India & Pakistan take opposite MSP paths— hiked here for 14 crops, scrapped there for wheat

The Print

04-06-2025

'The authorities refrained from wheat procurement operations during the past year and in absence of government-imposed support prices, consumers have seen large benefits as reflected in subdued food inflation,' read a 9 May report by the IMF Executive Board, following its first review under the Extended Fund Facility (EFF) for Pakistan.
Pakistan's unprecedented February 2025 move was the culmination of a subsidy rollback agreed on late last year as part of a $7 billion International Monetary Fund loan deal. While the end of the MSP programme for wheat has set off a wave of uncertainty about food security, the IMF says it's already delivering results.
New Delhi: As India hikes MSP for 14 kharif crops, with BJP leaders calling it a historic move , Pakistan has gone in the opposite direction. It has scrapped the minimum support price for wheat, its most important crop, and ended government procurement altogether.
The broader goal was to fix Pakistan's 'structural problems'—low productivity, uneven competition, and a system weighed down by bad incentives. As the rollback started, many Pakistani farmers also shifted to cash crops such as oilseeds and pulses.
Pakistan and India have taken two very different forks in the road. At a time India is debating legalising MSP for more than 20 crops, Pakistan is doubling down on its removal for wheat (the only other crops with support prices are sugarcane and cotton). Some of the heated debates now playing out in Pakistan closely mirror those that followed Prime Minister Narendra Modi's 2020 announcement of farm laws and the promise of bringing India's farmers closer to market forces. Angry protests and old, socialist fears forced India to withdraw the laws.
Some Pakistani experts are calling the scrapping of MSP a 'policy-induced collapse' and deregulation without safeguards. The government jumped the gun, many say. The IMF deal had allowed time until 2026 to phase out price-setting. But Pakistan acted two years early, without first putting market systems in place to support farmers. Critics warn of a storm in the making — a massive food security crisis.
'Wheat always seems to be under some scandal or crisis in Pakistan – from unnecessary imports and rampant smuggling to even the bizarre claims of stocks getting devoured by rats. Yet, little to no serious efforts can be seen to find sustainable solutions,' wrote Muhammad Faizan Fakhar, a senior research associate at the Centre for Aerospace & Security Studies, in The Express Tribune. He added that the reforms have left farmers uncertain and discouraged them from growing wheat at all.
Others, however, argue that the MSP system needed to go even if there's short-term pain.
'Despite its intent to help farmers, the MSP system often led to outcomes where middlemen and flour millers benefited more than growers,' wrote Amar Razzaq, Associate Professor of Agricultural Economics at Huanggang University, China in an April 2025 blogpost. He argued the MSP system was costing over PKR 300 billion (INR 90.9 billion) annually, largely funded through debt, and was unsustainable amid Pakistan's fiscal crisis.
What most agree on is that wheat is already in trouble. A shortfall is expected, and Pakistan may need to import. How a wheat-surplus nation has gradually gone into being a wheat-deficient one is a story by itself – of population rise and dropping yields.
As the backbone of Pakistan's agriculture, wheat is grown on 36 per cent of the fertile land and contributes 2.2 per cent to the GDP. It accounts for 72 per cent of daily caloric intake, according to the USDA's Foreign Agricultural Service (FAS). Pakistan is the world's eighth-highest producer, but policy turmoil, the effects of climate change, and recurring shortfalls have made it more vulnerable to food insecurity.
This year, wheat output is projected to drop by 11 per cent—from last year's record 31.4 million metric tonnes (314 million quintals) to 27.9 MMT (279 million quintals)—according to the country's Ministry of Finance. Market prices have fallen below production costs and forced distress sales. Wheat is typically traded by the maund, which is equivalent to 40 kg, or 0.4 quintal, in Pakistan's local markets. In Punjab, Pakistan's largest province and agricultural heartland, wheat prices have reportedly dropped below PKR 2,400 (INR 725) per maund, well under the average production cost of PKR 3,000 (INR 906). Some farmers, facing debt and liquidity crunches, have sold for as low as PKR 2,000 (INR 604.1) per maund.
