An Analysis of Pakistan’s Agricultural Commodities based on Effective Protection Rate and Its Decomposition

Abstract

This study analyses the impact of the government’s interventionist policies in the product and input markets for the two leading crops of Pakistan, wheat, and cotton. The study employs standard measures of the nominal rate of protection (NRP) and effective rate of protection (ERP). In addition, it also proposes a method to additively decompose the ERP into two components representing the effect of distortions in the product and input markets. The study finds that government policies in the wheat market are mostly designed to protect flour mill owners and thereby ordinary consumers at the cost of farmers. Since the consumers of wheat by far outnumber the wheat growers, this policy design seems to represent a political decision to appease the common public. Regarding cotton, the study finds that the government does not intervene much in the market to the extent that farmers are left at the mercy of monopolistic procurement agencies and better-informed rent-seeking intermediaries in the marketing chain. Export procedure is so cumbersome that only the well-informed and well-connected traders can benefit from price hikes in the world market. The study recommends serious reconsideration of government policies in the light of normative considerations. In this context, open debate on agricultural policy in Parliament and the Senate would be highly desirable