WP 990044

The CGPRT Centre
The Regional Co-ordination Centre for Research and Development of Coarse Grains, Pulses,
Roots and Tuber Crops in the Humid Tropics of Asia and the Pacific (CGPRT Centre) was
established in 1981 as a subsidiary body of UN/ESCAP.
Objectives
In co-operation with ESCAP member countries, the Centre will initiate and promote research,
training and dissemination of information on socio-economic and related aspects of CGPRT
crops in Asia and the Pacific. In its activities, the Centre aims to serve the needs of
institutions concerned with planning, research, extension and development in relation to
CGPRT crop production, marketing and use.
Programmes
In pursuit of its objectives, the Centre has two interlinked programmes to be carried out in the
spirit of technical cooperation among developing countries:
1. Research and development which entails the preparation and implementation of

projects and studies covering production, utilization and trade of CGPRT crops in the
countries of Asia and the South Pacific.
2. Human resource development and collection, processing and dissemination of relevant
information for use by researchers, policy makers and extension workers.
CGPRT Centre Working Papers currently available:

Working Paper No. 31 Economic Assessment of Selected Resource Management Techniques in Marginal
Upland Agriculture: Case Studies of China
by Ni Hongxing and Gu Shuzhong
Working Paper No. 32 Economic Assessment of Selected Resource Management Techniques in Marginal
Upland Agriculture: Case Studies of India
by Mahander Singh and G.C. Munda
Working Paper No. 33 Effects of Trade Liberalization on Agriculture in Pakistan: Institutional and
Structural Aspects
by Muhammad Ramzan Akhtar
Working Paper No. 34 Effects of Trade Liberalization on Agriculture in Malaysia: Institutional

and Structural Aspects
by Tengku Mohd Ariff Tengku Ahmad
Working Paper No. 35 Effects of Trade Liberalization on Agriculture in the Republic of Korea:
Institutional and Structural Aspects
by Myung-Hwan Sung
Working Paper No. 36 Effects of Trade Liberalization on Agriculture in Japan: Institutional

and Structural Aspects
by Hiroaki Kobayashi
Working Paper No. 37 Effects of Trade Liberalization on Agriculture in the Philippines:

Institutional and Structural Aspects
by Minda C. Mangabat
(Continued on inside back cover)

Effects of Trade Liberalization on
Agriculture in Pakistan:
Commodity Aspects
The designations employed and the presentation of material in this publication do not
imply the expression of any opinion whatsoever on the part of the Secretariat of the United
Nations concerning the legal status of any country, territory, city or area of its authorities, or
concerning the delimitation of its frontiers or boundaries.
The opinions expressed in signed articles are those of the authors and do not necessarily
represent the opinion of the United Nations.
WORKING PAPER 44
Effects of Trade Liberalization on

Agriculture in Pakistan:
Commodity Aspects
Muhammad Ramzan Akhtar
CGPRT Centre
Regional Co-ordination Centre for
Research and Development of Coarse Grains,
Pulses, Roots and Tuber Crops in the
Humid Tropics of Asia and the Pacific
CGPRT Centre
Jalan Merdeka 145, Bogor 16111
Indonesia
© 1999 by the CGPRT Centre
All rights reserved. Published 1999
Printed in Indonesia
National Library: Cataloguing in Publication
Akhtar, Muhammad Ramzan

Effects of Trade Liberalization on Agriculture in Pakistan: Commodity
Aspects/Muhammad Ramzan Akhtar -- Bogor: CGPRT Centre, 1999.
xx, 93 pp.; 25.5 cm. -- (Working paper series; No. 44)
ISBN 979-8059-99-9
1. Pakistan – Trade, free and protected 2. Agriculture – economic aspects

I. Title II. Series
382.710.954.91
Table of Contents
Page
List of Tables ........................................................................................................................... vii
List of Figures ....................................................................................................................... ix
Abbreviations .......................................................................................................................... xi
Foreword .................................................................................................................................. xiii
Acknowledgements ................................................................................................................. xv
Executive Summary ................................................................................................................ xvii
1. Introduction
1.1 Background ............................................................................................................... 1
1.2 Uruguay Round and WTO challenges to Pakistan ................................................... 2
1.3 Implications of UR for Pakistan ............................................................................... 3
1.4 The agricultural economy of Pakistan: prospects and challenges ............................. 9
1.5 Objectives ................................................................................................................. 13
1.6 Commodity coverage ................................................................................................ 14
1.7 Conceptual and analytical approach ......................................................................... 14
1.7.1 Conceptual framework ..................................................................................... 14
1.7.2 Analytical framework ...................................................................................... 17
1.8 Organization of the report ......................................................................................... 17
2. Trade Policy Regime

