A Dynamic Welfare Analysis of Wheat Price Policy in Pakistan

Muhammad Ashfaq and Sultan Ali Adil

Government wheat price policy in Pakistan affects both the supply and demand of this staple food. The wheat market has been established in a particular idiosyncratic manner in Pakistan, and a thorough appraisal of policy needs to take this into account. This paper uses simulation experiments with an econometric model to quantify the producer loss, consumer gain, government budget cost and overall efficiency loss that occurred due to government pricing interventions in the wheat market of Pakistan over the period 1971-1996. In the simulation it was assumed that the domestic price would have been increased by 50 per cent of the difference between the procurement price and the import parity price. The results of the study show that the net welfare loss to the economy of Pakistan was more than 415 million Rupees per year. The means annual welfare losses were 1.58 percent of real GDP from the agricultural sector for the comparison of price policy that would have been increased by 50 per cent of the difference between the procurement price and the import parity price with the import parity price.

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