Can Afghanistan achieve self-sufficiency in wheat? Limitations due to market integration

Ghulam Hazrat Halimi, Purdue University

Abstract

Following drought and the dramatic increase in the wheat and flour prices in Afghanistan during 2007-2008, the country experienced a bumper harvest in wheat production in 2009. According to MAIL (2009), Afghanistan produced 97% of its wheat requirement in that year, and the country imported to meet a deficit of only 190,000 metric tons. But USDA data show that Afghanistan imported 2.5 million metric tons of wheat and flour in that year. One potential factor that can explain the big difference in import volume reported by MAIL versus USDA is the different views on wheat and flour market structure. MAIL assumes that markets are well integrated between rural and urban areas and the overall national deficit is made up by imports. USDA data suggest that rural areas are isolated from urban centers. Domestic production is consumed or stocked in rural regions, and most of urban populations are supplied by imported wheat and flour. Applying a spatial equilibrium modeling approach, this thesis investigates which scenario of market integration appears to be true in Afghanistan. The model is run as a spatial competitive equilibrium under two different scenarios of market integration, and with two different data sets. The market outcomes of each scenario are compared to the actual market outcomes to see which scenario of market integration better fits the observed market structure. To better understand the wheat and flour market structure in the country, a trader survey was also conducted in three large commercial centers in Afghanistan. Some information about the wheat and flour market structure was obtained through personal interviews with the large wheat and flour traders in the country, as well. There have been some proposals and ideas to increase domestic production of wheat in the country to reach self-sufficiency. This thesis also attempts to predict the market outcome in case of a bumper harvest, increased production under different assumptions on market integration. Results confirm that achieving self-sufficiency not only requires an increase of domestic production, but also a well integrated market. Modeling results and the results from the survey and personal interviews suggest that wheat and flour markets are not now well integrated across rural and urban areas. Although the price differences between surplus and deficit regions are very high in the poorly integrated scenario, in terms of imports and stocks volume the poorly integrated scenario appears to better fit the observed market structure in Afghanistan. Building roads and market infrastructure, improving market information, and increasing milling and storage capacities are required to accommodate an increase in domestic production in order to ensure food availability and reach self-sufficiency in wheat.

Degree

M.S.

Advisors

Abbott, Purdue University.

Subject Area

Agricultural economics|Middle Eastern Studies

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