Does Free Market Mechanism Offer a Win-Win Situation to Wheat Consumers and the Government?

PIDE Knowledge Brief No. 20:2020
Author: Abedullah
Publication Year : 2020

Government of Pakistan intervenes in wheat marketing to offer low prices to consumers and to encourage farmers by announcing support prices. Government procures about 25-30 percent of total wheat production and leaves only 10-15 percent for the private sector. This practice does not only cost Government on an average Rs.48 billion per annum, but also creates a circular debt of Rs.757 billion, implying that it is not a sustainable intervention. This policy view point attempts comparing the existing situation with free market mechanism for the year 2020. Our analysis revealed that if Government would not intervene in the market, then farmers would be getting higher prices and consumers would be enjoying at least 25 percent lower prices than the current prevailing price levels. Moreover, Government would also be saving Rs.48 billion. It clearly implies that free market mechanism could lead to a win-win situation for all stakeholders, i.e. consumers, producers and the Government.