Government Interventions, Market Integration, and Price Risk in Pakistan’s Punjab

This paper empirically examines the spatial and intertemporal price relations of grains in Pakistan’s Punjab. The salient feature of the paper is that quantity variables such as market surplus and government release are incorporated in the price arbitrage model to quantify the effects of government interventions. Regression analysis using three-year crosssection data shows that the farm-gate prices of wheat after harvest are mostly explained by the government support price while those of Basmati paddy have more unexplained variation. This difference could be due to a difference in the price support mechanism. Investigation on intertemporal price relations shows that wholesale wheat prices regularly increase at the rate of storage costs in the first half of a food year, and that the price rise is repressed by the government release in the second half only in a normal year.