2.1 Trade policy reforms ................................................................................................. 19
2.2 Monetary and exchange rate policies ........................................................................ 21
2.3 Impact of nuclear test sanctions and the East Asian financial crisis ......................... 23
2.4 Trade performance .................................................................................................... 25
2.4.1 Major export and import commodities ............................................................. 26
2.4.2 Pakistan’s agricultural trade ............................................................................. 28
3. Effects of Trade Liberalization at the National Level

3.1 Wheat ........................................................................................................................ 33
3.1.1 Impact of trade liberalization on wheat at the national level ........................... 38
3.2 Rice ........................................................................................................................... 41
3.2.1 Impact of trade liberalization on rice at the national level ............................... 46
3.3 Maize ........................................................................................................................ 51
3.3.1 Impact of trade liberalization on maize at the national level ........................... 54
4. Effects of Trade Liberalization at the Farm Level: A Case Study

4.1 Major cropping systems in Pakistan ......................................................................... 57
4.2 Research methods ..................................................................................................... 58
4.2.1 Selection of commodities and areas ................................................................. 58
4.2.2 Data collection ................................................................................................. 59
4.2.3 Sample area, farm characteristics and issues ................................................... 60
4.3 Rice cultivation ......................................................................................................... 62
4.3.1 Rice marketing ................................................................................................. 63
4.3.2 Partial budgets for Basmati and non-Basmati rice production ......................... 63
v
4.3.3 Impact of trade liberalization on Basmati and non-Basmati rice
at the farm level ................................................................................................ 64
4.4 Wheat cultivation ...................................................................................................... 66
4.4.1 Wheat marketing .............................................................................................. 66
4.4.2 Partial budget for wheat production ................................................................. 67
4.4.3 Impact of trade liberalization on wheat at the farm level ................................. 68
4.5 Maize cultivation ...................................................................................................... 69
4.5.1 Maize marketing .............................................................................................. 69
4.5.2 Partial budget for maize production ................................................................. 69
4.5.3 Impact of trade liberalization on maize at the farm level ................................. 70
5. Conclusions and Policy Implications

