A partial equilibrium model of Afghanistan wheat market

This study focuses on the construction of a structural economic model for the wheat market in Afghanistan. We create two models with alternative approaches to model closure, one based on a price linkage approach and the other using a trade linkage approach. The study addresses two overarching questions. First, what will the wheat market in Afghanistan look like in the coming ten years? Second, how will the market respond to some internal and external shocks? Some of the assumed shocks (also referred here as alternative scenarios) are similar to past occurrences in the wheat market in Afghanistan. The alternative scenarios discussed are drought conditions, a wheat export ban from Pakistan, eliminating Pakistan's wheat export subsidy, increased wheat price in Kazakhstan, increased tariffs on wheat flour in Afghanistan, reduced transportation and transaction costs while importing wheat to Afghanistan and increased domestic production. The first scenario (drought) was examined using both the price linkage and trade linkage approaches. Drought decreases wheat yields and production, but using the price linkage model, it does not change domestic wheat price, as imports increase to fill the gap between reduced supply and consumption. In the trade linkage approach, the same scenario reduces yield and production but also increases domestic prices, while imports increase but not as much as in the first approach. A higher domestic price lowers domestic consumption. The increased Kazakh wheat flour price, higher tariffs on wheat products and eliminating export subsidies by Pakistan scenarios all reduce imports and increase domestic prices. Higher wheat prices might also reduce the food security of low-income households that do not producer their own food. On the other hand, increasing production through investing in irrigation rehabilitation, improving yield, and increasing efficiency in importing wheat will reduce the domestic wheat price in Afghanistan and can impact household food security. The impact of increase production on wheat producers depends on the effects it has on costs of production and how the required rehabilitation and expansion projects will be financed. Areas of future research can focus on exploring how these scenarios affect urban and rural households separately and estimating the impact of wheat price changes on the prevalence and severity of food insecurity.