INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

Pakistan Strategy Support Program Overview

Dr. Stephen Davies Dr. Sohail J. Malik

Dr. Paul Dorosh Pakistan Strategy Support Program (PSSP) International Food Policy Research Institute

Lahore, Pakistan 23 May, 2013

• Flexible, four-year country-led and country-wide program (July 2011 – July 2015)

• Core purpose: To contribute to pro-poor economic growth and enhanced food security

• Implementation: • Guidance by a National Advisory Committee (NAC) • Close collaboration between IFPRI and IDS • Institutional engagement with national universities and

research institutions • Involvement of broad range of other international and

Pakistani collaborators and stakeholders

Highlights of the PSSP

Highlights of PSSP

• Research Themes • Agricultural Production • Water Policy • Macroeconomics, Markets and Trade • Income Growth and Poverty Dynamics

and Social Safety Nets • Capacity Strengthening

• Competitive Grants Program • Policy Analysis • Outreach and Dialogue

Research Highlights and 2013 Plans

Agricultural Production • Evaluation of Pakistan Agricultural Research

Council (PARC) [completed] • Bt Cotton: Farmer survey including physical

samples to assess cotton varieties (ongoing) • Biosafety risk assessment (ongoing) • Seed and fertilizer markets (new) • Agricultural science and technology indicators

(new)

Page 4

Research Highlights and 2013 Plans

Water Management and Irrigation • Water market institutions [completed] • Satpara dam water management and electricity

generation [ongoing] • Implications of climate change for water

management strategies [ongoing] • Impacts of farmer water management strategies

on crop productivity [2012 survey, ongoing] • Linking hydrological and economy-wide models

to evaluate national investment needs, etc. [new] Page 5

Research Highlights and 2013 Plans

Macro-economics, Markets and Trade • New Social Accounting Matrix of Pakistan and

revised General Equilibrium Model [completed]

• Macro-economic and distributional implications of energy policy (electricity pricing) [ongoing]

• National and provincial marketing regulations to enhance private sector participation [new]

• Agricultural product value chains and economic clusters [new]

Page 6

Research Highlights and 2013 Plans

Poverty Dynamics and Social Safety Nets • Pakistan Rural Household Survey

Round 1: April 2012; Round 2 April 2013 • Rural poverty estimates [ongoing] • Aspirations and their implications for poverty

alleviation [ongoing] • Targeting and efficiency of safety nets [new] • Population mobility (migration) [new]

Page 7

Round Launched # Applicants Proposal Presentations # Awardees

1 Jan 2012 180 May 2012 18

2 Sep 2012 220 Feb 2013 20

Competitive Grants Program

PSSP Research Advisory Committee

• One year grants that add up to a total of $400,000 of funding each round • Research Advisory Committee (RAC) consisting of 20 members, chaired by the Deputy

Chairman of the Planning Commission of Pakistan, carefully examines each proposal • Providing an opportunity for researchers and faculty members from underprivileged areas such

as Swat, Lasbela and Tandojam to develop connections and promote collaborative research • Research areas include Governance, Creative Cities and Regions, Energetic Youth and

Communities, and Vibrant Markets (Planning Commission’s New Framework for Economic Growth)

• Examples of research proposals currently underway: “Batkhela (Malakand) Bazar: A Catalyst for Socio-Economic and Political Change” conducted by Ayub Jan from Peshawar University and “Maximizing Farm Income and Other Livelihood Opportunities through Introduction of High Value Minor Crops in District Swat” conducted by Hassan Sher from the University of Swat

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

The Need for Good Data and Improved Analysis:

The Rural Household Panel Survey, Analysis of Consumer Prices and the

Official Poverty Numbers

Pakistan Rural Household Survey Sample

3 strata (provinces) (Punjab, KPK, Sindh) 19 randomly selected districts based on strata’s share of

all rural households • 12 in Punjab, 5 in Sindh, 2 in KPK

4 mauzas in each district based on Probability Proportionate to Size (PPS) method • 76 mauzas

27 households in each mauza • 2,052 households)

Survey instruments

Household questionnaires (head and spouse) • Male • Female

Community questionnaires (knowledgeable members) • Focus group discussion • Schools questionnaire (all schools) • Price questionnaire

Escalating Prices - Trends in Monthly CPI (July 2008 to April 2012)

Source: Pakistan Bureau of Statistics (various issues)

100

110

120

130

140

150

160

170

180

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Sep-

11

Nov

-11

Jan-

12

Mar

-12

CPI

(200

7-08

=100

)

112

168

56 point increase since Jul 08

Real Wages of Skilled and Unskilled Workers

Source: Pakistan Economic Survey 2010-11.

