World Grain - January 2014 - 72

FEATURE: analyzing afghanistan's wheat flour market

Figure 3. Wheat supply in Afghanistan
(in 1,000 tonnes)
5,000

Imports

4,500

Production

1990

1995

4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0

1980

1985

2000

2005

2010

Sources: Production is from USDA PS&D database. Imports are estimates based on FAOSTAT database, USDA,
PS&D database, and IGC database and do not include flour or products as with the PS&D import estimates.

Afghan-Pakistani price gaps decreased
after May 2008.
AfghAnistAn's import policies
According to the ERS report,
Afghanistan's trade policies have played
only a limited role in protecting domestic wheat and flour producers. Although
import duties are the main source of
revenue in Afghanistan, the country has
one of the most open trade regimes in
the region and is characterized by atypically low revenue mobilization.
The report noted that tax revenues
in Afghanistan, which amount to 3.4%
of GDP, are far below the average of
14.9% of low-income countries. In
the case of the wheat and flour sector,
Afghanistan's official import policies
have been fairly liberal in that the government has not established countervailing policies to Pakistan's domestic grain
market interventions. In 2007, import
tariffs on wheat and flour were 3.5%.
In response to the 2008 price spikes,
Afghanistan eliminated its import tariffs on wheat and flour in February of
that year. In 2009, Afghan wheat production rebounded, and growing conditions continued favorable in 2010. In
an attempt to protect producers from
falling prices, the Afghan government
set tariffs on wheat and flour imports
at 10%. The following year brought a
72

combination of poor growing conditions in Afghanistan and rising domestic
and international prices. Accordingly,
the Afghan government reduced the
tariff on imported wheat flour from
10% to 5%.
"The degree to which the government
border policies have restricted movement of wheat and flour is uncertain," the
ERS said. "Private Afghani traders have
a track record of successfully procuring imported wheat from regional suppliers. The Afghan border is difficult to
control, allowing significant amounts of
undocumented trade.
"Afghanistan's trade network is comprised of multiple routes along which
wheat and flour are transported across
long and porous borders. Afghan traders have adapted to recurring transport
blockages by developing ways to circumvent these obstructions, an ability that would also be useful for evading tariffs. On the other hand, efforts
to avoid import duties involve costs.
Profit-maximizing traders may find it
worthwhile to pay relatively modest
tariffs, while high tariffs or trade bans
encourage smuggling."
AfghAni flour mArket prospects
Despite their drawbacks, policies
aimed at protecting domestic millers
and farmers from foreign competition

have been recommended as a means of
enhancing livelihoods of Aghan producers, the report said. The basis for this
recommendation is that imports of relatively low-priced commodities, while
providing immediate positive impacts
on food security, particularly for Afghan
consumers, could be disincentive for
Afghan producers.
The report noted that the country's
millers and farmers are at a disadvantage when competing with Pakistan's
wheat and flour sector, which benefits from fertilizer subsidies, the use
of government-determined support
prices to further encourage wheat production, and Pakistan's release-price
policy that encourages the growth of
its milling industry.
The Afghan government has demonstrated some willingness to protect
domestic producers by setting tariffs
and by supporting prices through procuring small quantities of wheat from
farmers, reportedly to discourage opium production.
"Imposing higher tariffs or stepping
up enforcement of existing border policies would necessitate investments in
improved monitoring and surveillance
efforts, as well as expanding and defending border checkpoints," the ERS
said. "These efforts would be costly,
given Afghanistan's rugged terrain, unstable conditions, and poor security in
border areas. Even if the Afghan government were successful at providing
significantly higher levels of protection for domestic producers of flour and
wheat, the result would be to impose
costs on consumers, with the likelihood
of relatively small positive impacts on
domestic production.
"Flour is Afghanistan's key staple
food, providing more than half of the
calories consumed. Policies that lead
to higher flour prices are likely to have
adverse impacts on low-income consumers. Further, though higher wheat
prices might provide some incentive
for producers, they would not address
the critical constraint to domestic
wheat production."
January 2014 / World Grain / www.World-Grain.com
http://www.World-Grain.com
World Grain - January 2014

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