The Lahore Journal of Economics 15 : 1 (Summer 2010): pp. 91-102
Development of Supply and Demand Functions of Pakistan’s Wheat Crop
Muhammad Zulfiqar* and Anwar F. Chishti**
A simultaneous-equations model was used to capture the supply and demand functions for Pakistan’s wheat sector at the national level. This model reflects the fact that Pakistan’s domestic wheat supply is price- responsive and positively affected by the use of nutrient fertilizers. While price appears to be a statistically significant factor on the supply side, it is statistically insignificant on the demand side. Population size appears to be very significant in determining wheat demand. The wheat import supply seems to be influenced by the current world wheat price, current world wheat supplies, Pakistan’s domestic consumption in previous years, and domestic supply in previous years. We recommend that policymakers allow market forces to play a role in the wheat economy in a way that protects producers from adverse market conditions. The availability of various nutrient fertilizers should be central to policies on future inputs use. Work is also needed on wheat alternatives so that the country’s dependence on wheat is eased as much as possible.
Keywords: Wheat, supply and demand, Pakistan. JEL Classification: C59, Q11.
The wheat crop occupies a vital position in Pakistan’s agrarian economy. Its share in terms of percentage area under major crops has remained around 36% for the last three decades (Agricultural Statistics of Pakistan). The production of the wheat crop in Pakistan is handled by private producers, but its marketing and trade have mainly been regulated by the government through ‘support price’ policies announced by the Government of Pakistan at the beginning of each cropping season. According to economic theory, the announcement of ‘support or
* ** Director Planning, Kohat University of Science and Technology, Kohat, Pakistan. Dean, Management Sciences, Muhammad Ali Jinnah University, Islamabad, Pakistan.