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Wheat Market in Pakistan: A Post-18th Constitutional Amendment Inquiry
1
Outline
Introduction & Background
Recent Literature & Gaps
Methodology & Data
Qualitative Assessment
Quantitative Results
Tasks Ahead
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
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
Volatility in Annual Yield
Source: FAO STAT
-30.0
-20.0
-10.0
0.0
10.0
20.0
30.0
40.0
50.01
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Pe
rce
nta
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Import of Wheat
Source: State Bank of Pakistan
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0 T
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Wheat Imports (000) tons Wheat Imports (PKR Million)
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 of its coefficient is positive
Need to upgrade the entire supply chain
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
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
18th Amendment and Reversal
Ministry of Food Security
ECC
Source: Salam (2012)
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
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
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
of 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
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
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
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
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
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
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
10. Total Government Intervention in Wheat Market
0
10000
20000
30000
40000
50000
60000
70000
80000
2009 2010 2011 2012 2013
PK
R M
illio
n
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
How Government Intervention Promotes Rent-Seeking?
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
• 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]
• 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]
• 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]
• 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]
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
Sectoral Results – I (Percentage Change)
Wheat Other Crops
Agri Processin
g Cotton Livestock Manufact
uring Energy Textile Constructi
on 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
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
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
Major Gainers and Losers [In Output terms]
• Gainers
– Wheat
– Agriculture processing
– Livestock
– Transport
• Losers
– Cotton
– Textile
– Large Scale Manufacturing
– Construction
– Private Services
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
Major Gainers and Losers [In Export terms]
• Gainers
– Agriculture processing
• Losers
– Cotton
– Livestock
– Textile
– Large Scale Manufacturing
– Energy
– Transport
– Private services
– Public services
• Province-specific inquiry
• Political economy of subsidies Vs. other forms of transfers
• Introduce a reference simulation
• Detailed welfare losses
Way Forward