Implementation issues of wheat support price

When we go through wheat cultivation, supply and procurement data, we find specific implementation issues. We need huge implementation mechanism. We need to tackle the issue of middleman which is very difficult in Pakistan due to farmers’ problems and economic circumstances. We can’t ignore subsidy issues which the political governments are forced to bring into to support the urban consumers, especially the low-income groups.

 

Year

Support Price (Rs./40 K.G)

Area (Mill Acres)

Prod (Mill M. Tons)

Wheat Procured b Punjab Govt. (MMT)

Remaining Wheat in Market (MMT)

2002

300

14.922

14.594

2.841

12.081

2003

300

15.016

15.355

2.409

12.607

2004

350

15.380

15.639

2.453

13.186

2005

400

15.690

17.375

2.438

14.937

2006

415

15.620

16.776

2.562

14.214

2007

425

15.900

17.850

2.569

14.207

2008

625

15.480

16.300

2.557

13.743

2009

950

16.890

18.420

5.781

12.639

2010

950

17.040

18.240

3.722

14.518

Table Source Punjab Food Department: http://pportal.punjab.gov.pk/portal/docimages/28471Statistical-Data.pdf

Following facts are evident:

1-      With the enhancement of current wheat price, the wheat crop is being cultivated on more land.

2-      More wheat is being supplied

3-      Government is purchasing more wheat to maintain minimum support price.

After the announcement of the current support price, the Punjab government had purchased maximum wheat in 2009 (5.781 MMT) and stored. Next year, the government could not buy the surplus as promised, so the market received more wheat than the previous year. Subsequently, the prices were decreased were below the market level price.

Implementing Mechanism

This year the wheat support is being maintained. A news report in English national daily “The Nation” published on 10th April 2011 highlights the decisions made by the provincial cabinet regarding wheat procurement. As per the report:

1-      The provincial government shall purchase 4.0 MMT of wheat

2-      375 procurement centers shall be set up to purchase the surplus wheat

3-      Due returns would be ensured to the farmers, and their exploitation shall not be allowed

4-      Wheat shall only be purchased from farmers and not from middlemen

5-      The distribution of gunny bags to farmers shall be ensured to benefit the small farmers.

It is clear that the Punjab Government is keeping its purchase targets below than the expected surplus, due to flooded fertile planes. However, even this purchase would be a hectic activity to absorb all other activities of the Food department, revenue department, district administrations, members of national and provincial assemblies, and even special branch of the police. Following the previous year practices, the government shall follow these steps to ensure purchase of 4 MMT or less.

1-      Different cultivated areas in a district shall be attached to the nearby food procurement centers. The farmers can purchase gunny bags from these centers

2-      The concerned revenue clerks (patwaris) of the area shall sit on every procurement center where they shall issue documentary proof to the farmers to purchase gunny bags from the food department- long queues will be a common scene.

3-      The revenue clerks shall be supervised by their respective senior revenue officers on the spot – they can’t do anything else during the procurement campaign.

4-      The food department staff shall be responsible for issuing gunny bags to the farmers and purchase wheat from them.

5-      Every farmer shall be given a fixed quantity of gunny bags by calculating his owned land. However, they will have to purchase bags in 2-3 installments. It is done to stop the overflow of wheat on the centers.

6-      After getting gunny bags, the farmers shall fill them with wheat, transport to the wheat procurement centers and sell there. There shall be long queues again. Once they sell the wheat, they shall be issued bills for payment.

7-      The farmers can show these bills to the specific banks to convert into cash.

8-      The whole exercise shall be supervised by the District Administration officers, senior revenue and food authorities, provincial secretaries, ministers, elected members of national and provincial assemblies, and the Chief Minister himself.

In the end, political leadership will announce the volume of wheat purchased during the year. But very little will be said to answer these questions:

1-      How much administrative cost is involved?

2-      How much opportunity cost is involved?

3-      How much cost involved that public suffered while waiting for the revenue clerks and revenue officers at their offices?

4-      How much cost is made on monitoring by senior officers in the district, the MPAs/MNAs, Ministers, their secretaries and the Chief Minister himself? And

5-      Who is going to bear these costs?

However, it is clear from the above discussion that:

1-      The government has to maintain a big infrastructure to purchase wheat every year.

2-      The government has to spend a lot on storage of the surplus wheat which involves another opportunity cost.

3-      Due to surplus problem, the whole machinery is involved in the wheat procurement campaigns.

4-      The taxpayers have to pay much higher price in the shape of different opportunity costs, transaction costs and administrative. If a proper calculation is made, these costs may be manifold to the support price that government pays and which the farmers receive.

Issue of Middleman

The story does not end here

When farmers are getting the higher price for all costs described above, the consumers of the wheat shall have to pay more to purchase the same quantity of grain which they used to buy at a lower price in previous years. It decreases their real household income, and the biggest sufferers are low-income households in urban as well as in the rural areas. The farmers and consumers in the rural areas are wise enough to save wheat for the whole year (though they have to pay much higher prices for other commodities), but the urban low-income consumers don’t have such options. Fearing social unrest, the Punjab government goes for subsidy programs for low-income consumers. The government provides subsidized wheat to flour mills which grind wheat and provide subsidized flour as per government programs. However, the low-income rural consumers are left to bear massive costs on other commodities like vegetables, fruit, and fodder. The table below shows amounts of subsidies being spent by the Punjab Government since 2002.

Year

Subsidy Involved (Rs. In Million)

2002

57.32

2003

355.29

2004

386.71

2005

122.14

2006

217.20

2007

217.00

2008

3280.00

2009

8435.20

2010

3123.30 (Stopped due to Floods)

 

Source: Food Department

http://pportal.punjab.gov.pk

 

subsidy

As it is clear from the table given above that government has been putting aside a lot of money for subsidy mainly on two major programs:

1-      Supply of subsidized flour in ‘Ramdhan Package’ (Fasting month)

2-      Subsidy on ‘chappati’ through ‘Sasti Roti Program’

The figure shows that the original equilibrium the market price is P0 and the quantity supplied and demanded is Q0. If the government imposes a ceiling, the producers are willing to supply only Q1 while demand for subsidized products increases to Q2. Now there is a difference of price that producer wants to receive, and the government asks him to receive. So, the government has to pay from the money of taxpayers to satisfy the both; producers and consumers. Subsequently, the consumer pays different cost while producer receives a different one. The balance is paid by the government and loss of the taxpayer is greater than benefits to the consumers.

Another issue in subsidy is targeting the deserving ones. In both ‘Ramdhan Package’ and ‘Sasti  Roti Scheme,’ it is presumed that only deserving ones shall purchase these subsidized items. But it does not always happen. No exercise can be done to find out the targeted groups for these programs.

Anyone can go to ‘Ramdhan Bazar’ and purchase one bag of flour by showing his ID card or without a card at times. Similarly, anyone can go to the designated clay oven (tandoors) and get cheap ‘Chappati’ without showing any proof. The clay oven owners are not required to keep any record of purchasers. Many times these oven owners were found selling ‘chappatis’ made from the subsidized flour on full price to the customers by telling them that subsidized flour has already been finished.

Whether it is ‘Ramdhan Package’ or the ‘Sasti Roti Scheme”, both are launched with added political mileage and sympathies of the consumers. Some poor people may get some benefits, but there is no data to prove that subsidies are going to the deserving ones. Furthermore, a lot of infrastructures is required/used to sell subsidized flour and ‘chappatis’ which involves substantial administrative as well as opportunity costs.


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