5.1 Summary ................................................................................................................... 73
5.2 Policy implications .................................................................................................... 75
6. References and Bibliography ............................................................................................... 77
Appendix Tables ............................................................................................................................. 81
vi
List of Tables
Page
Chapter 1
Table 1.1 Tariff reduction schedule in Pakistan .................................................................. 5
Table 1.2 Economic indicators of Pakistan ......................................................................... 9
Table 1.3 National account of Pakistan at current market prices (million US$) ................. 10
Table 1.4 Average area, production and yields of major crops in Pakistan from 1990-97 .. 11
Table 1.5 Support prices of major agricultural commodities (unit Rs/100 kg) ................... 12
Table 1.6 Number of operational holdings by farm size in Pakistan ................................... 13
Chapter 2
Table 2.1 Official average exchange rates of major currencies in terms of Pakistani rupees 22
Table 2.2 Foreign exchange reserves of Pakistan from January 1998 to
March 1999 (million US$) .................................................................................. 24
Table 2.3 Balance of trade in Pakistan (US$ million) ......................................................... 25
Table 2.4 Share of Pakistan’s external trade in the world market ....................................... 26
Table 2.5 Value of Pakistan’s major exports (US$ million)................................................. 28
Table 2.6 Economic classification of Pakistan’s exports (US$ million) ............................. 28
Table 2.7 Value of Pakistan’s major imports (US$ million) ............................................... 30
Table 2.8 Agricultural exports of principal commodities of Pakistan (US$ million) .......... 31
Table 2.9 Agricultural imports by principal commodity in Pakistan (US$ million) ............ 31
Chapter 3
Table 3.1 Area, production and yield of wheat in Pakistan ................................................. 34
Table 3.2 Production and consumption of wheat in Pakistan .............................................. 35
Table 3.3 Production and procurement (public sector) of wheat in Pakistan ...................... 36
Table 3.4 Provincial and federal subsidies on wheat 1990-91 to 1996-97 .......................... 37
Table 3.5 Wheat imports of Pakistan ................................................................................... 37
Table 3.6 Country specific import of wheat in Pakistan (US$ million) .............................. 38
Table 3.7 Area, production and yield of rice in Pakistan .................................................... 41
Table 3.8 Production and consumption of rice in Pakistan ................................................. 43
Table 3.9 Rice exports from Pakistan .................................................................................. 45
Table 3.10 Country-wise exports of Basmati rice from Pakistan (US$ million) ................... 46
Table 3.11 Country-wise exports of non-Basmati rice from Pakistan (US$ million) ............ 46
Table 3.12 Area, production and yield of maize in Pakistan ................................................. 52
Table 3.13 Maize production and utilization in Pakistan ...................................................... 53
Table 3.14 Maize imports of Pakistan ................................................................................... 54
Table 3.15 Country-wise maize imports of Pakistan (US$ million) ...................................... 54
Chapter 4
Table 4.1 Share of important Kharif/Rabi crops in total Kharif/Rabi crop area by size
of farm in Pakistan ............................................................................................... 58
Table 4.2 Cropping pattern in the rice zone of Punjab ........................................................ 62
Table 4.3 Average farmer’s cost of production and returns of Basmati paddy rice crop
in Punjab, Pakistan .............................................................................................. 65
vii
Table 4.4 Average farmer’s cost of production and returns of non-Basmati paddy crop
in Punjab, Pakistan .............................................................................................. 66
Table 4.5 Average farmer’s cost of production and returns of wheat crop in Punjab,
Pakistan .............................................................................................................. 68
Table 4.6 Average farmer’s cost of production and returns of maize crop in Punjab,
Pakistan .............................................................................................................. 71
viii
List of Figures
Page
Chapter 1
Figure 1.1 Agriculture’s contribution to GDP in Pakistan .................................................... 10
Figure 1.2 Price, production, and quantity traded under free trade ....................................... 14
Figure 1.3 Price, production, and quantity traded under an import tariff ............................. 15
Figure 1.4 Welfare effects of a tariff (import quota) in the importing country ..................... 15
Figure 1.5 Welfare effects of a tariff (import quota) in the exporting country ..................... 16
Chapter 2
Figure 2.1 Exchange rate in terms of Rs./US$ ...................................................................... 23
Chapter 3
Figure 3.1 Per capita consumption of wheat ......................................................................... 34
Figure 3.2 Per capita consumption of rice in Pakistan .......................................................... 42
Chapter 4
Figure 4.1 Map of Pakistan showing rice-wheat sample area ............................................... 61
Figure 4.2 Paddy rice marketing channels in Pakistan, 1997/98 .......................................... 64
Figure 4.3 Wheat marketing channels in Pakistan, 1998 ...................................................... 67
Figure 4.4 Maize marketing channels in Pakistan, 1998 ....................................................... 70
ix
x
Abbreviations
ADB : Agriculture Development Bank

AMS : Aggregated Measurement of Support
APCom : Agriculture Prices Commission
CPI : Consumer Price Index
EPB : Export Promotion Bureau
EPZ : Export Processing Zone
FAO : Food and Agriculture Organization
FAQ : Fair Average Quality
FCA : Foreign Currency Account
FIBOR : Floating Inter-Bank Official Rate
GATT : General Agreement on Tariffs and Trade
HIES : Household Income and Expenditure Survey
HYVs : High Yielding Varieties
IMF : International Monetary Fund
IRRI : International Rice Research Institute
MEP : Minimum Export Price
MFA : Multifibre Arrangement
MFN : Most Favoured Nation
MTR : Maximum Tariff Rate
NTBs : Non-Tariff Barriers
NWFP : North-Western Frontier Province
OECD : Organization for Economic Co-operation and Development
PASSCO : Pakistan Agricultural Storage and Supply Corporation
REAP : Rice Exporter’s Association of Pakistan
RECP : Rice Export Corporation of Pakistan
SPFS : Special Program of Food Security
SDR : Special Drawing Rights
TCP : Trading Corporation of Pakistan
UR : Uruguay Round
WTO : World Trade Organization
xi
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Foreword
Responding to the growing concern for the effects of trade liberalization on regional
agriculture, the CGPRT Centre has implemented a three-year research project “Effects of Trade
Liberalization on Agriculture in Selected Asian Countries with Special Focus on CGPRT Crops
(TradeLib)” since March 1997, in collaboration with partners from ten countries: China, India,
Indonesia, Japan, Malaysia, Pakistan, the Philippines, the Republic of Korea, Thailand and Viet
Nam. In all these countries, important issues regarding trade liberalization were investigated
with an identical research framework by national experts.
The investigation covers major crops which might receive either favorable or
unfavorable effects of trade liberalization both in export and import. I believe that the project
will provide broad and practical knowledge on various aspects of the effects of trade
liberalization; moreover, the information will be useful for researchers and policy planners not
only in participating countries but also in other countries in the region. I would like to note that,
however, since this project was conceived and started before the current currency and economic
crisis began in the middle of 1997, the analysis handles basically the period before the crisis
with available current information.
I am pleased to publish Effects of Trade Liberalization on Agriculture in Pakistan:

