Agriculture is a centuries old profession across the globe serving humanity by providing three basic necessities of life (food, fiber, and wood.
Man-kind has not been able to provide an alternative to the food crops. The world is in jeopardy to provide food to seven billion plus human beings on this planet and the term “food security” has been coined to emphasize the real threat in this regard. World trade organization (WTO) has propagated an idea to subsidize staple food crops, poultry and veterinary production to ease food supply across the world particularly to lower strata of society. Recently cotton has been added to the list of countries “fit” for a subsidy to maintain natural fiber supply in the market against synthetic fiber. Cotton fiber is a necessary product for clothing in hot climate countries and for bedding and household apparel (stick to nature).
Support price level of different Crops (2015) Source: DTB Associates
|China||$ 384||$ 361||$ 438|
|India||$ 232||$ 217||$ 332|
|Brazil||$ 231||$ 128||$ 224|
|Turkey||$ 351||$ 310||$ 648|
|USA||$ 201||$ 146||$ 308|
The subsidy program in countries examined above violates these countries commitment under WTO by large margin. Aggregate measure of support in India ranges between $12-28 billion US dollars.
High support level results in a significant increase in production and large exportable surpluses. Pakistan exports approximately 2 percent of wheat production and 60 percent of rice produce annually. Turkey export wheat flour rather than grain wheat. Pakistan’s trader may Think of exporting wheat flour. Some of the wheat flour mills are exporting flour to Latin America.
Gulf states and African countries. High internal support price often use subsidy to dump surplus on world market.
Types of subsidies in Development Countries
- Investment subsidies
- Subsidized Credit.
- Input Subsidies.
- Direct Payment to Producer
- Acreage payment subsidy.
- Quantity of production subsidy.
- Agriculture insurance subsidy
Methodology of Market Support Price
Market price support shall be calculated using the gap between a fixed external reference price and internal price of commodity. Export price level and import price level shall be taken into consideration while fixing support price level of a commodity. Budget outlays may determine the level of support price. Many countries us total production while others may provide subsidy to quantity fixed for export and not on total quantity produced in a country.
In general, with market support program all producers of products which are subject to the market price support mechanism enjoy the benefit of an assurance that their product can be marketed at least at the support price.
The state can fix eligible yield level or certain disadvantage area for subsidy. The support price may depend on market conditions, suffice to maintain market prices are above the minimum levels for all marketable production.
Eligible Production: It is the quantity of production which is eligible to receive the benefit of price support provided through the applied administered price which is relevant.
- CASE STUDY: CHINA
Over the last decade, China has pursued a policy of using subsidies to expand production of grains and other arable crops to meet growing domestic demand. China is in fact using a variety of policy tools to achieve its self-sufficiency goal for arable crops. These policies include but are not limited to price support programs, direct payment program, input subsidies, seed subsidies, farm machinery subsidies. The central pillar in China’s subsidies policy for farmer is the price support program.
The primary aim of subsidies to ensure producer profitability. All of the programs are designed to trigger government procurement when prices fall below a designated support price level. Commodity producer know they will receive the minimum price, even in condition that would otherwise drive market prices down.
The National Development and Reform Commission is responsible for establishment of support price levels. Subsidies to farmers are paid through an “All in One” card which allows for the electronic deposit in the farmer’s account.
China provides subsidies on fuel and fertilizer to producers. It does not provide export subsidies on agricultural products.
India adapted pro-farmer policy to support arable crops production right from – partition days. Jawaharlal Nehru was a pioneer of this policy. Tube well irrigation free of power cost and land reforms is two big events of his era.
India increased wheat and rice support prices by 111% and 130% respectively between the 2005/06 and 2013-14 marketing years. Subsidies for inputs, fertilizer, electricity, irrigation, and seeds have risen to over $ 33 billion. Subsidies are tagged to external prices reference by other countries. In India, landholders with less than 10 hectares are taken as low income or resource poor.
India has a price support program for wheat, rice, corn, cotton, barley, sorghum, millet, sugarcane, peanut, sunflower, chickpeas, lentils, etc.
The inside subsidy program is estimated between 36 billion and $ 93 billion. Indian government purchases large quantities of wheat and rice to maintain internal market prices. Over the past three marketing years’ government purchases have amounted on average to about 33% of total wheat production and 32% of total rice production. The government then sells most of wheat it purchases to low-income consumers at highly subsidized prices.
The minimum support price program is a powerful incentive to production when wheat MSP increased by 111%, Indian wheat production increased by 35% and export increased from 300,000 MT to 5 Million MT while MSP for rice increased by 13% the production increased by 13% and export from .4.3 MT to 10 Mil. MT.
- Sugarcane Subsidy
Indian government establishes minimum support (MSP) program for sugarcane besides state advised prices above the Federal Government price level. Sugar Mills are required to pay sugarcane growers the higher of the MSP or SAP regardless of the market price of sugar.
Indian Government provides export subsidy on sugar exports of Rs.3300/MT. In addition, the government of India reimburses sugar mills for the cost of inland transportation for exported sugar.
Brazil establishes minimum guaranteed price (MGP) for wheat, corn and rice. The MGP is set prior to the growing season. Brazil pays commercial buyers a subsidy to purchase commodities in areas of country with surplus production. In practice virtually 100 per cent of subsidized product is exported.
Pakistan government has adhoc approach to subsidize Agriculture sector. Wheat is main crop which is subsidized at the level of $ 100/MT. The government of Pakistan purchases a small portion of wheat and rest is sold at a much lower price in the market.
Subsidy on power and input is insignificant and irregular. It depends on the sweet wish of ruling junta to put a rotten loop of bread to the mouth hand tiller.
Sugar export is subsidized to provide relief to the merchant class.
1. Faheem Shoukat, Department of Entomology, MNS- University of Agriculture, Multan, Punjab, Pakistan.
2. Zohaib Afzal, Department of Soil Science, MNS- University of Agriculture, Multan, Punjab, Pakistan.