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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?

Author

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  • Abedullah

    (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.�

Suggested Citation

  • Abedullah, 2022. "Does Fixing High Minimum Support Price (MSP) Of Wheat A Source Of Inflation Or High Prices Itself A Victim Of Inflation?," PIDE Knowledge Brief 2022:65, Pakistan Institute of Development Economics.
    • Handle: RePEc:pid:kbrief:2022:65
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    References listed on IDEAS

    as
    1. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan: Money or Wheat?," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 213-234..
    2. Saima Rani & David Vanzetti & Elizabeth Petersen & Muhammad Qasim, 2020. "Estimation of Supply and Demand Elasticities for Major Crops Produced in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 25(1), pages 139-152, Jan-June.
    3. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(2), pages 185-202.
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    Keywords

    Fixing; Minimum Support Price; Wheat; Inflation;
    All these keywords.

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