STATE’S NON INTERVENTION IN COMMODITY MARKET MINIMIZES PRODUCERS AND CONSUMERS’ SURPLUSES

AN EVIDENCE FROM POTATO CROP OF PAKISTAN

Abstract

The agriculture sector markets in Pakistan remain a mix of price interventions by the state for some crops like wheat, rice, cotton, etc. and a free market situation for other crops like potato. Through the instant study, an attempt has been made to calculate as how free market-like sit-uation impacts upon producers and consumers surpluses as compared with earlier studies where state interventions result in disproportionate producer and consumer surplus. The calculation of producer and consumer surplus is derived from supply and demand curves of a commodity. That is, the supply and demand model is not just a model of how a competitive market works—it’s also a model of how much consumers and producers gain from participating in that market. A differential model has been used for computation of welfare effects such as changes in producers and consumers surpluses (ΔPS & ΔCS) using data from 1986 to 2005. The results showed that due to prevalence of free trade situation in potato’s domestic economy, insignificant changes occurred in terms of producers and consumers’ surpluses in potato crop as against higher PS/CS of crops under state intervention such as wheat consumers surplus was Rs.3463 million per year while producers suffered losses in their producers surpluses to the tune of Rs.3102 million per year (Zulfiqar, 2008), gains to consumers of cotton crop of Rs.12463.10 million per year against losses to producers to the tune of Rs.12648.44 million per year (Zulfiqar, 2009) and gains to consumers of rice crop of Rs.448.76 million per year against losses to producers to the tune of Rs.657.95 million per year (Zulfiqar, 2009) . Based on these results, it has been recommended that governments should avoid interventions in commodity markets. This recom-mendation is true for all countries at global level.