Commodity Aspects as a report of the second phase of the country study of Pakistan. A report
of the first phase of the country study, which includes institutional and structural aspects on the
same subject has been published before. I certainly hope these reports will be fully utilized for
the improvement of agricultural trade and the encouragement of regional agriculture.
I thank Dr. Muhammad Ramzan Akhtar of Pakistan for his intensive research and the
National Agricultural Research Centre for allowing him to work with us and for providing
continuous support. My special thanks go to Mr. Naseer Alam Khan, Director, Social Sciences
Institute, for his initiative in the early part of this study. I am very much obliged to Dr. Boonjit
Titapiwatanakun for his devoted contribution to the project as the regional advisor. I would also
like to express appreciation to the Government of Japan for funding the project.
Haruo Inagaki
Director
CGPRT Centre
xiii
xiv
Acknowledgements
The ESCAP CGPRT Centre, Bogor, Indonesia, sponsored the present study, and I am
grateful to the Centre for including Pakistan in this study. I am deeply grateful to Dr. Haruo
Inagaki, Director, CGPRT Centre, who played a leading role in implementing this project in the
selected Asian countries. I sincerely acknowledge the valuable comments and guidelines of Dr.
Boonjit Titapiwatanakun, Regional Advisor for this project and Dr. Michio Kanai, Project
Leader of the TradeLib project.
It would not have been possible to conduct this study without the co-operation and
indeed active support of several persons. Firstly, I must express my sincere thanks to Dr.
Kausar Abdullah Malik, Chairman, Pakistan Agricultural Research Council, Islamabad, for his
keen interest and encouragement in the present study. Particularly, I would like to thank Mr.
Naseer Alam Khan, Director, Social Sciences Institute, National Agricultural Research Centre,
Islamabad, for providing data and sharing knowledge, giving moral support and assistance for
this study. Also, Mr. Aftab Alam Khan deserves a special thanks for data collection and
compilation throughout the study.
Unfortunately, it is not possible to mention by name all those officials from various
government organizations in Pakistan who co-operated in providing the data required for this
study. In particular, I would like to mention the Pakistan Agricultural Prices Commission
(APCom), Pakistan Agricultural Research Council, Federal Bureau of Statistics, Ministry of
Food, Agriculture and Livestock, Ministry of Commerce, Export Promotion Bureau and
Pakistan Institute of Development Economics (PIDE), Islamabad. My deepest thanks to all
officials of these institutions who always offered their co-operation in providing the required
data and literature. Especially I would like to express my sincere thanks to Dr. Abdul Salam
from APCom and Dr. Abdul Ghaffar Chaudhry from PIDE for sharing their knowledge and co-
operation in the present study.
Special thanks to Mr. Douglas Stoltz for editing this report. Also Ms. Titiek Pratiwi from
CGPRT Centre is owed a ‘big thank you’ for her generous co-operation throughout the study,
especially for secretarial help and much welcomed assistance during the TradeLib project
meetings.
Finally, I would like to thank you my son, Adnan Akhtar, for his computer assistance
and secretarial hard work through many long evenings and weekends, and for playing an
important role in the completion of the present study.
Islamabad, Pakistan Dr. Muhammad Ramzan Akhtar

