REFORMING FEDERAL WHEAT SUBSIDY AND AVERTING A FOOD CRISIS IN GB By: Izhar Hunzai Introduction The wheat subsidy

system under the Civil Supply Act was extended to GB in the 1990s as an important component of Pakistans social safety net, helping to protect the poor against food shortages in these remote areas. Since the establishment of this subsidy, no significant effort has been made to evaluate the efficacy, cost efficiency and positive or negative impacts of this program. The new government is under tremendous pressure from Pakistans creditors to remove all subsidies. A sudden removal of this subsidy, which has deeply distorted markets and altered food production systems in GB, will trigger a new crisis in this already volatile and vulnerable area. A White Elephant The Department of Agriculture has estimated that this highly subsidized program costs close to PKR 1.5 billion per annum, which translates into a general subsidy of about PKR 15,000 on a per capita basis, or PKR 75,000 for a family of seven members. If the urban population of GB is excluded from this calculation, this subsidy amounts to even higher. This constitutes a huge part of the resources allocated to GB by the Federal Government. However, much of this huge subsidy is a huge white elephant as more than half of this amount is leaked from the system through corruption. If we include wastage, low quality, distortion of local markets and production systems, the benefits are even fewer compared to the high cost. It is clear that the current system of procuring large amounts of grain from the plains of Punjab, transporting it all the way to remote corners of GB, storing it at various locations and administering and monitoring a large distribution network is highly inefficient. It serves neither the interest of the Government nor the poor families for whom this subsidy is intended. A careful revamping of this large and untargeted subsidy can result in real benefits. While a proper study is needed to fully assess the flaws of the current system and to suggest alternative ways to ensure food security for the poorest and the needy, this summary presents a number of quick options to reform this wasteful program in its current form. Alternatives to Reform this System Food vouchers - Giving power to the beneficiary: The current cumbersome system can be replaced by a simple food voucher scheme for the poorest households, who are roughly estimated be 25% of the population. A one-time survey can be conducted in each UC with the help of LSOs and the local Zakat Committees, to identify those who live below the poverty line. These vouchers would be redeemable at private shops. The shop owners can exchange the collected vouchers for cash through easy paisa. The availability of food purchasing power in remote rural arras will stimulate food production and rural food markets will sprout.

The food vouchers can be classified into two income categories: Red Vouchers for the most vulnerable with income less than half of the poverty line, and Yellow Vouchers for those who are just below the poverty line, which is PKR 8,800 per year. The red Vouchers would be valued at PKR 5,000, while the yellow vouchers can carry a face value of PKR 3,000, and can be given once a year. Even if people trade these vouchers for cash to pay for other needs, such as the education of their children, it would not matter much because these are poor people, and it would still be part of the states social safety net. This approach would also help minimize the growing problem of unemployment, and even provide an opportunity for women to engage in self-employment in their own villages. The food vouchers could cover not just wheat, but a basket of food items for a balanced diet, including maize, potatoes, and honey produced in surplus in GB, which is difficult to market in down country, thus creating a beneficial effect on local agricultural production and income. Once the survey is conducted and the poorest of the poor are identified, the cost of administering and monitoring this system would be minimum. The total cost of subsidizing access to food in this manner would be only a fraction of the current cost, considering an average subsidy of PKR 4,000 for 25,000 families believed to be below the poverty line in GB. In this option, there is flexibility to increase the average level of subsidy or increase the number of households served, or even add other needs, such as primary education. This would do away with the hugely inefficient government procurement, storage and distribution operations. The storage infrastructure can be leased out to local companies for storing potato seed, which is a major constraint, thus generating revenue for the government. The savings in the annual budget in this sector in one year alone would be more than enough to make generous severance payments to redundant civil supply employees, thus reducing annual recurring budget for the government. Moreover, the resulting competition among shops to attract these vouchers from consumers would minimize irregularities: customers with food stamps would visit shops that did not impose illicit fees or shortchange customers on either quantity or quality. The system can effectively address the diversion of supplies and curb the losses during transportation. Increasing local production of wheat: The government can make a five-year plan to remove the subsidy in three stages. In the first two years, Rs. 500 million should be given, each to a) food vouchers, b) agricultural research and extension and, c) for expanding landholdings through irrigation and land development schemes. In 3-4 years the funding for funding for land expansion can be phased out, and in year five food vouchers can be withdrawn, after a proper survey. As referred to earlier, there are local and better nutritional alternatives to the mite-infested wheat procured from down country and transported on a 1000 km journey. These include meat, maize, buckwheat, potatoes and honey, which are nutritionally superior, and locally produced in significant quantities. Poor people are adaptable to a slight change in nutritional habits, which would require a small additional effort.