The following estimates are worked out for wheat. The benchmark procurement price of wheat grain is taken as 100 Dinar per kilogramme. The benchmark market price of wheat flour in May 1996 was 250 Dinar per kilogramme. The market price is determined, on the margin by the import price. The implied tax on the margin is calculated by working out the difference between the price a farmer could expect to obtain on the market and the procurement price.
Starting from the market price of wheat flour (250 Dinar) we need to work out the market price of wheat. Part of the difference between the wheat flour price and the procurement price is accounted for by the costs of converting wheat into wheat flour and other transportation and transaction costs. Allowing for a margin of 33% for the costs of milling, transport and other expenses, gives the implicit market price of wheat flour as 167 Dinar.
The procurement price of 100 Dinar, however, does not take into account the implicit subsidy to the farmers for seeds and fertiliser. If we assume that the implied rate of subsidy is as high as a third (i.e. 33 Dinar) of the procurement price, the net tax paid by a farmer per kilogramme of wheat sold to the procurement agency would have been around 34 Dinar. If, on the other hand the implied subsidy was a tenth (10 Dinar), the net tax paid would have been 57 Dinar. The tax rate, on the margin, would have been between 20 to 35 per cent depending on the value of the subsidy.