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Poverty reduction through crop-price mechanism
M.Shafi Niaz
ARTICLE (April 11 2003) : The country's population is estimated to be around 150 million growing at a rate of 2.1 percent a year. Of this about 97 million or 65 percent resides in the rural areas. The agricultural sector employs about 19 million people.
The rural population depends directly or indirectly, on the pursuits of this sector.
In fact, it is the agriculture sector which acts as an engine in providing most of the economic activities in the country.
It supplies raw material to almost all the national industries and provides market for the locally manufactured goods; eg textile, cement, food, dairy products, leather articles, fertilizers and helps earn over 60 percent of the foreign exchange.
The growth rate of the agriculture sector directly influences the growth of the economy. The higher the growth rate of the agriculture sector, particularly of the crop sub-sector, goes up the growth of the economy, and vice-versa.
The fluctuations in the economy's growth rates have their impact on the income levels of the people in general and the farming population in particular.
Hence the importance of this sector with regard to the income levels of the farmers and its impact on the general economy, and thus on the status of poverty.
The variations in the annual levels of crops output particularly in years of above normal production have an adverse affect on the prices structure to the detrimental of the farmers, as their incomes get affected. Small growers suffer more than the better off ones.
The farming community was showing its serious concern to this situation and has been agitating and putting pressure on the government that it should come to their rescue in such years when the prices of agricultural produce dip significantly in their past-harvest months, and are unable to retrieve even then the cost of production. This factor has been catching the attention of successive governments.
It was President Zia's government, when the farmer's convention passed a strong resolution that an urgent action was required to initiate a programme to find a solution to the imperfection of the market of agriculture products.
Almost at the same time, the World Bank advised the government to set up an institution to address the grievances of the farmers.
As a result the government decided in 1980 to set up the Agricultural Prices Commission (Apcom) which came inter existence in 1981.
The major task given to this was to advise the government regarding the support price policies of a dozen of main crops and to remove the inefficiencies and deficiencies in their marketing system.
In addition, it was also asked to make recommendations on the steps to be taken for improving the land productivity of crops so that their cost of production should not be allowed to escalate unduly in the face of increasing prices of agricultural inputs.
This programme was to cover wheat, rice, cotton, sugarcane, onions, potatoes, non-traditional oilseeds viz sunflower, soyabean and safflower. The recommendations made by the Apcom were submitted to the Cabinet for four major crops through a summary prepared by the Ministry of Food and Agriculture, while for other corps to the Economic Committee of the Cabinet (ECC) for decision on their support price level.
Institutional arrangements were made to procure the produce from the farmers in case the market prices were found to fall below the announced price. This programme progressed well to the distinct advantage of the farmers as it protected the farmers against the falling prices below the support level and also brought stability in the intra-seasonal and inter-year prices.
The consumers also benefited as the prices of major food items remained fairly stable and they were thus saved from the adverse effects of the volatility of prices, at times quite significant.
This helped, to a great extent, in stabilising the prices in an upward moving trend which meant that, the farmers' income was duly protected, this factor should have helped in reducing the extent of poverty, if not, it must have arrested it.
The programme worked smoothly till the mid 1990's when the international donor organisations like IBRD, IMF and Asian Development Bank started pulling conditionalities while negotiating loan deals.
They advised and to which the government agreed, that as far as possible, the system of support prices should be gradually scaled down and overtime done away with, and instead "free-market" system should be allowed to function, which meant to allow the demand and supply to determine the prices, which may or may hot cover the cost of production of the crops.
Perhaps it was believed that if the farmers lose in one or two years, they would gain in some other years and thus the profit and loss budget in the longer run will get adjusted.
It should be pointed out here that the agreement signed by the Ministry of Food and Agriculture with the Asian Development Bank for obtaining a loan of a few hundred thousand dollars contained conditionalities of a nature which has been considered to act as a disadvantage to the agriculture sector and the farming community rather than to be useful for them.
In some quarters there is a strong feeling that this is one of the most ill thought agreements the country has signed which goes against its economic interest. In fact this is a case which needs to be investigated.
However, such a "market" policy would not be working in favour of the Pakistani farmers as over 80 percent of the farmers hold less than 5 hact of land and their capacity to absorb losses is very low, if not non-existent altogether.
They started protesting through demonstrations and media that their incomes were being affected and that the Government should review its policy regarding the abandoning of the support price programme.
They forcefully contended that it is the governments responsibility to safeguard their interest against falling prices and the only effective way to do so, they pleaded, was to have a support price for crops and implement the same by designating some agency which should enter the market to purchase their produce at the support price immediately after harvest when the free market prices tend to fall below the support price level which normally covers their cost of production plus some reasonable margin of profit.
