Global Shocks and Local Impacts: A CGE Analysis on the Impact of COVID-19 and Russia-Ukraine Conflict on Pakistan's Wheat Sector

Abstract

Wheat is one of the most important and vital sectors of Pakistan adding around 2% to the country's GDP growth each year. The crop has been in turmoil for the past four years. The primary drivers of this turmoil are the COVID-19 pandemic and the Russia-Ukraine conflict, which have impacted wheat production. The current study employs a Computable General Equilibrium (CGE) model focusing on the individual and combined effects of these two global shock scenarios. The study initiates by exploring the baseline scenario which assumes that there is no existence of Covid-19 or Russia Ukraine Conflict, then the results are calculated firstly for the productivity loss due to pandemic and then due to the Russian Ukraine conflict. Finally, both the productivity shocks are combined to study the shared effect of both the losses. The results indicate that the sector has experienced a significant loss, with spillover effects on its subsidiaries, including flour mills, bakery and confectionary industries, animal feed industries, and processed food industries. The labor and export markets shocks are also simulated highlighting the loss in both sectors attributing to disrupted supply chains and restrictions in covid nineteen and high dependency on Ukraine and Russia wheat imports. Welfare analysis has also been done for all the four scenarios to capture the welfare losses faced in the previous 4 years and the results are compared to the baseline scenario to compare the damage. To mitigate these losses, two policy scenarios are proposed: an expansionary fiscal policy and increased subsidies, followed by increased tariffs and a shift towards locally produced wheat instead of relying on imports.