Agriculture Reference
In-Depth Information
its investments in the expectations of returns, which depend on the differential
in prices paid for procurement and sales price of the produce. Restrictions on
either commodity or price movements are not viewed favorably by the private
sector. From the consumers' perspective, when the stock situation is healthy,
more reliance can be placed on the private sector. However, in good crop years
reliance on the private sector may not be sufficient to hold the price for farm-
ers. In both situations, the considerations of political economy rather than eco-
nomic arguments would decide the issue.
Concluding Observations
This chapter set out to examine various dimensions of public interventions in
Pakistan's wheat markets. It has provided an overview of policy evolution, ex-
amined the nature of interventions and their effects on prices, analyzed the costs
of interventions, and highlighted the policy challenges. The overview clearly
suggests that successive governments have taken significant steps toward lib-
eralizing the food policies, which included, among others, abolition of ration
shops, withdrawal of movement restrictions, introduction of a cascading policy
of wheat issue pricing that provides for revisions at regular intervals during the
year, and providing liberal banking facilities to the private sector. However, it
is not clear to what extent these liberalization measures have been effective. The
two government agencies continue to capture a large share of the market, aver-
aging 25-30 percent of production; subsidies remain high, reaching as high as
Rs 10.93 billion in 1996/97; and the government had to reverse policies in the
wake of consecutive poor harvests from 2002 to 2004.
These experiences underscore two important lessons. First, prices became
volatile after liberalization. Wheat and wheat flour prices in the open market
during 1993/94 increased by 42 and by 33 percent during 2003/04 (up until
March 2004), which caused the government concern and prompted it to reverse
some of its policies. Thus the government will continue to play some role in the
wheat market, and its complete withdrawal from that market may not be desir-
able. Second, our analysis suggests that, with the continued heavy presence of
public agencies, the liberalizations did not generate proper incentives for the
private sector to participate. For example, the policy of a pan-territorial, uni-
form ration price of wheat that does not cover full procurement costs has en-
couraged flour mills to rely on government agencies for their supply of wheat.
This distortion has been one of the main reasons why subsidy bills remained
high and the private sector did not have the incentive to invest in wheat mar-
keting and storage activities. The private sector in the past has also been hand-
icapped by restrictions on commodity movements and limited availability of
credit.
Looking forward, there is room for reforming the existing system. We
make two observations in this regard. First, the liberalization and subsequent