June, 1999 Social Sciences Institute
National Agricultural Research Centre
xv
xvi
Executive Summary
This country report is the second part of the Pakistan country study in the Asian regional
project organized by the United Nations ESCAP CGPRT Centre, Bogor, Indonesia, entitled
“Effects of Trade Liberalization on Agriculture in Selected Asian Countries with Special Focus
on CGPRT Crops (TradLib)” launched in China, India, Indonesia, Japan, Malaysia, Pakistan,
the Philippines, Thailand, Viet Nam, and South Korea. The report of the first part of this project
entitled “Effects of Trade Liberalization on Agriculture in Pakistan: Institutional and Structural
Aspects” has already been published. The major objective of the first part of the project was to
highlight and analyse institutional aspects of trade liberalization, including a review/analysis on
history of the trade regime, various trade-related government policies, infrastructure related to
foreign trade, and analysis of trade-related indicators. The TradeLib project was completed in
three years, and it is a continuation of the Centre’s earlier project on “Market Prospects of
Upland Crop Products and Policy Analysis in Selected Asian Countries (MPUPA)”
implemented in seven Asian countries including, China, India, Indonesia, Pakistan, the
Philippines, Thailand, and Viet Nam. The present study is the second part of the TradeLib
project implemented in Pakistan, and it attempts to quantify the impact of trade liberalization on
food commodities (wheat, rice and maize) at the national level. Also it includes a case study to
determine the area specific impact of trade liberalization on these commodities in the rice-wheat
areas of Punjab, Pakistan.
Being a signatory of WTO, Pakistan has accepted all the Uruguay Round trade
agreements under the WTO. It is currently in the process of implementing the agreements and
modifying legal and administrative rules to ensure their consistency with rules and practices
under the WTO. For example, the maximum tariff rate has been reduced from 225% in 1986 to
35% in March 1999. Also, many NTBs have been removed, including import and export by
government institutions, and the list of negative import items has been significantly reduced.
There is widespread interest among the policy makers to see the impact of trade liberalization
on various sectors of the economy including the agriculture sector, which is the main source of
foreign exchange earnings and provides a livelihood to the majority of Pakistan’s residents.
As in most developing countries, agriculture in Pakistan occupies an important position
because of its major share (around one-fourth in GDP) in the economy in terms of its
contribution to national income and employment. Although the share of agriculture has been
slowly decreasing from around 60% in 1960 to only 24% in 1998. The agriculture sector is still
one of the most important parts of the economy of the country employing more than 50% of the
total labour force, and directly and indirectly making around two-thirds of the total export
earnings. Crops remain the most important sub-sector (more than 40%), but livestock now
accounts for more than 30% of agricultural GDP, and the share of minor crops, forestry, and
fisheries has increased slightly. Among the major food crops, wheat is the staple food
commodity, rice is one of the main export commodities, and maize is planted for both domestic
and commercial purposes. Considering the importance of these three commodities, they were
selected to study the impact of trade liberalization both at national and farm levels in Pakistan.
The impact of trade liberalization on wheat, rice (both Basmati and non-Basmati rice)
and maize was estimated using simple welfare analysis. To conduct welfare analysis for these
commodities, producer and consumer surpluses were determined using standard regression
analysis based on demand, supply and price linkage equations. To estimate producer and
consumer surplus and to estimate these equations, time series data from 1981 to 1998 were
used. The study by FAO (1995a) entitled “Impacts of the UR on agriculture” was used as a base
xvii
to analyse the impact of increasing world prices of wheat, rice and maize on wholesale and farm
level prices in Pakistan due to trade liberalization.
Wheat is the most important food crop as it is the staple food and the largest cereal crop
in terms of area in Pakistan. However, its demand has often exceeded domestic production, and
the country imports around 2 million tons of wheat per year (10-20% of total production). The
impact of trade liberalization on wheat was estimated using the results of the FAO (1995a)
study, and it was assumed that international prices of wheat would increase by 7% due to trade
liberalization. In addition, it is assumed that the wholesale price of wheat would also increase
by another 7% due to termination of the wheat subsidy on the issue price in Pakistan. The
impact of this 14% increase in wheat prices on wholesale and farm level prices of wheat in
Pakistan was estimated using elasticity coefficients from estimated supply, demand and price
linkage equations. Due to this increase in wheat prices, it is estimated that wholesale and farm
level prices of wheat in Pakistan would have increased by 14.295% and 13.58%, respectively
during 1997-98. The increase in the farm level prices would have increased the total production
