock uring 0.37 0.78 0.79 Energy Constructi Textile on -0.18 -0.01 -0.01 0.04 0.23 0.24 -0.36 -0.57 -0.57 -0.30 -0.06 -0.03 0.90 0.40 0.42 -1.05 1.40 1.42 -2.93 -2.24 -2.23 -0.26 -0.16 -0.15 1.80 0.17 0.16 -1.17 -2.18 -2.17 0.37 0.78 0.79 -0.04 0.01 0.00 T&C Private Services Public Services 0.60 0.81 0.81 -0.49 -0.55 -0.54 -0.37 -0.32 -0.36 -1.12 -0.48 -0.46 2.42 1.05 1.08 -0.93 -0.35 -0.30 -0.54 -0.14 -0.07 -3.44 -2.95 -2.92 -2.92 -3.26 -3.25 -3.55 -2.87 -2.85 -3.88 -3.82 -3.80 -3.84 -3.62 -3.61 2.92 2.49 2.48 3.85 3.70 3.69 3.60 3.60 3.59 3.39 3.19 3.19 3.18 3.08 3.05 -0.05 0.10 0.10 0.14 0.32 0.33 0.29 0.11 0.11 -0.31 -0.38 -0.37 -0.37 -0.32 -0.36 -0.04 0.01 0.00 0.90 1.07 1.08
  • 29. Sectoral Results-II (Percentage Change) Wheat Other Crops Agri Processin g Cotton Livestock Manufact uring Energy Textile Constructi on T&C Private Services Public Services Price of gross output First period 0.33 -0.93 -2.44 -0.53 -0.27 0.25 0.29 0.82 1.14 0.14 0.64 Short run -0.05 -1.34 -1.91 -1.53 -0.53 0.09 0.36 0.17 0.92 0.08 0.56 Long run -0.05 -1.34 -1.91 -1.54 -0.54 0.08 0.36 0.16 0.91 0.07 0.54 Price of domestic good First period -30.77 1.86 -0.55 0.62 0.71 1.47 1.84 1.64 1.62 2.07 1.67 1.62 Short run -30.94 1.47 -0.98 1.37 -0.30 1.19 1.67 1.73 0.97 1.83 1.61 1.54 Long run -30.94 1.46 -0.99 1.37 -0.31 1.18 1.66 1.72 0.97 1.82 1.61 1.52 Price of composite good First period -25.07 1.82 -0.53 0.54 0.71 1.16 1.56 1.63 1.62 2.07 1.48 1.43 Short run -25.21 1.43 -0.95 1.20 -0.30 0.94 1.42 1.72 0.97 1.83 1.43 1.36 Long run -25.22 1.42 -0.96 1.20 -0.31 0.93 1.41 1.72 0.97 1.82 1.42 1.34 First period 1.85 -0.46 1.08 1.35 0.90 1.68 0.94 1.03 Short run 1.10 1.10 1.10 1.10 1.10 1.10 1.10 1.10 Long run 1.10 1.10 1.10 1.10 1.10 1.10 1.11 1.11 Shadow price of capital
  • 30. Major Gainers and Losers [In Output terms] • Gainers – – – – Wheat Agriculture processing Livestock Transport • Losers – Cotton – Textile – Large Scale Manufacturing – Construction – Private Services
  • 31. Major Gainers and Losers [In Price terms] • Gainers – Wheat – Agriculture processing • Losers – – – – – – – – – – Cotton Other Crops Livestock Textile Large Scale Manufacturing Energy Construction Transport Private Services Public Services
  • 32. Major Gainers and Losers [In Export terms] • Gainers – Agriculture processing • Losers – – – – – – – – Cotton Livestock Textile Large Scale Manufacturing Energy Transport Private services Public services
  • 33. Way Forward • Province-specific inquiry • Political economy of subsidies Vs. other forms of transfers • Introduce a reference simulation • Detailed welfare losses
  • 34. Thank You www.sdpi.org, www.sdpi.tv 36