Poor Govt Policies Are Hurting Agriculture and Food Security in Pakistan: World Bank

The World Bank, working with other partners, is preparing a series of Just-in-Time (JIT) Policy Notes that aim to address pressing issues related to agriculture and food security in Pakistan and propose improvements in the short and medium term.

The ‘Just-in-Time Policy Note on Agriculture and Food in Pakistan’ points out that food inflation and volatility in Pakistan are being caused by inappropriate policies and regulations that distort markets, inhibit competition and discourage private investment, as well as limited and poorly implemented efforts for research, innovation, and technology dissemination.

Pakistan has experienced both high inflation and volatility of food prices over recent years highlighting the need to strengthen its food system. Food price inflation is driven by the interaction of demand and supply factors influenced by diverse actors in the system.

These interactions often do not result in optimal outcomes due to challenges like uncompetitive market conditions (e.g faster pass-through of global surges in food prices to domestic prices than global falls) and market failures (e.g. higher food inflation in rural areas compared to urban areas, possibly due to higher margins in urban markets).

Both affordability and availability constrain access to a healthy diet. According to a recent FAO report on food security, 68 percent of Pakistan’s population cannot afford a healthy diet.

On the production side, insufficient productivity, market distortions, and limitations of trade result in market rigidities that push prices. With little productivity improvement and increasing population size, the per capita production of major commodities is barely keeping supply up to meet the country’s requirements.

An analysis of price monitoring indices in Pakistan indicates that food price inflation has historically been supply-driven.

Among other things, food prices are also volatile, triggered by different market and non-market factors and exacerbated by systematic weaknesses like market fragmentation and information asymmetry. Market factors include speculative behaviors like hoarding that can drive up prices, and non-market factors include events like a pandemic or climate change.

Recommendations
  1. The government may consider gradually reducing its role in the public procurement of wheat to not inadvertently send market signals that create panic. It can adjust the support price (ideally close to the market price) to only procure as much or as little as it needs instead of just progressively increasing the procurement prices and/ or targets.
  2. The combined protection resulting from import tariffs, barriers to entry, and a minimum support price has created the perfect conditions for collusion and cartelization in the sugar industry. Easing these measures would add some competition to the sector through increased capacity and availability of imports that could compete with inefficient mills
  3. The Departments of Agriculture and Food could encourage high-value agriculture (HVA) through research and extension services and the removal of distortive policies that pull resources away from HVA and discourage the private sector from participating in the modernization of value chains.
  4. Strengthen the institutional capacity (Pakistan Trading Corporation) and improve
    the necessary infrastructure (Ministry of Commerce) to facilitate trade (both import and exports) including timely and high-quality services for testing and certification (e.g. phytosanitary certificates and plant protection release orders), the availability of cold storage, scanners at custom borders, and quarantine facilities.
    Strengthen linkages to the global markets to maintain standing import arrangements with non-traditional suppliers in case of a supply shortage from traditional ones (including permits, pest risk analysis, and harmonization of the Pakistan Standard & Quality Control Authority (PSQCA) with other countries in the region, etc.).
  5. The government could discontinue the capping of milk and meat prices by the L&DD. While this may not reduce retail prices in the short run, it could reduce the pressure on farmers to sell their produce at a low price.
  6. Develop a harmonized platform used by both federal and provincial governments to monitor the food system. Improve the accessibility of farmers to market information, to help them make informed decisions about crop choices, investments in land management, and choice of markets to sell in, based on weather patterns, pest infestation, and future prices, among others.

The previous 6 recommendations are all important contributors to a broader set of actions that can be taken to strengthen the food system, as summarized below:

  • Remove information asymmetry between stakeholders.
  • Eliminate distortive policies that drive resources away from high-value crops.
  • Encourage private sector participation in a way that rewards performance and efficiency rather than capacity.
  • Make research and development (R&D) a national priority with an enabling environment that includes adequate funding and appropriate legislation.
  • Use well-targeted social protection tools as a consumption smoothing instrument instead of untargeted subsidies.



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