Agriculture Reference
In-Depth Information
ing government policy, ought to be borne by the government. But in some cases
these losses were not picked up by the government and had to be sustained by
PASSCO. It is therefore commendable that the agency has been able to pay
taxes to the government and dividends to its shareholders in most of the years
covered in the analysis.
Wheat Price Stabilization and Liberalization: The Challenges
Formulating pricing policy in general, and for food crops in particular, is a bal-
ancing act, involving resolution of the conflicting and diverse interests of pro-
ducers, consumers, processors, trade, and industry. The discussion in this chap-
ter has highlighted that the government has had difficulties playing that
balancing role, particularly in terms of minimizing the costs of interventions
and adhering to liberalized policies. These issues are related, and we discuss
them under two broad headings, minimizing costs and creating level playing
fields for the private sector.
Minimizing Intervention Costs
The costs of public intervention can be broadly categorized into three groups:
(1) subsidized sales, (2) maintenance of large stocks, and (3) high costs of gov-
ernment agencies' operation. The most significant part of the subsidies, of
course, comes from the subsidized sales of both domestically procured and im-
ported wheat. To reduce this component of costs, the government has to scale
down its operation and adopt a mechanism whereby sales price to flourmills
must cover the full costs of procurement. The same argument goes for the buffer
stock level. Currently, the government maintains cumulative stocks of more
than 4.0 million tons, but it is not clear whether the country needs such large
stocks to maintain food security. A recent study has suggested that a year-end
security stock of about 1.0 million tons (the average in recent years in Punjab)
could be maintained with far less procurement and sales volume, which aver-
aged about 3.0 million tons (Dorosh and Salam forthcoming).
Institutional reform issues have also surfaced in the context of cost reduc-
tions. It is often questioned as to why there are two public sector agencies func-
tioning simultaneously. The explanation offered is that although PFDs and
PASSCO coexist in the same field, their mandates are quite different. PFDs sup-
ply wheat to private flourmills at a fixed ration price that does not cover all ex-
penses and thus involves substantial consumer subsidies, whereas PASSCO
supplies designated public-sector agencies and recovers all its procurement and
marketing costs through the sale price. Nevertheless, elements of inefficiency
in public-sector agencies, which affects wheat subsidies, cannot be ruled out
and perhaps need further investigation to see whether institutional reforms, such
as merging the two agencies into one, can cut costs.
