Wheat Market in Pakistan: A Post-18th Constitutional Amendment - - PowerPoint PPT Presentation

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Wheat Market in Pakistan: A Post-18th Constitutional Amendment Inquiry

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Outline

Introduction & Background Recent Literature & Gaps Methodology & Data Qualitative Assessment Quantitative Results Tasks Ahead

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Area & Production of Wheat (2010)

Name of Countries Production (tonnes) Area Harvested (Ha) %age Share in 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

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Country-wise Yield (2010)

Source: Agriculture Marketing Information Service, Directorate of Agriculture, Punjab

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

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Volatility in Annual Yield

Source: FAO STAT

• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 30.0 40.0 50.0 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 Percentage Change

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Import of Wheat

Source: State Bank of Pakistan

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

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Some Recent Literature

Wheat-sector Distortions

Literature Issues Highlighted Policy Recommendation

Dorosh (2012): Pakistan Wheat Procurement Reforms Setting procurement prices too high relative to domestic prices results in massive fiscal costs with no benefit to consumers and small farmers that do not sell wheat to government agencies Need for strengthening monitoring and coordination across 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

• f its coefficient is positive

Need to upgrade the entire supply chain

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

Some Gaps in the Literature

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Situation Analysis

Existing Literature Pre/post 18th Amendment Data Political Economy Analysis

Qualitative

Focus Group Discussions Key Informant Interviews Stakeholder’s Analysis

Quantitative

Social Accounting Matrix 2007-08 Dynamic Computable General Equilibrium Model

Methodology

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18th Amendment and Reversal

Ministry of Food Security ECC

Source: Salam (2012)

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• 1. How much is government intervention worth?

[Disbursements to TCP and Fertilizer Sector]

Subsidy to Trading Corporation of Pakistan Subsidy to Fertilizer Producers PKR Million Years Wheat Operations PKR Million Import of Urea 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

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• 2. How much is government intervention worth?

[Disbursements to Utility Stores Corporation]

Years Ramzan Package

PKR Million

Sales of Atta

PKR Million

Other Food Items

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

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• 3. How much is government intervention worth?

[Disbursements to Pakistan Agricultural Storage and Services Corporation]

Years Wheat Operations PKR Million Wheat Reserved Stock PKR Million Cost Differential for Sale

• f Wheat

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

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• 4. How much is government intervention worth?

[Disbursements for Tube-wells and Tractors]

Year Sindh, Punjab and Khyber Pakhtunkhwa

PKR Millions

Balochistan

PKR Millions

Benazir Tractor Scheme

PKR Millions

Green Tractors Scheme

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

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• 5. How much is government intervention worth?

[Subsidy on Sale of Wheat]

Years FATA

PKR Millions

Gilgit Agency

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

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• 6. How much is government intervention worth?

[Crop Loans and Remission Grants]

Years Crops Loan Insurance Flood Affected Areas AJK Earthquake affectees ZTBL 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

PKR Millions

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• 7. How much is government intervention worth?

[GST Subsidy and Loans Written-off]

PKR Millions Years GST subsidy for protected consumers Write-off Loans, 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

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• 8. How much is government intervention worth?

[Provincial Subsidies - I]

PKR Millions

Source: Provincial Budgets and White Papers

Years Punjab Baluchistan Wheat Agriculture Atta Tubewells 2010

• 2,500
• 2011
• 3,073
• 2012

2,500

• 2013

3,000

• 300

3,000

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• 9. How much is government intervention worth?

[Provincial Subsidies - II]

PKR Millions

Source: Provincial Budgets and White Papers Years

Khyber Pakhtunkhwa Sindh Wheat Wheat Transportation Food from Punjab Agricultural Subsidies

2010

• 2011

2500 2500 3,391 1,680 2012 2,000

• 2,505

2013 2,500

• 3,015

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• 10. Total Government Intervention in Wheat Market

10000 20000 30000 40000 50000 60000 70000 80000 2009 2010 2011 2012 2013 PKR Million

Note: Excludes support to urea or fertilizer sector in general

In FY 2012 total government intervention in wheat market was USD 754 million

Post-18th Amendment

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How Government Intervention Promotes Rent-Seeking?

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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

• utput

– 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

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• 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

How we Modeled Intervention?

[Simulation: Economy-wide Impact of Subsidies]

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• Social Accounting Matrix 2007-08

– Pre-18th Amendment economic structure

• Simulation Design

– Between 2009 and 2012

• 11 percent annual average increase in subsidy stock

How we Modeled Intervention?

[Data and Simulation Design]

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• 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)

How we Modeled Intervention?

[Dynamic Computable General Equilibrium Model]

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• 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%).

How we Modeled Intervention?

[Dynamic Computable General Equilibrium Model]

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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

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Sectoral Results – I (Percentage Change)

Wheat Other Crops Agri Processin g Cotton Livestock Manufact uring Energy Textile Constructi

• n

T&C Private Services Public 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

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Sectoral Results-II (Percentage Change)

Wheat Other Crops Agri Processin g Cotton Livestock Manufact uring Energy Textile Constructi

• n

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

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

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Major Gainers and Losers [In Output terms]

• Gainers

– Wheat – Agriculture processing – Livestock – Transport

• Losers

– Cotton – Textile – Large Scale Manufacturing – Construction – Private Services

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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

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Major Gainers and Losers [In Export terms]

• Gainers

– Agriculture processing

• Losers

– Cotton – Livestock – Textile – Large Scale Manufacturing – Energy – Transport – Private services – Public services

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• Province-specific inquiry
• Political economy of subsidies Vs. other forms of

transfers

• Introduce a reference simulation
• Detailed welfare losses

Way Forward

SLIDE 36

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