The Wheat Pricing Policies in Pakistan: Some Alternative Options

The purpose of this paper is to evaluate the impact on wheat production, consumption, and trade of changing the input subsidy and output price subsidy policies. A model of the wheat market in Pakistan is developed to examine the likely effects of alternative wheat pricing policies in Pakistan. A recursive econometric simulation model was used to project production, consumption, and trade under the baseline and two other scenarios. The baseline scenario is designed to predict the evolution of production, consumption, and trade if agricultural policies are maintained until the year 2000. In scenario one, the effects of complete subsidy removal are assessed while in scenario two the subsidies are assumed to be phased out gradually. The results of the study indicate that there will be a greater decline in wheat production if the government eliminates the input subsidies at once than if there is a gradual phasing out of these. The results suggest that there will be a little impact on the consumption of wheat due to the increase in consumer price of wheat. However, the lower-income household with the higher number of family members will be affected more with the increase in the price of staple wheat. Imports of wheat are greater if the subsidies are eliminated at once, as compared to phasing them out gradually.