April 27, 2011 Leave a comment
Improving the support price system
By Tahir Ali Khan
DAWN April 25, 2011
“RATHER than bringing my tomatoes to this far away market to sell it at a price which even cannot cover the transportation expenses, I better destroy the crop in the field,” said a farmer who had brought the commodity from Sindh to the vegetable market in Mardan.
A truck-load of tomato could fetch him barely Rs35,000 while his expenses on its transportation were Rs65,000.
This is often witnessed in case of most crops in Khyber Pakhtunkhwa, especially those which are not covered by support price mechanism.
To get the badly needed money or sell perishable items, small farmers try to dispose of their produce quickly. The agro-based mills/factories and commission agents, who usually work as cartels, reduce demand to depress prices. Farmers are forced to sell their crop below the cost of production in times of prices crash.
Without minimum guaranteed support price for some crops, farmers suffer in years of good crop as well.
The scope of price support system should be enlarged to cover more crops like maize, horticulture. The support price should be determined after consulting all stake holders and taking into account multiple factors—-the cost of production, domestic and world prices, parity prices, domestic and international demand and supply situation, comparative economics of competing crops, real market prices, profitability of input use, impact of support price on other sectors of the economy and the incidence of poverty in a particular region etc.
An agricultural costs and prices commission is needed to be set up in all provinces to provide data and the basis for fixing support and procurement prices of agricultural commodities.
The support/procurement price system is needed to promote equity, productivity, price stability, and agricultural development and to ensure a fair return for the produce.
Initially eight crops – wheat, cotton, rice, sugarcane, some oilseeds, gram, onion and potato – were covered by the support price system. However, under the pressure of international lending agencies, it was restricted to four crops – wheat, cotton, rice and sugarcane in 2001. The procurement prices for wheat and rice are implemented through Passco, for cotton through Trading Corporation of Pakistan, and for sugarcane through sugar mills.
Support price is the minimum guaranteed price which the growers are offered when the market price tends to fall following a bumper crop. And if the market price is better, they could sell their produce elsewhere. This policy usually encourages farmers to grow price-supported crops.
Support price in the country was determined by the Agriculture Prices Commission from 1980 to 2000. The commission was initially an autonomous body. Then, under goading from the lending agencies, it was made an attached ministry of agriculture ministry and later converted to Agriculture Policy Institute (API). The Agricultural Development Commissioner has the additional charge of API Chairman. The reports prepared by API, however, are hardly considered by the government.
After the Cotton Export Corporation and Rice Export Corporation of Pakistan, responsible for cotton and rice respectively, were closed, the task of implementing the support price of cotton was left to the Trading Corporation of Pakistan and that of rice to Pakistan Agricultural Services and Storage Corporation (Passco). After the disbandment of Agricultural Marketing and Services Limited, there is no agency to procure potato and onion. Same is the case with oilseed crops after the closure of Ghee Corporation of Pakistan.
Despite trends of liberalisation and deregulation, the system of guaranteed minimum price is used in many countries to stabilise prices of farm produce. India too has the Agricultural Costs and Prices Commission, set up in 1968, to ensure a minimum guaranteed price to growers for their output.
The support price system needs to be revamped. While big farmers benefit disproportionately and consumers are often badly hit, the poor farmers do not benefit much from it.
Tobacco is an important cash crop. But its weighted average price (Wap) is dismally low. According to Haji Niamat Shah Roghani, a farmer, calculated the cost of production of tobacco in 2010 at Rs165 per kg while its Wap notified by the Pakistan Tobacco Board was Rs98.
“The price should have been over Rs200 per kg on the back of escalating prices of inputs. Tobacco growers should be meaningfully involved in price determination. While the cost of production of per hectare tobacco was fixed on the basis of 3000kg per hectare yield, companies made purchase agreements with farmers on the basis of 2100kg PHY which goes against the interest of the growers,” he argued.
Maize is another staple food crop which doesn’t have a support price and public procurement mechanism. The government should announce a minimum support price, and procure maize from farmers.
Again, though the official minimum support price for sugarcane was Rs125 per 40 kg, local millers offered up to Rs338 per 50 kg to farmers.
“It speaks volumes of the government’s indifference and lack of information on the ground realities. Look at the price fixed by it and the one offered by mills,” said a farmer.
Globally, five types of prices – monopoly, procurement, support, free-market, and administrative prices – are being used for agriculture produces.
Monopoly prices are fixed by the government below the market prices and the producer is compelled to sell his produce to government or its designated/authorised agencies. This policy is rigid and harms the farmers but is pro-consumers.
From 1950 onwards, Pakistan opted for the procurement price system in which the farmers were free to sell their produce in the open market but the government reserved the right to purchase the produce anytime at a fixed price. The price thus fixed is generally lower than the market price.
Free market prices are beyond government control and are fixed by the dynamics of supply and demand. In this system, the farmers benefit in a poor crop year when supply decreases and demand increases, but invariably suffer in a bumper crop year when the supply and demand position is reversed.
Administered prices: These are the prices which the government administers for the benefit of producers as well as consumers.