of wheat from 18.69 million tons to 19.22 million tons (increased by 2.852%) during 1997-98.
This increase in the production of wheat would have generated a gain of producers’ surplus of
Rs. 15,771 million. On the other hand, due to the increase in the wholesale price of wheat,
domestic demand of wheat would have declined from 18.67 million tons to 18.40 million tons
(1.49%) in 1997-98, and caused a loss of consumers’ surplus of Rs. 19,482 million. Overall, the
impact of the increase in the international price of wheat would have resulted in a net loss to
Pakistan of Rs. 3,711 million during 1997-98.
After wheat, rice is the second most important staple food and it is also one of the major
foreign exchange earning sources of Pakistan. In terms of area, rice is the third most important
crop after wheat and cotton, occupying around 10% of the total cultivated area and producing
around 19% of the total food grain in the country. The impact of trade liberalization on rice
(both Basmati and non-Basmati types) was estimated using the results of the FAO (1995) study.
It is assumed that international prices of rice will increase by 7%, and the impact on wholesale
and farm level prices of rice was estimated using elasticity coefficients taken from estimated
supply, demand and price linkage equations for both Basmati and non-Basmati rice. Due to the
increase in the international price of rice, it is estimated that wholesale and farm level prices of
Basmati rice in Pakistan would have increased by 7.763% and 8,377%, respectively. On the
other hand, wholesale and farm level prices of non-Basmati rice would have increased by
7.889% and 7.02%, respectively. The increase in the farm level price would have increased the
total production of Basmati rice from 1.539 million tons to 1.572 million tons (increase by
2.123%), and total production of non-Basmati from 2.799 million tons to 2.883 million tons
during 1997-98. This increase in the production of Basmati and non-Basmati rice would have
generated a gain of producers’ surplus of Rs. 1,872 million, and Rs. 3,393 million, respectively.
Due to the increase in the international price of rice, total production of rice would have
increased from 4.338 million tons to 4.455 million tons, and generated a total gain in producers’
surplus of Rs. 5,264.96 million. On the other hand, due to the increase in the wholesale price of
Basmati rice in Pakistan (by 7.763%), its domestic demand would have declined from 894.28
thousand tons to 866.74 thousand tons during 1997-98, and caused a loss of consumers’ surplus
of Rs. 1,190.54 million. Due to the increase in the wholesale price of non-Basmati rice (by
7.889%), its domestic demand would have declined from 1,090.65 thousand tons to 1,080.23
thousand tons during 1997-98, and caused a loss of consumers’ surplus of Rs. 841.66 million.
Overall the impact of the increase in the international prices of rice, would have resulted in a
gain to Pakistan by Rs. 3,232.76 million during 1997-98.
Maize is the third most important food crop in Pakistan, and occupies around 4% of the
total cropped area and 7% of the total area under food crops. Pakistan is not a big trade partner
in maize, and its import used to be restricted in the past. Prices of maize in Pakistan were
considerably higher than the international prices. The impact of trade liberalization on maize
xviii
was also estimated using the FAO (1995a) study in which it is assumed that international prices
of maize will increase by 4%. The impact of this increase in maize prices on wholesale and
farm level prices of maize was estimated using elasticity coefficients from estimated supply,
demand and price linkage equations. Due to the increase in the international price of maize, it is
estimated that wholesale and farm level prices of maize in Pakistan would have increased by
only 4.02% and 4.03%, respectively. The increase in the farm level price would have increased
the total production of maize from 1.251 million tons to 1.254 million tons during 1997-98.
This increase in the production of maize would have generated a gain of producers’ surplus of
only Rs. 387.87 million. On the other hand, due to the increase in the wholesale price of maize,
the domestic demand of maize would have declined from 1.323 million tons to 1.315 million
tons in 1997-98, and caused a loss of consumers’ surplus of Rs. 452.73 million. Overall the
impact of the increase in the international price of maize would have resulted in a net loss to
Pakistan by Rs. 64.86 million.
To study the impact of trade liberalization on location-commodity-specific agriculture,
the rice area of Punjab province was selected to analyse the effects on rice (Basmati and non-
Basmati), wheat and maize. Partial budgets of these three commodities were estimated, and the
impact of trade liberalization was analyzed at the farm level. The costs of production and net
returns for these commodities were estimated for the scenario without trade liberalization (using
base year 1993-94) and the scenario with trade liberalization (during 1997-98) at the 1997-98
yield and input levels. For without trade liberalization, 1993-94 prices of inputs and outputs
were used. On the other hand with trade liberalization, 1997-98 farm level prices of inputs and
outputs were used. The difference in cost of production and net returns among these two
