Presented on February 9th, 2013 at the Second Research Competitive Grants Conference in Islamabad, Pakistan.

1. Estimating Size & Operations of Public Sector and
its Impact on Wheat Market in Pakistan
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 Production Area Harvested %age Share in
(tonnes) (Ha) Production
China 115180303 24256086 17.7
India 80710000 28520000 12.4
America 60102600 19278200 9.23
Russian 41507600 21639800 6.38
France 38207000 5426000 5.87
Germany 24106700 3297700 3.7
Pakistan 23310800 9131600 3.58
Canada 23166800 8268700 3.56
Australia 22138000 13507000 3.4
Turkey 19660000 8053670 3.02
Ukraine 16851300 6284100 2.59
Iran 15028800 7035020 2.31
Argentina 14914500 4373440 2.29
UK 14878000 1937000 2.29
Kazakhstan 9638400 13138000 1.48
Total of top 15 Countries 519400803 174146316 79.8
Total of other 108 countries 131480199 42828367 20.2
World total 650881002 216974683 100
Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab

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. Percentage Change
0
-30
-20
-10
10
20
40
50
30
Source: FAO STAT
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
Volatility in Annual Yield
1993
1996
1999
2002
2005
2008
2011

6. Import of Wheat
4500 100000
4000 90000
3500 80000
3000 70000
PKR Million
000 Tons
60000
2500
50000
2000
40000
1500 30000
1000 20000
500 10000
0 0
1974
1971
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Wheat Imports (000) tons Wheat Imports (PKR Million)
Source: State Bank of Pakistan

7. Some Recent Literature
Wheat-sector Distortions
Literature Issues Highlighted Policy Recommendation
Dorosh (2012): Setting procurement prices too high Need for strengthening monitoring
Pakistan Wheat relative to domestic prices results in and coordination across government
Procurement massive fiscal costs with no benefit agencies
Reforms to consumers and small farmers
that do not sell wheat to
government agencies
Dorosh and The dispersion in NRAs among farm
Salam (2007) products need to be reduced
Bastin et al. 45%-50% of wheat that has been The wheat economy must be
(2008) harvested is wasted, liberalized and rationalized. If it is
spoilt, smuggled, or never even necessary to provide food for the
enters the cash economy poverty stricken the government
should do so directly with food
vouchers
Ali et al. (2011) Government Need to upgrade the entire supply
policy has insignificant effect on chain
wheat production though the sign
of its coefficient is positive

8. Some Gaps in the Literature
What have been
Has the devolution
What explains the the economy-wide
What has changed helped any
multiplicity of effects of targeted
post-18th aspects of Wheat-
subsidies post- and untargeted
Amendment? sector’s supply
2007/08? subsidies in Wheat
chain?
sector?

9. Methodology
Situation
Qualitative Quantitative
Analysis
Focus Group Social Accounting
Existing Literature
Discussions Matrix 2007-08
Dynamic
Pre/post 18th Key Informant Computable
Amendment Data Interviews General
Equilibrium Model
Political Economy Stakeholder’s
Analysis Analysis

10. 18th Amendment and Reversal
Ministry of Food
Security
ECC
Source: Salam (2012)

13. 1. How much is government intervention worth?
[Disbursements to TCP and Fertilizer Sector]
Subsidy to Trading Corporation of Pakistan
Import of Subsidy to Fertilizer
Wheat Operations Urea Producers
Years PKR Million PKR Million PKR Million
2008-09 20000 31662 32000
2009-10 25500 3937 2334
2010-11 12000 4200 985
2011-12 217 44982 162
2012-13 -- 26000 3400
Source: Federal Budgets, Ministry of Finance Year Books

14. 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

15. 3. How much is government intervention worth?
[Disbursements to Pakistan Agricultural Storage and Services Corporation]
Cost Differential for Sale
Wheat Operations Wheat Reserved Stock of Wheat
Years PKR Million PKR Million PKR Million
2008-09 286 -- --
2009-10 599 -- 598
2010-11 600 4000 --
2011-12 4171 4000 --
2012-13 1148 4000 --
Source: Federal Budgets, Ministry of Finance Year Books

16. 4. How much is government intervention worth?
[Disbursements for Tube-wells and Tractors]
Benazir Green
Sindh, Punjab and
Balochistan Tractor Tractors
Year Khyber
PKR Millions Scheme Scheme
Pakhtunkhwa
PKR Millions PKR Millions
PKR Millions
2008-09 2044 4994 -- 2000
2009-10 2157 5732 -- --
2010-11 -- -- 2000 --
2011-12 -- -- -- --
2012-13 870 4000 2000 --
Source: Federal Budgets, Ministry of Finance Year Books

17. 5. How much is government intervention worth?
[Subsidy on Sale of Wheat]
FATA Gilgit Agency
Years PKR Millions PKR Millions
2008-09 195 600
2009-10 216 660
2010-11 233 655
2011-12 255 744
2012-13 270 775
Source: Federal Budgets, Ministry of Finance Year Books

18. 6. How much is government intervention worth?
[Crop Loans and Remission Grants]
PKR Millions
Crops Loan ZTBL
Years Insurance Flood Affected Areas AJK Earthquake affectees loans
2008-09 -- -- -- --
2009-10 -- -- -- --
2010-11 292 -- 53 400
2011-12 500 3802 -- --
2012-13 500 -- -- --
Source: Federal Budgets, Ministry of Finance Year Books

