An Analysis of Policy Options
PAUL DOROSH and ABDUL SALAM*
This article provides a quantitative analysis of the effects of Pakistan government domestic wheat procurement, sales, and trade policies on wheat supply, demand, prices, and overall inflation. Analysis of price multipliers indicates that increases in wheat procurement prices (one means of promoting domestic procurement) have relatively small effects on the overall consumer price index. Partial equilibrium analysis of wheat markets suggests that fluctuations in production, rather than market manipulation, are plausible explanations for price increases in recent years. Comparisons of domestic and international prices suggest that promoting private sector imports is one alternative for increasing supply and stabilising market prices, particularly in years of production shortfalls. Overall, this paper concludes that market forces play a dominant role in price determination in Pakistan, and that policies that promote the private sector wheat trade can both increase price stability and reduce fiscal costs. JEL classification: Q11, Q18
Keywords: Food Policy, Food Price Stabilisation, Agricultural Policy, Food Price Inflation
Wheat plays a central role in Pakistan’s food economy, both in terms of production and consumption. Because of the importance of wheat, successive governments of Pakistan since Independence have intervened heavily in wheat markets, procuring wheat at administratively set prices to support farmer incomes and subsidising wheat sales to flour mills or directly to consumers with the objective of stabilising prices at levels affordable to consumers [Cornelisse and Naqvi (1987); Hamid, Nabi, and Nasim (1990); Dorosh and Valdés (1990); Ashfaq, Griffith, and Parton (2001); Ahmad, et al. (2005)]. Significant steps were taken toward liberalisation of wheat markets from the late 1980s to 2000. However, after consecutive...