categories was assumed to be the effect of trade liberalization at the farm level.
Using the partial budgets before and after trade liberalization, the impact at the farm
level is such that the cost of production of Basmati rice, non-Basmati (IRRI type), wheat and
maize increased by Rs. 7,945/ha, Rs. 7,327/ha, Rs. 5,514/ha and Rs. 5,288/ha, respectively,
during 1997-98. On the other hand, net returns in the case of Basmati rice and maize increased
by Rs 630/ha and Rs. 2,152/ha, respectively, during 1997-98. In the case of non-Basmati rice
and wheat, net returns decreased by Rs. 2,345/ha and Rs. 983/ha, respectively, during 1997-98
due to trade liberalization.
It is evident in the case of Pakistan that significant policy changes in the course of
implementing the UR Agreement on agriculture are required. They include tariff reduction,
elimination of the subsidy on wheat, phasing out all forms of price support policies and control
and reducing custom duties, quantity restrictions, exemptions, non-tariff barriers, etc. Presently,
Pakistan is in the process of implementing the UR agreement on agriculture, which is a very
complex and comprehensive undertaking and its impacts can not be easily quantified mainly
due to uncertainty in the agricultural sector. Therefore, extra precautions should be taken in the
interpretation and adoption of its impacts on the agricultural sector. In the presence of the
existing economic and political structure in Pakistan, it is expected that the country will face
considerable policy challenges in the course of implementation of the UR agreement on
agriculture. In the agricultural sector, presently most of the producers, exporters, and policy
makers are not well aware about the UR Agreement on agriculture. There is an urgent need to
pursue public awareness programs on the impact of trade liberalization on agriculture, including
trade policy developments, priorities, and strategies of the major trading partners of Pakistan.
For example, to further expand the export of agricultural commodities, Pakistan may have to
adopt measures and programs that would ensure that its export products compete successfully
with those exported by other LDCs, particularly producers of the same commodities in Asia.
It is expected that domestic prices of wheat, the main staple food in Pakistan will
increase considerably and the country will have to spend a huge amount of foreign exchange on
its imports. In the case of wheat, the best strategy would be to achieve self-sufficiency by
considerably increasing the productivity of the local wheat crop, which is far below the
xix
potential yield levels. Due to lower (or negative) net returns from planting food grains including
wheat, the cropping pattern is becoming diversified with a shifting away from food grains
towards high value crops or export oriented crops. This is a very serious issue, since with the
existing population growth of around 3%, demand for food commodities is increasing at a faster
rate. In such a situation there is a need to carefully consider policies such as whether or not to
shift food grain area towards high value crops, since earnings from the high value crops or
crops with the export potential may be used to import food grains to meet domestic
requirements.
The productivity of all food crops is considerably below their potential in Pakistan, and
as a result farm level returns from these commodities are not sufficient to cover the cost of
production and to give a reasonable return on capital. Therefore, efforts must be made through
extension to promote improved cultural and intensive management practices to increase the
present yield levels. In addition, high quality seeds, cheap credit, and improved farm machinery
(such as rice transplanter, zero tillage drill, etc) may be arranged specially for small farmers to
increase their farm income. Also, government should promote the grow-for-export policy
among rice growers, since it will help to improve the quality of rice and increase the export of
rice from Pakistan.
xx
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The CGPRT Centre

1. Research and development which entails the preparation and implementation of

CGPRT Centre Working Papers currently available:

Working Paper No. 34 Effects of Trade Liberalization on Agriculture in Malaysia: Institutional

Working Paper No. 36 Effects of Trade Liberalization on Agriculture in Japan: Institutional

Working Paper No. 37 Effects of Trade Liberalization on Agriculture in the Philippines:

(Continued on inside back cover)

Effects of Trade Liberalization on

Muhammad Ramzan Akhtar

National Library: Cataloguing in Publication

Akhtar, Muhammad Ramzan

1. Pakistan – Trade, free and protected 2. Agriculture – economic aspects

2. Trade Policy Regime

3. Effects of Trade Liberalization at the National Level

4. Effects of Trade Liberalization at the Farm Level: A Case Study

5. Conclusions and Policy Implications

6. References and Bibliography ............................................................................................... 77

Appendix Tables ............................................................................................................................. 81

ADB : Agriculture Development Bank

I am pleased to publish Effects of Trade Liberalization on Agriculture in Pakistan:

Islamabad, Pakistan Dr. Muhammad Ramzan Akhtar

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