Price Support policy

An agriculture support policy consists of all those policy measures which are adopted by the government to influence prices of agriculture outputs so that increased production and productivity will be attained.

By Abdullah Hammad

Introduction

In Pakistan, where market imperfections are strong enough to counteract the impact of economic automation, a policy package will almost certainly be needed. This support policy will aim at providing different incentives and inducements to the farmers.

Wheat Support Price

Wheat is an important crop in Pakistan’s food economy, both for production and consumption.

The Pakistani government’s policy interventions to preserve wheat production include input and output price controls, as well as different subsidies and tax policies targeted at boosting consumers and farmers. For many years, the Punjab government and the federal government have worked together to establish wheat support prices and acquire wheat, with the primary purpose of shielding farmers from price shocks and providing a steady supply of wheat to consumers at controlled rates. This strategy of intervention assists in the protection of farmers and consumers from monopolists (intermediaries, price makers). The government’s main concerns are maintaining national reserves and providing food security at cheap and subsidized rates.

Since independence, Pakistani administrations have substantially influenced wheat production. To assist farmers, wheat is purchased at officially determined rates. Wheat is sold to flour mills or directly to low-income consumers. Maintaining price stability at levels that are reasonable to customers is the aim.

Wheat is one of the most important crops in this world, and it has always been a difficult task for many governments. Due to poor governance and mismanagement, Pakistan’s government has struggled to fix wheat prices in the country over the last few years. Wheat production for the last year is 25.5 million tonnes, more than 1.2 million tonnes from the preceding year, compared to the target of 27 million tonnes.

Fig 1. Wheat Production (1000 Tonnes)

Pakistan’s wheat policy attempts to establish a balance between farmers and consumers’ opposing interests. On the production side, policies are aimed at increasing wheat productivity (yields) and output while simultaneously increasing farmer incomes. Wheat cultivation has also been seen as part of a bigger national food security policy aiming at minimizing dependency on imported foods. On the consumer side, the government has attempted to promote family food security by ensuring that wheat flour is available at acceptable prices and preserving price stability.

Table 1. Minimum Support Price of Wheat 2010-2021

Issues

• The government retains roughly 80% of marketable wheat on hand and spends nearly Rs.50 billion on it each year. This discourages the private sector from participating in wheat marketing and storage.
• Farmers are obligated to sell their product at public marketplaces, where rates are regulated by the local government/ deputy Commissioner and private sector is not allowed to operate in output market
• The government heavily influences consumer and producer welfare by imposing minimum support prices, input subsidies, and tariff/subsidies on import and export– has a negative impact on producer welfare and consumer and places a fiscal burden.
• Support policy has affected the Pakistan’s international competitiveness due to increased wheat minimum support price

Solutions

• The government involvement in the wheat and sugar markets should be phased out.
• Encourage the creation and use of mobile applications that enable farmers to interact directly with their customers.
• Rather than securing minimum support prices through public procurement, future agricultural commodity markets must be reinforced through proper fiscal actions and the removal of restrictions.
• In each essential food commodity, a broad range of higher and lower prices should be declared, indicating the government’s limitations beyond which it will be required to act in the market to assure consumer food security and a minimum price for producers, as well as generate investment certainty for investors.
• The government should stop setting the minimum support price for wheat, framing wheat export policies, and enacting support price legislation.
• The government’s role should be to promote research and development, monitor quality, and maintain buffer stocks for fine-tuning in the event of severe shortages.
• Wheat is readily available on the international market at short notice. The government, like every other county, will keep an eye on things and be ready to intervene if necessary.
• The government should take steps to narrow the gap between the MSP and the retail price of wheat. To reduce market distortion costs and avoid illegal trading, the government should promote competitiveness in the wheat market.
• Price sector involvement will improve competitiveness.
• The private sector must be involved in the introduction of high-yielding, low-risk varieties. Knowledge-based innovations and reforms will boost productivity, assure food security in the future, and minimize the trade imbalance.
• Subsidies for wheat inputs, particularly fertilizers and seeds, can be distributed to lower production costs. Reduced input costs will result in lower output prices, which will boost farmer profitability, consumer surplus, and also increase international competitiveness of wheat.