Agriculture Reference
In-Depth Information
subsidy in 2002/03 reached Rs 6.8 billion, which is 12 percent greater than
the entire Public Sector Development Program budget (Rs 6.05 billion) for the
Health Division (Dorosh and Salam forthcoming). This study further argues
that they have mainly benefited the flourmills and also bred corruption in the
food departments.
Analyses of Operational Costs: Public Agencies versus Private Traders
The details of various incidentals involved in wheat procurement provided by
the Punjab Food Department and PASSCO for 1996/97 to 2002/03 are given in
Tables 4.5 and 4.6. The numbers show that the costs of wheat procurement
and distribution are on the rise. In nominal terms, the costs of wheat procure-
ment, storage, and other expenses have jumped from Rs 920 per ton in 1996/97
to Rs 1,637 per ton (an increase of 78 percent) in the case of Punjab's PFD and
from Rs 1,218 per ton to Rs 1,681 per ton (an increase of 38 percent) in the case
PASSCO during the same time period. By 2002/03, the incidental costs for the
two agencies further increased to Rs 2,350 per ton and Rs 2,431 per ton, respec-
tively, showing an increase of about 44 percent over those of 2000/01 for both
agencies.
The major constituents of the incidentals include the cost of gunny bags,
transportation charges, and financial costs (mark up), accounting for 86 percent
of the total incidentals of the Punjab Food Department. In the case of PASSCO,
the cost of gunny bags and mark-up are almost 77 percent (gunny bags at 23
percent plus a mark-up of 54 percent) of the total costs, whereas the depart-
mental charges accounted for about 15 percent of the incidental costs on aver-
age in the past three years. Notwithstanding the interyear variations in the in-
dividual shares of the abovementioned constituents, collectively they account
for the lion's share of the total incidentals involved in wheat purchases. If ma-
jor savings or economies are to be effected in the incidental costs, these are the
prime targets.
Thus, PASSCO's costs of operation are generally higher than those of
PFDs. The main reasons for the higher costs are:
1. PFDs established their infrastructure, such as storage and transportation,
using federal or provincial government funds, whereas the PASSCO had
to cater to its infrastructure out of its own resources.
2. Whereas all payments for PFD expenses—gunny bags, salaries and wages,
and the like—are financed out of the department's annual budget, PASSCO
has to finance all its activities through borrowed funds from banks at the
prevailing mark-up rate.
3. PASSCO has been selling wheat on credit to deficit provinces and public-
sector agencies, whereas PFDs sell to private flourmills against advance
payments, and therefore PASSCO has to borrow more funds to finance the
receivables.
