This study of Pakistan's crop sector includes research on seven major crops (wheat, Basmati rice, cotton, sugarcane, onion, potato and rapeseed), develops econometrically estimated supply and demand functions, identifies government policies and interventions, estimates welfare effects associated with existing policies and interventions and analyses implications of the implementation of WTO's trade liberalization in the country and abroad. The study points out that there has been different policy interventions exercised in Pakistan's crop sector. Wheat has been subjected to 'price tax-cum-import subsidy' regime during 1985-1995 and 'price support cum-import tax' regime during 1995-2005 study sub-period. Basmati rice has remained under 'price tax-cum-export tax' regime during entire time while cotton crop under 'Export-tax' regime during the earlier and 'depressed prices' regime during the latter period. Sugarcane has been governed by 'price support-cum-import tax' policy during entire study period. Rapeseed was not permitted to be internationally traded during earlier period (1985-1995) but allowed to be imported during latter period (1995-2005). Onion and potato have been the only crops amongst the ones studied, which were freely traded within Pakistan's domestic market. The study reveals that the stated policy interventions have lessened during latter period of the study (1995-2005) as gap between Pakistan's domestic prices and world prices narrowed down relative to the earlier (1985-1995) period.
The interventions produced net welfare gains in almost all cases (with the exception of rapeseed) when import and export tax earnings associated with such interventions were taken into account. However, such tax earning would vanish in case trade was liberalized and only producers and consumers' surpluses would remain for a comparative evaluation of welfare effects. When changes in producers and consumers' surpluses associated with existing interventions were compared, losses were found heavier than gains in all seven commodities studied. In Basmati rice and cotton, the interventions caused higher losses to producers (Pak Rs.649.48 million and Rs.12648.44 million per year) than benefits to consumers (Rs.430.19 million and Rs.12463.10 million per year) during 1995-2005. In case of wheat, sugarcane and rapeseed, losses to consumers (Rs.967.95 million, Rs.208424.66 million and Rs.2275.22 million per year) remained higher than gains to producers (Rs.918.91 million, Rs.199521.21 million and Rs.1183.34 million per year) during the same period. In the remaining two crops, onion and potato, free trade situation had prevailed, which caused minimal but higher losses to producers than gains to consumers.
Free trade simulation results showed that, in case free trade was introduced in Pakistan's domestic economy, gains would have been greater than losses in terms of producers' and consumers' surpluses for all the commodities studied. In two crops, Basmati rice and cotton, gains to the producers would have been higher than losses to consumers whereas, in cases of three crops, wheat, sugarcane and rapeseed, higher consumers' gains would have been accrued relative to losses to producers. If trade liberalization was introduced in world market, it would have resulted in additional gains in terms of producers and consumers' surpluses in five of the seven cases studied, with negligible effects in two cases of onion and potato. Of the five other cases, in case of wheat crop, net social gains would have been in the range of Rs.76.88 million to Rs.320.80 million per year during pre-WTO and Rs.40.90 million to Rs.168.54 million per year during post-WTO period. However, consumers' gains would have been higher than producers' losses in both the periods. In case of Basmati rice, net social gains would have been in the range of Rs.276.65 million to Rs.451.60 million per year during earlier and Rs.333.45 million to Rs.637.40 million per year during the later period. However, producers' gains would have been higher than consumers' losses in both the periods. In case of cotton, net social gains would have been in the range of Rs.302.11 million to Rs.1616.48 million per year during earlier and Rs.78.50 million to Rs.660.88 million per year during the later period. However, producers' gains would have been higher than consumers' losses in the earlier period and consumers' gains would have been higher than producers' losses during the later period. In case of sugarcane, net social gains would have been in the range of Rs.8400.20 million to Rs.9096.65 million per year during earlier and Rs.26677.00 million to Rs.27939.61 million per year during the later period. However, consumers' gains would have been higher than producers' losses in both the periods. In case of rapeseed, net social gains would have been in the range of Rs.0.26 million to Rs.1.85 million per year during earlier and Rs.732.40 million to Rs.2940.61million per year during the later period. However, producers' gains would have been higher than consumers' losses in the earlier period and consumers' gains would have been higher than producers' losses during the later period.
Based on the analysis, the study presents the following recommendations. First, government interventions should be minimized and the trend of narrowing down gap between domestic and international prices should be continued till the two prices arrive at the same level. Second, supply of various fertilizers, availability at appropriate times and use on crops in recommended proportions should take prime attention in formulation of input market policy. Third, trade liberalization process should be stepped up, and more specifically, world prices should be allowed to prevail in domestic wheat market. Gap between domestic and export prices of Basmati rice should be narrowed down and more and more exporters should be allowed to export Basmati rice rather than restricting Basmati exports to a group of exporters acting as a cartel. World prices should be allowed to prevail in cotton's domestic market and cotton breeders should also develop cotton varieties capable of producing quality fiber, whose demand is on increase with advancement in textile industry. World level sugar prices should be allowed to prevail to help vanishing existing welfare losses due to sugar prices policy. Quality improvements should be the priority actions to help producers and exporters of onion and potato to enable to get benefits of higher world prices. In case of rapeseed, world prices should prevail to minimize existing welfare losses. Fourth, Pakistan should also work for implementation of WTO's induced trade liberalization on global basis and especially in major global economies of US, EU and other OECD countries. Fifth, Government of Pakistan should gradually reduce its role in trading through State Trading Enterprises (STEs), setting minimum export or maximum import price levels, allowing limited numbers of private traders to export or import and banning import or export trade. Rather it should step up its role as facilitator of trade as envisaged in the 'Green Box' of Agreement on Agriculture and other WTO agreements. More importance should be given to research, development and out-reach areas and to the introduction and adoption of international quality standards developed by FAO/WHO's Codex Alimentarius Commission.