By comparison, India is in a more stable position. As the world's third-largest wheat producer, it has robust procurement systems and stock buffers. But it's not been immune to pressures either. Last year, falling yields and weak procurement raised fears it might have to import wheat for the first time since 2017, pushing prices to record highs. This year, however, saw a strong rebound: an estimated harvest of over 115 million tonnes (1,150 million quintals) and a four-year-high procurement of 29.7 million metric tonnes (297 million quintals).
But MSP is not the answer, according to former Pakistan finance minister Miftah Ismail.
'Provinces had long set support prices for political and other non-market reasons and these prices were distorting the market. The IMF had merely asked them to do away with support prices,' he told ThePrint.
However, while the Pakistan government is holding firm on MSP, some of its other moves point to a muddled reform strategy.
Also Read: India's MSP system for farmers has outlived its purpose. It's time to phase it out
Reform roadblocks
Pakistan's tryst with agriculture reform may have arrived via the IMF, but many see it as an idea whose time had come.
Minister for Parliamentary Affairs Dr Tariq Fazal Chaudhry earlier this month announced in the National Assembly that the federal government will no longer regulate wheat prices and plans to dissolve the Pakistan Agricultural Storage and Services Corporation (PASSCO).
Chaudhry claimed the move benefits farmers due to strong market prices and unrestricted wheat movement. The decision, following a directive from the Prime Minister, includes exploring private sector-led strategic reserves.
But much like India's aborted attempt at farm reforms, this was immediately contested by opposition parties in Pakistan.
PPP's Aijaz Jakhrani warned the removal of price controls could harm farmers, while former minister Hina Rabbani Khar accused the government of lacking a coherent agriculture policy. Chaudhry defended the shift, citing rising production costs and arguing that a market-based system would offer farmers better returns. A new wheat policy encouraging private investment is expected next year.
But the biggest fear persists: food shortage, an old sub-continental anxiety.
'Pakistan isn't facing a wheat shortage right now, but the policy direction is setting up a medium-term food security problem,' Adil Mansoor, a Karachi-based researcher tracking the crisis, told ThePrint.
Ismail, too, echoed the concern that no MSP would mean that farmers pivot away from wheat.
'This would cause farmers to sow less wheat, and we will then become a wheat-deficient country,' he said.
The Pakistan government hasn't walked back its reform intent, but it has also undercut its own push with some of its decisions. Last July, it imposed a blanket ban on all wheat trade — both wheat imports and the export of wheat and related products, including flour and semolina— citing a domestic surplus from earlier imports and the need to stabilise prices in the local market.
This kind of confusion isn't unfamiliar territory. In 2017, the government procured a record 6.3 million tonnes (63 million quintals) of wheat despite already full stocks. To offload the surplus, it rolled out massive export subsidies, draining public finances and skewing trade balances.
Therein lies an important reform roadblock.
'If you remove the support price, then you are going towards market reform. But if you're going towards market reform, then you should also allow farmers to export their wheat,' Ismail said.
If wheat in the international market is PKR 80-85 (INR 24-25.50) per kilo, and in Pakistan it's about PKR 60 (INR 18) —or even PKR 55 (INR 16.50) at the farm gate—then farmers are losing money, according to him.
'If the government wants to liberalise the wheat market truly, then it must allow our farmers to sell their products outside Pakistan too. To restrict them to selling only in Pakistan and importing whenever the price of wheat goes up, is rigging the market against farmers,' Ismail added.
Pakistan's biggest staple under stress
The Pakistan government has presented its wheat policy shift as long-term reform rather than crisis management.
The IMF in its May report noted that food inflation had improved and that the reforms would support a more competitive and efficient agricultural sector.
'Provinces have paid off most of the legacy debt related to commodity operations, and the authorities are working towards a new food security framework for wheat that will neither create distortions in the market nor jeopardize fiscal sustainability,' it added.
The IMF also asked Pakistan to broaden these efforts to other commodities and strengthen regulatory frameworks. By December 2025, IMF will review existing laws on commodity market intervention and issue recommendations to address anti-competitive behavior through stronger competition policy and less protectionist trade measures.
But these reform measures are ill-served by poor planning, climate stress, and short-term price interventions.
Around the time MSP was scrapped, Pakistan saw a severe water shortage. Drought alerts were issued in Punjab, Sindh, and Balochistan. Major reservoirs neared depletion. The Ministry of Finance had already warned in February 2025 of lower Rabi yields due to rising temperatures and delayed winter rains.