19. 7. How much is government intervention worth?
[GST Subsidy and Loans Written-off]
PKR Millions
GST subsidy for Write-off Loans,
Years protected consumers Flood Affected Millers & Traders
2008-09 4302 --
2009-10 5704 --
2010-11 -- --
2011-12 -- --
2012-13 -- 256
Source: Federal Budgets, Ministry of Finance Year Books

20. 8. How much is government intervention worth?
[Provincial Subsidies - I]
PKR Millions
Punjab Baluchistan
Years Wheat Agriculture Atta Tubewells
2010 -- 2,500 -- --
2011 -- 3,073 -- --
2012 2,500 -- -- --
2013 3,000 -- 300 3,000
Source: Provincial Budgets and White Papers

21. 9. How much is government intervention worth?
[Provincial Subsidies - II]
PKR Millions
Khyber Pakhtunkhwa Sindh
Years
Food from Agricultural
Wheat Wheat Transportation Punjab Subsidies
2010 -- -- -- --
2011 2500 2500 3,391 1,680
2012 2,000 -- -- 2,505
2013 2,500 -- -- 3,015
Source: Provincial Budgets and White Papers

22. 10. Total Government Intervention in Wheat Market
Post-18th
80000
Amendment
70000
60000
PKR Million
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

23. How Government Intervention Promotes Rent-Seeking?

24. 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

25. 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

26. 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

27. 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)

28. 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%).

29. Macro-level Results – Percentage Change
Variables First Period Mid-Term End-Period
Real GDP 1.26 1.05 1.06
Wage rate 2.46 2.40 2.40
Price of capital good 1.15 1.10 1.10
Household consumption 0.95 1.09 1.09
Myopic 2.69 2.20 2.20
Forward looking 0.28 0.61 0.62
Total Investment 0.37 0.12 0.14
Public 0.79 -0.04 -0.09
Private 0.23 0.18 0.22
Myopic 1.53 1.09 1.09
Forward 0.09 0.07 0.12
Total capital stock 0.06 0.12 0.12
Public 0.13 -0.04 -0.04
Private 0.03 0.17 0.17
Myopic 0.25 1.08 1.09
Forward 0.01 0.07 0.08
Total exports -2.37 -2.49 -2.47
Total imports 1.99 1.70 1.69
Income of myopic households 2.69 2.20 2.20
Labour income 2.46 2.40 2.40
Capital income 2.72 1.05 1.04
Government revenue 4.22 3.57 3.52

30. Sectoral Results – I (Percentage Change)
Agri
Other Processin Manufact Constructi Private Public
Wheat Crops g Cotton Livestock uring Energy Textile on T&C Services Services
Gross Output
First
period 23.37 2.10 2.12 -1.43 0.37 -0.18 0.04 -0.36 -0.04 0.60 -0.49 -0.37
Short run 23.80 2.40 2.41 -2.74 0.78 -0.01 0.23 -0.57 0.01 0.81 -0.55 -0.32
Long run 23.81 2.40 2.41 -2.73 0.79 -0.01 0.24 -0.57 0.00 0.81 -0.54 -0.36
Investment
First period 3.15 -7.27 -0.30 0.90 -1.12 2.42 -0.93 -0.54
Short run 1.23 -2.63 -0.06 0.40 -0.48 1.05 -0.35 -0.14
Long run 1.26 -2.63 -0.03 0.42 -0.46 1.08 -0.30 -0.07
Export
First period -0.60 3.20 -2.08 -1.05 -2.93 -3.44 -2.92 -3.55 -3.88 -3.84
Short run 0.26 4.34 -4.15 1.40 -2.24 -2.95 -3.26 -2.87 -3.82 -3.62
Long run 0.27 4.35 -4.15 1.42 -2.23 -2.92 -3.25 -2.85 -3.80 -3.61
Imports
First
period -40.87 5.06 0.95 -0.26 1.80 2.92 3.85 3.60 3.39 3.18
Short run -40.96 4.73 0.31 -0.16 0.17 2.49 3.70 3.60 3.19 3.08
Long run -40.96 4.73 0.30 -0.15 0.16 2.48 3.69 3.59 3.19 3.05
Domestic Demand
First
period 23.37 2.19 2.07 -1.17 0.37 -0.05 0.14 0.29 -0.04 0.90 -0.31 -0.37
Short run 23.80 2.47 2.30 -2.18 0.78 0.10 0.32 0.11 0.01 1.07 -0.38 -0.32
Long run 23.81 2.47 2.31 -2.17 0.79 0.10 0.33 0.11 0.00 1.08 -0.37 -0.36

31. Sectoral Results-II (Percentage Change)
Agri
Other Processin Manufact Constructi Private Public
Wheat Crops g Cotton Livestock uring Energy Textile on T&C Services 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
Shadow price of capital
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

32. Major Gainers and Losers
[In Output terms]
• Gainers • Losers
– Wheat – Cotton
– Agriculture processing – Textile
– Livestock – Large Scale
– Transport Manufacturing
– Construction
– Private Services

33. Major Gainers and Losers
[In Price terms]
• Gainers • Losers
– Wheat – Cotton
– Agriculture processing – Other Crops
– Livestock
– Textile
– Large Scale Manufacturing
– Energy
– Construction
– Transport
– Private Services
– Public Services

34. Major Gainers and Losers
[In Export terms]
• Gainers • Losers
– Agriculture processing – Cotton
– Livestock
– Textile
– Large Scale
Manufacturing
– Energy
– Transport
– Private services
– Public services

35. Way Forward
• Province-specific inquiry
• Political economy of subsidies Vs. other forms of
transfers
• Introduce a reference simulation
• Detailed welfare losses

36. Thank You
www.sdpi.org, www.sdpi.tv
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