MITIGATING THE IMPACT OF PRICE INSTABILITY ON POVERTY IN PAKISTAN: THE EFFECTIVENESS OF PUBLIC GRAIN STOCKS AND PRICE STABILIZATION POLICY
The report reflects a long effort of the multi-disciplinary team of Bank staff and consultants to pull together a very large number of disparate information, reports, and Pakistan agriculture policy expert consultations. It represents an exhaustive, rigorous and authoritative treatment of a very complex subject prepared in close partnership with Food and Agriculture Organization of the United Nations (FAO) the International Food Price Research Institute (IFPRI).
The first recommendation for policy reform is that price stability should be promoted mainly through the use of international trade, accompanied by an explicit commitment of the government to promote private wheat (flour) trade. In years of high world prices – like the 2007/08 price spike – the government could temporarily resort to export restrictions and wheat transfers sourced from public imports or a limited national security stock to prevent domestic prices from rising excessively. The use of international trade to promote price stability may be complemented by targeted wheat transfers to food insecure and vulnerable households from a limited national security stock. This strategy may be warranted in years of high international prices and insufficient domestic production – to keep domestic prices in check – or when emergency wheat distribution is needed, e.g. in the wake of natural disasters.
A second important area of reform is the current system of domestic wheat procurement and releases. The procurement system is not benefitting farmers compared to a no-intervention scenario. In addition, the study has found that high carry-over stocks are one of the major causes of the elevated budget costs of the program. It is therefore advisable to gradually reduce domestic wheat procurement and commit to procuring limited quantities either at domestic market prices or at a suitable pre-announced support price. As the current procurement-release policy amounts to an untargeted subsidy program with unsustainable public costs, and the effectiveness of subsidized wheat sales through the Utility Stores Corporation system has been questioned, this strategy could present a more effective and efficient way of improving access to affordable wheat (flour) for poor and food insecure households.
An abandonment of the procurement policy does not entail an abandonment of farmer support. Farmer incomes could be more effectively and efficiently supported by various alternative policies, e.g. investment in rural infrastructure, improved storage facilities and agricultural research and extension. The reduction or elimination of the current procurement policy could free up valuable resources for increased investments in these areas.
This note has been prepared for informing the Bank’s policy dialogue in Pakistan and has not been made available to external audiences.