Agriculture Reference
In-Depth Information
Costs of Operation
Countries with Significant Parastatal Presence
In addition to direct operational costs, food marketing parastatals impose vari-
ous forms of implicit costs on the society, which include costs due to policy dis-
tortions, costs of providing regulatory supports, and costs of special interests
and rent seeking. The country case studies suggest that the food marketing
parastatals are becoming increasingly expensive, their costs are higher than
those of the private sector, the margin of costs between parastatals and the pri-
vate sector are widening, and the operations of parastatals are increasingly be-
ing dictated by special interests.
This evidence is obvious in all major Asian countries that have significant
parastatal presence and seems to echo some of the problems that the opponents
of price stabilization policies had predicted in their theoretical models. In India
the government's subsidy bills for buffer stocking have increased from US$160
million in 1992 to an estimated US$1.6 billion in 2002; in Indonesia total costs
of inefficiency in BULOG are estimated at US$2.0 billion over a 5-year period,
starting in 1993; in the Philippines, average annual losses to the society from
NFA interventions are estimated at more than US$414 million during 1996-98.
In Pakistan, food subsidy bills fluctuated between US$49 million and US$245
million during 1990-2003.
A few studies in India and Pakistan have compared unit cost of operation
of the parastatals with that of the private sector. The findings are striking. De-
spite concessional credit and transportation, per unit trading cost of wheat by
FCI is estimated to be more than twice as much as private traders' costs (Chand
2002). For rice, FCI's cost is about 20 percent higher than for private traders.
Not only have the unit costs of FCI operation been larger than those of private
traders, some studies suggest that the gap between the two has been widening
in recent years (Jha and Srinivasan 2003). In Pakistan, return on sales of
PASSCO was estimated at 2.12 percent, much lower than average return on
sales of 10 percent or more in comparable private firms (Farouquee, Ali, and
Choudhury 1995). For the provincial agency, the Punjab Agricultural Develop-
ment and Supplies Corporation (PAD&SC), the estimated return on sales was
-7.92 percent, suggesting that it was operating at large losses that were covered
by public subsidies. The recent trend in costs of procurement is even more
alarming. Procurement costs per ton by PASSCO have almost doubled in nom-
inal terms since 1996, and the PFD in Punjab has incurred even higher costs.
22
22. PASSCO's procurement costs increased from Rs 1217.59 per metric ton in 1996/97 to
Rs 2430.96 per metric ton in 2002/03; and PFD's costs increased from Rs 919.60 to Rs 2350.00
during the same period (Salam and Mukhtar 2003). In real terms, the rate of increase has been even
higher, as the inflation rates in the mid-1990s were larger than in recent years.
