1. Wheat Market in Pakistan: A Post-18th
Constitutional Amendment Inquiry
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
China
India
America
Russian
France
Germany
Pakistan
Canada
Australia
Turkey
Ukraine
Iran
Argentina
UK
Kazakhstan
Total of top 15 Countries
Total of other 108 countries
World total
Production
(tonnes)
115180303
80710000
60102600
41507600
38207000
24106700
23310800
23166800
22138000
19660000
16851300
15028800
14914500
14878000
9638400
519400803
131480199
650881002
Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab
Area Harvested
(Ha)
24256086
28520000
19278200
21639800
5426000
3297700
9131600
8268700
13507000
8053670
6284100
7035020
4373440
1937000
13138000
174146316
42828367
216974683
%age Share in
Production
17.7
12.4
9.23
6.38
5.87
3.7
3.58
3.56
3.4
3.02
2.59
2.31
2.29
2.29
1.48
79.8
20.2
100

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. -10.0
-20.0
-30.0
Source: FAO STAT
1948
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
2002
2005
2008
2011
Percentage Change
Volatility in Annual Yield
50.0
40.0
30.0
20.0
10.0
0.0

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

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

8. Some Gaps in the Literature
What has changed
post-18th
Amendment?
Has the devolution
helped any
aspects of Wheatsector’s supply
chain?
What explains the
multiplicity of
subsidies post2007/08?
What have been
the economy-wide
effects of targeted
and untargeted
subsidies in Wheat
sector?

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

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]
Years
2008-09
2009-10
2010-11
2011-12
2012-13
Subsidy to Trading Corporation of Pakistan
Import of
Subsidy to Fertilizer
Wheat Operations
Urea
Producers
PKR Million
PKR Million
PKR Million
20000
31662
32000
25500
3937
2334
12000
4200
985
217
44982
162
-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]
Years
2008-09
2009-10
2010-11
2011-12
2012-13
Wheat Operations
PKR Million
286
599
600
4171
1148
Wheat Reserved Stock
PKR Million
--4000
4000
4000
Source: Federal Budgets, Ministry of Finance Year Books
Cost Differential for Sale
of Wheat
PKR Million
-598
----

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

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

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

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

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

21. 9. How much is government intervention worth?
[Provincial Subsidies - II]
PKR Millions
Khyber Pakhtunkhwa
Years
Sindh
Agricultural
Subsidies
Wheat
Wheat Transportation
Food from
Punjab
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
Amendment
80000
70000
PKR Million
60000
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
Real GDP
Wage rate
Price of capital good
Household consumption
Myopic
Forward looking
Total Investment
Public
Private
Myopic
Forward
Total capital stock
Public
Private
Myopic
Forward
Total exports
Total imports
Income of myopic households
Labour income
Capital income
Government revenue
First Period
1.26
2.46
1.15
0.95
2.69
0.28
0.37
0.79
0.23
1.53
0.09
0.06
0.13
0.03
0.25
0.01
-2.37
1.99
2.69
2.46
2.72
4.22
Mid-Term
1.05
2.40
1.10
1.09
2.20
0.61
0.12
-0.04
0.18
1.09
0.07
0.12
-0.04
0.17
1.08
0.07
-2.49
1.70
2.20
2.40
1.05
3.57
End-Period
1.06
2.40
1.10
1.09
2.20
0.62
0.14
-0.09
0.22
1.09
0.12
0.12
-0.04
0.17
1.09
0.08
-2.47
1.69
2.20
2.40
1.04
3.52

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

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

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

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

34. Major Gainers and Losers
[In Export terms]
• Gainers
– Agriculture processing
• Losers
–
–
–
–
–
–
–
–
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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