WELFARE IMPLICATIONS OF ALTERNATIVE POLICY OPTIONS: Analysis of Wheat Market in Pakistan

Momena Abdur REHMAN,* Khalid MUSHTAQ,** ABEDULLAH,*** and Faisal ABBAS****

The objective of this study is to analyze the impact of alternative food policy options adopted in wheat sector in Pakistan, on the welfare of consumers, producers, government revenue, and foreign exchange requirements. In order to estimate the consumer and producer surpluses/ losses, it requires supply and demand elasticities of wheat and demand elasticity of fertilizer. These elasticities were calculated by estimating supply and demand functions of wheat and demand function of fertilizer using co-integration and error correction techniques. However, partial equilibrium model has been used for welfare policy analysis which indicates that input subsidy gives net return to the society, while import and price support generates net losses. Combined policy option generates the highest net return to the society when input subsidy and price support are combined in the ratio of 90 and 10 per cent, respectively. Such comparison would help the policy makers in making optimal allocations of scarce resources.