Wheat Price Policies in Pakistan: Should there be aSubsidy?

In the 1980s, Pakistan’s wheat policies taxed its producersand subsidised its consumers. Moreover, the post-rationing, open-endedsystem of releases has increased the burden on the government budget.The Government now faces severe shortages of resources at a time whenhuman capital and physical infrastructure must be developed andmaintained. This paper reviews wheat price policies in Pakistanand,patterns of wheat consumption over time, and makes recommendationsfor policy changes. Wheat is the dominant rabi, or winter, crop.However, about half the wheat is grown after cotton. Most of this wheatis planted late and yields substantially less than it could if plantedearlier because the producer price and profitability of wheat aredepressed by government policies. While cotton prices are also depressedby the Government, cotton, and in particular a fourth picking, remainshighly profitable, even with new, earlier varieties. CIMMYT studies haveshown that wheatcotton farmers are rational in planting wheat late,given the prices they receive. 1 The average wheat yield has risen sincethe Green Revolution, due to the adoption of HYVs. However, the yieldsof HYVs have not risen, After they harvest their wheat, farmers can sellit to the Government (namely to the Pakistan Agricultural Storage andServices Corporation (PASS CD) or the provincial food departments) atthe procurement price, or to a private trader at the market price. Thustwo prices prevail in the market at any given time. Wheat moves throughboth channels primarily because of differences in quality.