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Does Fixing High Minimum Support Price (MSP) Of Wheat A Source Of Inflation Or High Prices Itself A Victim Of Inflation?

Abedullah Abedullah

No 2022:65, PIDE Knowledge Brief from Pakistan Institute of Development Economics

Abstract: Wheat is politically sensitive crop and Government of Pakistan (GoP) heavily intervene in the wheat market by purchasing about 70% of marketable surplus at the Minimum Support Price (MSP). Without realizing that inflation, itself is a culprit of increase in wheat prices, it is argued that fixing high wheat prices as a minimum support price is contributing in surging inflation. The analysis reveal that MSP of wheat has increased less sharply than its cost of production during the last four years—leading to decline the profitability of wheat growers overtime. Hence, wheat farmers are the victims of inflation. Comparison further demonstrate that profitability of other crops (Rice, Maize and Cotton) has increased overtime—implying that inflation has benefited the growers of these crops. Because input-output prices adjust through market mechanism which automatically account for inflationary effect while it is not in case of wheat.

Keywords: Fixing; Minimum Support Price; Wheat; Inflation (search for similar items in EconPapers)
Pages: 4 pages
Date: 2022
New Economics Papers: this item is included in nep-agr and nep-mon
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