Thus, there appeared a clear conflict between those who were favouring the policy as agreed with the international donor agencies and those who realised the importance of support price policy and its impact on the farmers and agricultural production.
Taking cognisance of this conflict, the Presidential Chief Executive constituted a Committee under the Chairmanship of his Adviser on Food, Agriculture and Livestock to make recommendations as to how to help the farmers to safeguard their interest so that adequate incentives were available to them for accelerating agricultural production not only to reduce imports and increase exports to improve foreign exchange position but to have larger impact on the country's economy, provide employment opportunities and above all help reduce the prevailing poverty which was, by then, reported to be on the increase.
On the recommendations of this Committee, President Musharraf decided in May 2001, that the support prices of four main crop viz: wheat, rice, cotton and sugarcane would continue and their support prices would be announced six to eight weeks before their sowing times to help the farmers in taking timely decisions regarding their planting plans.
In order to implement this policy effectively, it was considered essential that adequate institutional arrangements and financial resources should be available to achieve its objectives.
However, in his Budget Speech in June 2002, the Finance Minister announced that the support price of wheat and cotton would remain intact, implying that there would be no support price for rice and sugarcane.
Therefore, no support price for rice for the year 2002-2003 was announced. As the sugarcane Control Act of 1950's authorises the Provincial Governments to announce the minimum support price of sugarcane, both the Punjab and the Sindh governments announced through their ordinances the support price of sugarcane for the year 2002-2003.
The programme worked reasonably well in the Punjab, but non-co-operation between the mill owners and the sugarcane growers in Sindh, the farmers suffered more than the mills.
On the other hand, the implementation of the support price of wheat and cotton also suffered from certain weaknesses with the result that the farming community seemed dissatisfied as they were reported not to have received the support price fixed by the government.
This situation affected their net incomes having an adverse impact on the government's programme to reduce poverty in the country.
However, with the coming of the democratic Government into office, the new cabinet in its first meeting presumably felt quite sensitive to the feeling of the farmers that they decided that the support price programme for all crops, kharif as well as rabi, should be carried out and that these prices should be announced two months before the well in time.
It should be pointed out that the implementation of this decision would demand an effective and adequate institutional arrangements to be put in place for the procurement of the produce as and when the market price situation so demands, storage facilities have to be developed as deemed necessary and funds have to be -made available to the implementing institutions.
In this whole process, the Government may have to incur losses in some years, but in others they can also make profits if the programme is implemented judiciously and without undue interference by the Government functionaries.
Thus over a period of time, losses can be equated out by the gains in other years.
In this connection, It would be helpful if a price stabilisation fund is created as earlier suggested by Apcom and also by the Commission on Food and Agriculture in 1988.
It should, however, be emphasised that in order to run the programme effectively and efficiently, it is of paramount importance that the head of the institutions responsible for implementing the programme should be a person of great integrity and competence having the full confidence of the Government and should have the background of commercial dealings. Such a person can be taken from the private sector.
Here caution should be expressed on two accounts. First, there would be quite serious reaction from the international loan giving agencies ie IBRD, IMF, and Asian Development Bank on this policy change which would be against the conditionalities mentioned in the agreements.
The second issue of concern would be from the Ministry that holds the financial strings, who is responsible for getting such agreements signed because of their commitment to the, so called "free-market economy" and on the basis of which they managed to get loans.
And still another more important point is the continuous political wilt behind this programme as the task involved is quite challenging and runs against the wishes of the international aid giving agencies who can and would exert pressure not to allow such a programme to function.
But if government is keen to help the farmers, to increase the growth rate of the agricultural sector, and help to reduce poverty in the rural areas, create employment, which would have a positive effect on the economy of the country, then this programme must be on their high priority list of national development programmes.
In the end it may be mentioned that the Ministry of Food and Agriculture needs to improve its capacity and ability for detailed and in-depth economic analysis of the various issues of economic importance.
Such an analysis can provide alternate options to the policy-makers for taking correct policy decisions, of course, keeping in view the social and political consideration also.
For this purpose, one step that can be taken is to amalgamate the office of the Agriculture and Livestock and Marketing Adviser (ALMA) the Economic Wing (which is almost defunct) of MINFAL and the Social and Economic Division of Pakistan Agricultural Research Council (PARC) with the Agricultural Prices Commission and renamed as Agricultural Policies and Prices Commission.
This would then need to redefine the term's of reference of this new-named organisation.
(The writer is a former Adviser on Food and Agriculture to the Federal Government.)
Source: Business
Recorder
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