0

50

100

150

200

250

300

350

40019

93

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2008

2009

2010

2011

Rs/d

ay

Mason

Unskilled worker

Figure shows year-on-year inflation of the Consumer Price Index. Source: Government of Pakistan Economic Survey 2011-12

Elements of Change of Base Year

2000-01 to 2007-08

Revision of commodity groups Weights derived from Family Budget

Survey 2007-08 Coverage of items to capture the changing

pattern of consumption of the people.

Theoretically: four categories of biases are possible Substitution bias occurs because a fixed market

basket fails to reflect the fact that consumers substitute relatively less for more expensive goods when relative prices change.

Outlet substitution bias occurs when shifts to lower price outlets are not properly handled.

Quality change bias occurs when improvements in the quality of products, such as greater energy efficiency or less need for repair, are measured inaccurately or not at all.

New product bias occurs when new products are not introduced in the market basket, or included only with a long lag.

Source: Boskin Commission, 1996

The CPI is seriously biased downwards The Family Budget Survey Underestimates the share

of Food Expenditures by nearly 9 percentage points as compared to the Household Income and Expenditure Survey.

Further - Survey data indicate the average share of food expenditure in household consumption expenditure shows a sharp increase since 2007-08.

The Poor and rural population spend a higher proportion on Food.

Food prices have risen significantly higher than other consumer items in the basket

The CPI does not cover rural areas

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

Food Prices have critical implications for Food Security, hunger and poverty Food price inflation is the most regressive of all taxes—it hurts the poor the most.

Asian Bank 2008 simulation estimates for Pakistan……….

10% increase in food prices = 7.05 million additional poor people 20% increase in food prices = 14.67 million

additional poor people 30% increase in food prices = 21.96 million

additional poor people

“Food policy dilemma” - promoting high prices for producers or low prices for consumers?

Market interventions are not costless – and can result in substantial government subsidies and efficiency losses

There is a mismatch between objectives (producer and consumer price levels and stability, availability of grain for distribution programs, minimum stock levels, etc.) and policy instruments (procurement and sales prices, levels of government imports, etc.)

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

Careful, Unbiased and Accurate recording and reporting of consumer price movements is essential for monitoring and devising policies to promote the welfare of the people

Recommendations Revise and update the methodology for

Constructing the CPI to • Reflect the actual (higher) weights of the Food

Expenditures • Additionally Reflect the Rural Sector weights and

prices also HIES Categories do not follow the classification

of individual consumption according to purpose (COICOP) – which is followed by the Family Budget Surveys – make these consistent

Test for and continuously remove the potential biases that can exist in calculating the CPI

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

The story of the Pakistan Poverty Numbers

The Official Poverty Headcount Numbers for Pakistan show remarkable decline

Page 25

31

35

2422

12

0

5

10

15

20

25

30

35

40

45

1998-99 2000-01 2004-05 2005-06 2010-11

Pove

rty

head

coun

t (%

)

Urban Rural

Pakistan

New official estimate!!

Official Poverty Estimates – Poverty in Sindh declined by 15 percentage points between 2001 and 2004 as part of a decline of 5 percentage points in national poverty

Source: World Bank (2007).

30

26

41

22

30 30

37

41

36 33

29

22

38

32

28

0

5

10

15

20

25

30

35

40

45

Punjab Sindh NWFP Balochistan Pakistan

Pove

rty

head

coun

t (%

)

1998-99 2001-02 2004-05

On Sept 3, 2012 Government of Pakistan constituted a Technical Group on Poverty (vide: No. F. 1(44)-PA/PC-2012) to:

• Analyze the current poverty situation in the

country • Discuss issues around the data and

estimation process • Advise the Government with regard to future

course of action in respect of poverty estimation.

