(Lack of) wheat support

Restricting the wheat support price is not a good way to fix flaws with the government’s agriculture policy.

Of the least appreciated factors driving income growth and a boom in consumer spending over the past six years was the government’s decision to increase the wheat support price. Nearly half of all Pakistani households derive their livelihoods from agriculture, and the overwhelming majority of those households cultivate wheat as one of their crops. By nearly tripling the wheat support price over five years, the Zardari Administration effectively boosted rural incomes by trillions of rupees during its tenure. Now, it seems, the Nawaz Administration wants to turn off that flow of cash to rural Pakistan.

Supporters of keeping the wheat support price unchanged have some valid arguments. Inflation has been tamed over the past year, and given the significant increase over the preceding five years, not increasing the support price this year is justifiable. There is also something to be said for the argument that those who consume wheat outnumber those who grow it, even in an agriculture-based economy like ours, and so the government would do well to keep consumer prices of a staple food item low.

A closer examination of those arguments, however, would reveal that the case for keeping the support price constant is less strong than appears at first glance. For one thing, while the price of wheat has tripled over the last five years, spending on wheat constitutes only about six per cent of total household spending, according to the Pakistan Bureau of Statistics. And boosting the incomes of farmers helps non-farming consumers as well, since strong rural demand increases employment opportunities and incomes in urban areas. And then there is also the fact that average incomes in rural areas are still far below those in urban areas. Using a policy instrument to try to bridge that gap is not only justifiable, but commendable. There are many flaws with the government’s agriculture policy, to be sure. But restricting the wheat support price is not a good way to fix them.

Published in The Express Tribune, March 19^th, 2014.

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