The two tales of wheat flour subsidy!

A Gallup Pakistan survey conducted at the end of 2022 found that 73% of the households experienced a significant deterioration in their savings over the last six months. 51% expected savings to decrease further in the next six months. Since then, inflation has further increased to 35%. Reuters reports a 50% decrease in donations this year and a 50% increase in the number of people seeking help. In response to this crisis, both federal and provincial governments have stepped up their relief efforts.

The Sindh government is reported to have distributed Rs3.2 billion in cash transfers through the Benazir Income Support Programme (BISP) to 1.6 million households across the province to support them weather the cost-of-living crisis. The reported objective is to transfer a total of Rs15.5 billion to 3.8 million households with a monthly income of less than Rs50,000.      

In contrast, the coalition government in center announced the provision of free wheat flour in Punjab, Khyber Pakhtunkhwa, and the Federal Capital Territory to provide relief to affected citizens during the holy month of Ramazan. However, this initiative has resulted in several incidents of mismanagement, clashes, and most tragically, deaths during the distribution of free flour over the past few days. According to media reports
multiple stampede incidents have taken place due to the unorganized distribution of free flour, resulting in the death of several people who had gathered to collect food aid.  Dawn reports, “five persons, including a woman, were injured when a scuffle broke out at the free wheat flour distribution center in Shorkot (Punjab).”

The EAG appreciates the approach taken by the Sindh government in providing relief to the citizens. While there may be instances where providing free flour may be preferable such as in regions with limited access to markets, the EAG emphasizes that cash transfers are the most efficient way of
providing relief in the face of rising food prices. The required infrastructure to reach out to the vulnerable households beyond BISP is already available. In 2020, the then government expanded the existing infrastructure to reach out to an impressive 40 percent of the households across Pakistan to provide relief in the aftermath of Covid-19.

In the context of the ongoing crisis, direct cash transfers will enable the deserving households to utilize the additional funds in the way that best suit their needs. There is anecdotal evidence that some of the recipients of the free flour have been selling it in the market. There is also a possibility that the large scale procurement of flour by the state and charitable institutions from the market may further increase the price of flour in certain regions, thus affecting households who would have otherwise been able to afford it.

While there is still room to bring more transparency to the cash transfer infrastructure, direct cash transfer also reduces the opportunities for corruption to which physical distribution of relief items is exposed to. Some of the EAG members have come across people who complained of receiving substandard flour not fit for human consumption.

The EAG recommends that the policymakers across Pakistan learn from their own best practices when it comes to providing targeted relief
to the masses. Meanwhile, it is equally important to liberalize cross-border trade in agricultural commodities, inputs and machinery to improve the productivity of the agriculture sector in Pakistan. It is important to note that the countries with high agricultural productivity are also the ones which rely heavily on agriculture inputs such as fertilizer and machinery. Finally, there is need to reform the institutional infrastructure to incentivize investment in R&D by both domestic and international players in areas such as seed development and disease prevention.

The Economic Advisory Group is an independent group of individuals from economics, policy and the private sector that deliberates regularly on economic developments and shares its views with the government and the public.