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Managing Price Risk in the Pakistan Wheat Market

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  • Faruqee, Rashid
  • Coleman, Jonathan R
  • Scott, Tom

Abstract

The government intervenes in the wheat market in Pakistan to ensure food security for consumers and to provide adequate and stable incomes for producers. The cost of this intervention is high, and its impact on the performance of agriculture has been significantly negative. The World Bank is urging policy changes such as removing agricultural trade restrictions, price supports, and subsidies. However, policymakers often resist such reforms, fearing that they will expose the domestic market to fluctuating international commodity prices. This article assesses the risk management needs of the sector and evaluates whether using financial instruments--such as commodity hedging using futures, options, or swaps--would improve risk management. Simulations based on monthly data for 1994 show that market-based methods of risk management could reduce the impact of international price volatility on the domestic market without incurring high government cost or distorting price signals. Copyright 1997 by Oxford University Press.

Suggested Citation

  • Faruqee, Rashid & Coleman, Jonathan R & Scott, Tom, 1997. "Managing Price Risk in the Pakistan Wheat Market," World Bank Economic Review, World Bank Group, vol. 11(2), pages 263-292, May.
  • Handle: RePEc:oup:wbecrv:v:11:y:1997:i:2:p:263-92
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    Cited by:

    1. Sarris, Alexander H., 2000. "World cereal price instability and a market based instrument for LDC food import risk management," Food Policy, Elsevier, vol. 25(2), pages 189-209, April.
    2. Galtier, F., 2009. "Comment gérer l'instabilité des prix alimentaires dans les pays en développement ?," Working Papers MOISA 200904, UMR MOISA : Marchés, Organisations, Institutions et Stratégies d'Acteurs : CIHEAM-IAMM, CIRAD, INRA, Montpellier SupAgro - Montpellier, France.
    3. Byerlee, Derek & Jayne, T.S. & Myers, Robert J., 2006. "Managing food price risks and instability in a liberalizing market environment: Overview and policy options," Food Policy, Elsevier, vol. 31(4), pages 275-287, August.
    4. Baffes, John & Ajwad, Mohamed I., 1998. "Detecting price links in the world cotton market," Policy Research Working Paper Series 1944, The World Bank.
    5. World Bank, 2005. "Managing Food Price Risks and Instability in an Environment of Market Liberalization," World Bank Other Operational Studies 8264, The World Bank.
    6. Alexander Sarris, 2003. "Une assurance du prix des matières premières fondée sur le marché pour les pays en développement : vers une nouvelle approche," Revue d’économie du développement, De Boeck Université, vol. 11(1), pages 5-41.
    7. Smith, Laurence E. D. & Stockbridge, Michael & Lohano, Hari Ram, 1999. "Facilitating the Provision of Farm Credit: The Role of Interlocking Transactions Between Traders and Zamindars in Crop Marketing Systems in Sindh," World Development, Elsevier, vol. 27(2), pages 403-418, February.
    8. G Benavides & P N Snowden, 2005. "Futures for farmers: hedging participation and the Mexican corn scheme," Working Papers 563432, Lancaster University Management School, Economics Department.
    9. Muhammad Aamir, Shahzad, 2017. "Policy Reforms & Analysis of Wheat Procurement System in Punjab, Pakistan," MPRA Paper 81562, University Library of Munich, Germany, revised 01 Mar 2017.

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