Pakistan, once self-sufficient in wheat, now faces a production-consumption gap. In 2023-24, while wheat output improved—rising to 31.4 million tonnes (314 million quintals) from 27 million tonnes (270 million quintals) in 2023—demand grew even faster, reaching around 31 million tonnes (310 million quintals).
The rushed policy execution made a bad situation worse, according to some experts.
'This is not a supply-demand anomaly, it's a policy-induced collapse,' Mansoor said. Without pricing guarantees, many farmers scaled back wheat cultivation.
'The government first flooded markets with grain from public stocks, then refused to announce a support price, banned exports, and watched prices crash by over 50 per cent from their peak from two years ago,' Mansoor added. 'This is not market liberalisation—it's inflation management through price suppression. In fact, it violates the spirit of the IMF's condition that any public sales must not result in price manipulation.'
Meanwhile, restrictions on wheat movement in the provinces made it harder for farmers to reach competitive markets and discouraged cultivation. Although Punjab has lifted its ban, such steps matter more during planting season (October-December) than at harvest (April-June), wrote Fakhar in the Express Tribune.
This situation was avoidable. The IMF agreement had allowed Pakistan until FY26 to phase out procurement and price-setting.
'The government chose to abandon support prices and procurement in mid-2024, two years ahead of schedule. No transition framework was communicated, no private market institutions were prepared, and no safeguards were put in place to protect producers. This was not reform—it was shock therapy,' said Mansoor.
Economist Javed Hassan echoed the view that removing wheat support prices was a 'necessary step' toward market-driven agriculture in Pakistan, but that they lack protections—such as crop insurance and alternative land use—hurt farmers and jeopardised food security.
Imports on the horizon?
In such a scenario, imports are expected to play a rescue role, as has been done before, most recently in 2023 when Pakistan was the world's 23rd largest wheat importer.
'As long as various government agencies hold about 2.5 to 3 million tonnes (25-30 million quintals) of wheat in strategic storage, which is more than a month's consumption, there will be no food shortage crisis. We can easily import more wheat from abroad at this time,' said Ismail.
Pakistan is expected to drop its ban and import at least 1.7 million tonnes (17 million quintals) of wheat in the 2025-26 marketing year (May-April)—a sharp rise from near-zero imports in 2024-25. If final production figures remain low, imports could exceed 2 million tonnes (20 million quintals), given the extremely tight projected carry-over stocks, according to a report by Grain Central.
But import reliance, say critics, is a dangerous strategy for a country with poor foreign exchange reserves.
'Imports can't be a safety net forever. If domestic production declines, Pakistan will have to rely on global wheat markets. That's a fragile strategy for a country with poor forex reserves—exposed to freight costs, trade disruptions, and price volatility,' Mansoor said.
There are, however, also longer-term attempts to steady the system. Punjab has announced a new relief package: subsidised wheat purchases for flour mills, direct cash support for small farmers, and a system of lending that uses crops as collateral.
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A call for structural reforms
Earlier this month, Punjab announced that wheat trade under the Electronic Warehouse Receipts (EWR) system will now take place on the Pakistan Mercantile Exchange (PMEX), the country's only multi-commodity futures platform. Media reports called it a 'major step toward modernising agriculture'.
Traditionally, banks demand land as collateral for loans; however, EWRs allow farmers to use their harvested crops as security.
Modern, accredited warehouses—though slightly costlier than informal options like middlemen—offer secure storage, crop insurance, and enable instant loans worth up to 70 per cent of the crop's value.
To support this system, the government is promoting a province-wide network of modern warehouses linked to PMEX. It is also extending financing and subsidies to small-scale aggregators, bringing formal credit and market access to parts of the supply chain that have long been excluded.
But again, implementation has been rocky.
'The current EWR rollout is structurally flawed. It expects small farmers to act like commodity traders—hold stock post-harvest, accept a 30 per cent haircut on financing, and bet on future price recovery. That's a speculative model misaligned with their liquidity needs,' Mansoor said.
Quick fixes like subsidised tools aren't enough.
'Can Pakistan rebuild trust with its farmers before the next crop season? Without urgent and coordinated reforms, rural Pakistan will continue to slide—not just into poverty, but into political and social instability that the country can ill afford,' Mansoor said.
(Edited by Asavari Singh)