Despite preliminary estimates of bumper wheat crop, the actual production of wheat is 5 percent less than the government projections due to inclement weather at the maturing and harvesting stages of crop, agriculture experts and agro-economists said at a seminar here on Tuesday. Speaking on "Wheat pricing policy in Pakistan" former federal Food and Agriculture secretary Dr Zafar Altaf and other agro-economists doubted the government's estimates of 21.4 million tonnes wheat production for 2005 and said that whenever there was a bumper wheat crop, the flour prices automatically came down.
"The rise in market prices may be due to lower than expected production because of weather damage to the wheat crop," they argued.
The experts said that crop losses of just 5 percent in Punjab, which produces 80 percent wheat, could lead to 8-14 percent increase in the prices.
Former Agriculture Price Commission chairman Dr Abdul Salam and World Bank Senior Economist Paul A. Dorosh, jointly presented their analytical report on "A preliminary review of the political economy and policy options" at the seminar which also discussed inflation, rising food items prices and agriculture sector.
The report said that with domestic prices in Karachi now at or near import parity, liberalisation of private sector imports could help in stabilising wheat markets at no cost to government, as retaining a separate security stock, but reducing domestic procurement and sales volumes would result in large cost savings.
The report of these two eminent agro-economists highlighted that setting sales price to flour mills at levels that cover full costs would also reduce subsidy.
The report suggested that the government imports could limit rise in the market prices since imports of 2.4 million tonnes wheat would reduce market prices by an estimated 10-16 percent relative to prices with only 1.4 million tonnes of imports. However, reducing the market prices through sales of additional imports would cost Rs 4-6 billion in subsidies.
The report clarified that the traders are unlikely to have significant ability to manipulate market prices given large size of wheat market (estimated value of wheat consumption in Lahore is about Rs 250 million or $4.2 million per week and Karachi about Rs 370 million or $6.2 million per week).
The report said that because of crop shortfall, restrictions on movement and forced procurement might not address the real cause of high prices. "These interventions inhibit market development in medium run," the report argued.
WHEAT FLOUR SUBSIDIES; WHO BENEFITS? The report pointed out that although there may be a stipulated sales price of flour, there is no effective enforcement mechanism. The flour produced from government's wheat is not distinguishable from the flour produced from the market wheat. Since their prices are the same, therefore, the major beneficiaries are wheat flour mills and others capturing economic rents.
The report said that provincial food subsidies in 2002-03 reached Rs 6.8 billion, which was 12 percent higher than the total Public Sector Development Programme (PSDP) allocations for the Health Division in 2000-05.