Credibility of the Official Poverty Numbers – Call for a Parliamentary Commission

Econometric Test Results based on PRHPS Data for 3 Provinces Indicate

• Calorie Expenditure Functions across Provinces are statistically significantly different • Both intercepts and slopes are different

• Hence Poverty Estimations based on one (Calories

Expenditure Function) based Poverty Line for all of Pakistan are NOT correct

• Moreover using official CPI to inflate 2001 Poverty lines leads to a serious Underestimation of the true poverty level expenditures.

Poverty Line - Official and RHPS Survey Based (Rs per capita per day)

64

91

79

106

0

20

40

60

80

100

120

Punjab Sindh KPK Pakistan

Rs p

er c

apita

per

day

Official Extrapolated 2012 using CPI Predicted from PRHS survey data

Calorie expenditure functions are statistically significantly different across provinces.

RHPS 2012 Poverty Headcount Compared to Previous Government Estimates from HIES

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI The PSSP is dedicated to improving the quality of data and analysis for policy making in Pakistan

Selected PSSP Analyses

• Economy-Wide Effects of Alternative Investments

• Highlights of GIS Analysis

• Electricity Subsidies, Inflation and Growth

Poverty in Pakistan, 2007-08

1.9%

20.1%

9.7%

11.8% 39.0%

17.5%

Large, medium farmSmall farmLandless farmersRural agric laborerRural non-farmUrban

• The rural poor account for 82.5 percent of the total poor in Pakistan • Rural non-farm and agricultural laborer households comprise almost half of the poor Source: Pakistan Household Income and Expenditure Survey, 2007-08

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Large Farmers Small Farmers Agric WageLaborers

Non-farmPoor

Non-farmNon-Poor

Urban Poor Urban Non-Poor

Per C

apita

Inco

me

(% c

hang

e)

Sim 1: Base Sim 2: Non-Ag Growth Sim 3: Sim2 + Ag Growth

Impacts of Productivity Growth: Changes in Household Incomes

Source: Pakistan CGE model simulations.

Impacts of Productivity Growth: Changes in Household Incomes

Source: Pakistan CGE model simulations.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Small farms* Non-farm Poor Urban Poor

Sim 1: Base Sim 2: Non-Ag Growth

Sim 3: Sim2 + Ag Growth Effect of Ag Growth (Sim3 vs Sim2)

CGE Analysis Conclusions Taking market outcomes, resource reallocations and

non-agricultural growth linkages into account, agricultural growth significantly raises rural and urban household incomes and has corresponding poverty-reducing effects

Complementary non-agricultural growth (in addition to growth linkages from increased agricultural productivity) adds further to gains achieved from agriculture

Rapid poverty reduction requires both agricultural and non-agricultural growth

INTERNATIONAL FOOD POLICY RESEARCH INSTITUTE

IFPRI

Source: Preliminary calculations by Schmidt and Tilahun (2012).

Simulation Results: Macro-economic Effects of Alternative Electricity Policies

Note: Change in inflation and unemployment are in percentage points. Source: Model simulations

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Real GDP Investment Inflation Unemployment

Perc

ent

Load Shedding Increased Subsidy Increased Subsidy Monetized

PRELIMINARY DRAFT -- NOT FOR DISTRIBUTION

Tradeoffs Between Output/Employment, Growth and Price Stability • If there is no increase in the electricity subsidy and

total load shedding increased by 50 percent relative to 2010/11, real GDP could decline by 1.3 to 1.5 percent with up to a 0.6 percentage point increase in unemployment.

• An increase in the electricity subsidy financed through government borrowing in the domestic economy could prevent a significant decline in real GDP and employment, but reduce investment by 3.8 to 4.0 percent of GDP and hamper future growth.

Tradeoffs Between Output/Employment, Growth and Price Stability

• Financing an increase in the electricity subsidy through increases in the money supply could likewise prevent a fall in real GDP or employment, but would raise money supply and the aggregate price level by about 2 percent.

THANK YOU!

BOHUT SHUKRIYA!