On the Wheat Price Support Policy in Pakistan

Authors

  • Muhammad Aamir Shahzad College of Economics and Management, Huazhong Agricultural University, No. 1, Shizishan Street, Hongshan District, Wuhan, Hubei Province 430070, PR China
  • Amar Razzaq College of Economics and Management, Huazhong Agricultural University, No. 1, Shizishan Street, Hongshan District, Wuhan, Hubei Province 430070, PR China
  • Ping Qing Department of Marketing, College of Economics and Management, Huazhong Agricultural University, Hongshan District, Wuhan, Hubei Province, China

DOI:

https://doi.org/10.52223/jei0103192

Keywords:

Competitiveness, minimum support price, wheat procurement, Punjab, Pakistan, India

Abstract

Wheat is Pakistan's main food and strategic crop. Currently, the government controls wheat prices through a minimum support price (MSP) policy to encourage production. However, despite the increase in wheat production, input costs and output prices have been increasing over the years. This paper aims to analyse the impact of wheat support price policies. We use data from different government sources to estimate the financial implications of MSP and compare the support price policies of India and Pakistan. We find that Pakistan’s current minimum support price policy encourages farmers to produce larger quantities of wheat, but this places a heavy financial burden on the country's finances. Our results indicate that the higher MSP of wheat has made the country lose its competitiveness in the international market. Besides, we found that the cost of wheat production in Pakistan is much higher than in India. These higher production costs force the government to raise the MSP to maintain farmers' profitability. The high MSP is guaranteed by subsidizing the procurement and release of wheat, which imposes a heavy financial burden on government finances. In addition, the rise in wheat prices in recent years has also hurt consumers. Policymakers can redistribute subsidies by subsidizing wheat inputs, especially fertilizers and seeds, to reduce production costs. To this end, the best policy intervention may be to provide input subsidies rather than subsidies on purchase prices. A reduction in input costs will correspondingly reduce output prices, which will increase farmers' profitability, consumer surplus and the international competitiveness of Pakistani wheat.

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Published

2019-09-30

How to Cite

Shahzad, M. A., Razzaq, A. and Qing, P. (2019) “On the Wheat Price Support Policy in Pakistan”, Journal of Economic Impact, 1(3), pp. 80–86. doi: 10.52223/jei0103192.

Issue

Section

Research Articles