Dr Rizwan Naveed
The decision by the Pakistani federal government to halt the minimum support price (MSP) for wheat and cease its procurement operations marks a significant policy shift that has been long delayed. Despite the political challenges surrounding this move, international multilateral lenders have long pressured Islamabad to fully deregulate agricultural commodity markets to address the distortions hindering the sector’s productivity. Successive military and civilian governments had resisted this change, fearing the public backlash it would provoke. However, the current government, under the ongoing IMF funding programme, has now been compelled to adopt this key structural reform as part of its commitments to the International Monetary Fund (IMF) by June 2026.
The move was clearly signaled last year when Punjab, the country’s largest wheat-producing province, decided against purchasing wheat from farmers despite their protests, which were fueled by plummeting prices. This policy shift has been long in the making, with both the federal and provincial governments gradually moving toward withdrawing from direct market interventions in agricultural commodities, particularly wheat.
Historically, the government’s role in setting wheat prices and overseeing procurement operations has been in place since the 1960s, aimed at protecting farmers from volatile price fluctuations and ensuring food security. The government’s interventions were meant to provide a stable income for wheat growers, even during periods of surplus or deficit, while keeping retail flour prices stable for urban consumers. However, these interventions have come at a heavy financial cost to the state. Over time, the costs of procurement operations, storage, freight, and bank loans for financing have skyrocketed, and inefficiencies such as wastage and pilferage have further inflated these expenses. The government’s heavy involvement in the wheat market ultimately led to massive subsidies, further burdening Pakistan’s budget.
While the fiscal burden of these subsidies is a major factor driving the policy shift, it is not the only reason for the need for reform. Government intervention in the wheat market and agricultural commodities in general has created a number of long-term issues that have hampered the sector’s growth. The most significant of these is that such intervention has stifled the sector’s response to technological advancements and new farming practices. By setting prices and controlling the procurement process, the government has discouraged innovation and adaptation to modern agricultural practices. This has led to stagnation in productivity, with farmers unable to take advantage of higher-yield seed varieties or efficient farming technologies.
Moreover, government control over wheat prices has led to price volatility, exacerbating food insecurity rather than stabilizing the market. Hoarding by traders and misallocation of resources have become common as individuals and businesses exploit government procurement policies for personal gain. Corruption within the system has also ensured that the intended benefits of subsidies rarely reach the farmers who need them most. Instead, middlemen, flour millers, and corrupt officials have reaped the rewards of these policies, leaving the average farmer with little to no benefit. This misalignment of resources has further entrenched inefficiency in Pakistan’s agricultural markets, making the need for reform all the more pressing.
Despite the inevitable short-term disruption this shift will cause, the reform is ultimately necessary for the long-term health of the agricultural sector. The government’s withdrawal from wheat procurement and price-setting will likely lead to initial chaos in the market. Farmers, already struggling with low prices, may face even more uncertainty as the market adjusts to the new reality. However, once the market stabilizes, the reforms will free up fiscal space for the government to invest in other areas that will directly benefit farmers. Specifically, savings from subsidies could be redirected into initiatives that promote higher agricultural productivity, such as the development and distribution of high-yield seed varieties, the implementation of modern farming technologies, and research into more efficient irrigation systems.
Pl watch the video and subscribe to the YouTube channel of republicpolicy.com
Furthermore, by reducing government interference, farmers will be able to operate in a more competitive environment, encouraging innovation and efficiency. With less government intervention, farmers will be able to make market-driven decisions, allowing them to respond more effectively to supply and demand fluctuations. This shift could lead to more efficient use of resources, ultimately lowering production costs and, in turn, reducing consumer prices.
While the prospect of complete deregulation may seem daunting, the shift toward a more market-driven agricultural sector is vital for Pakistan’s economic future. However, the government should still intervene strategically when necessary, particularly to address market inefficiencies and ensure food security. Rather than controlling prices or directly purchasing wheat, the government can play a more supportive role by ensuring that the agricultural market functions effectively, preventing monopolistic practices, and regulating the food supply to guarantee that it remains accessible to all citizens.
There are also broader lessons to be learned from this policy change for Pakistan and other nations facing similar challenges. The agricultural sector in many developing countries, particularly those with large rural populations like Pakistan, is often burdened by inefficient government interventions, which distort market dynamics and hinder growth. While these interventions are often well-intentioned, aimed at protecting vulnerable farmers, they frequently lead to more harm than good. By deregulating markets and reducing subsidies, governments can create more room for innovation, encourage competition, and ultimately foster a more sustainable and resilient agricultural sector.
The success of this reform will depend on the government’s ability to support farmers through the transition period. It is crucial that policymakers provide farmers with the necessary tools to adapt to the new market realities, including access to financing for modernizing their farming practices, training in new agricultural techniques, and resources for managing the risks associated with price volatility. Moreover, the government must ensure that there is a robust safety net for the most vulnerable populations, including small-scale farmers, who may be hardest hit by the initial disruption.
In conclusion, the federal government’s decision to phase out its wheat procurement operations and stop setting the minimum support price represents a much-needed shift in policy toward a more market-oriented agricultural sector. While the immediate effects may be challenging, this change is ultimately a step in the right direction for Pakistan’s agricultural reform. By reducing subsidies and government intervention, Pakistan can unlock the productivity potential of its agricultural sector, drive down costs, and improve the livelihoods of farmers. However, this transition must be managed carefully, with a focus on supporting farmers and ensuring food security for the population. Only then can Pakistan’s agricultural sector reach its full potential, contributing to the overall growth and stability of the economy.
