Support price or input
subsidies
Although a controversy,
the support for agricultural commodities, particularly
coming from top government functionaries, is not only
growing, but is also being given a new dimension.So far, the
support is restricted to a couple of commodities and that
too of modest nature. Now the key federal minister looking
after agriculture has, in a surprise move, come out in
support of subsidy for the entire agriculture sector. It
means a huge expenditure.
The total cost of subsidies
Pakistan paid in 2012 came to $897m, which was 0.4pc of the
GDP
Malik Sikander Hayat Bosan,
federal minister for food security, speaking at an event in
Hyderabad on April 24, however, wanted to ensure that the
subsidy reached actual farmers.
How much the country will
gain if the entire sector is subsidised remains to be
ascertained?
‘The economy stands to benefit if the support price is
gradually replaced with subsidies on inputs and targeted
cash transfers in the short run and gradual liberalisation
in the long run’.
The commodities getting price
support are wheat and sugarcane. But crops such as gram,
onion, potato, sunflower, canola, soybean and safflower are
not covered by this programme.
For the benefit of urban
consumer, subsidised wheat is sold to flour mills.Rice and
sugar, however, do not get subsidy.
Denying subsidy to rice was
one of the conditions the country had to accept while
seeking financial assistance from the International Monetary
Fund.
The subsidy on sale of sugar
through utility stores was suspended in April last year when
the glut of the commodity brought down retail prices in the
market.
Another minister extending support to the subsidy is finance
minister Ishaq Dar. In February, he refused to accept a plea
for terminating subsidies to farmers.
He was asked by members of
the Economic Advisory Council to get out of the business
because it was benefitting the big agriculturists and not
small farmers.
Ishaq Dar had rejected
farmers’ demand for an increase in wheat support price in
March last year. Then, in November he suddenly announced a
raise in the support price for the year 2014-15 showing a
change of mind.
A former finance minister in Pervez Musharaf’s regime has
recently opposed support prices and suggested to the
government to let local farm products compete with
international agricultural products.
Theoretically speaking,
Salman Shah said the wheat support prices should be
determined by keeping in mind the cost of production but, in
reality, they are being fixed on the pressure of big
farmers.
Another strong opponent of
support price is Pakistan Institute of Development Economics
which in its recent critique had concluded that if the
objectives are to guide the farmers’ production decisions,
stabilise price and take care of both small farmers and
urban consumers in the face of poorly integrated and
volatile markets, this rationale of the wheat support price
and wheat procurement by the government has lost ground.
It refers to some studies
which take the view that the economy stands to benefit if
the support price is gradually replaced with subsidies on
inputs and targeted cash transfers in short run and gradual
liberalisation in the long run.
Incidentally, this was the objective of the government when
in December it said in the National Assembly that it was
willing to abolish GST on agricultural inputs.
But this goodwill gesture was
snubbed by the MNAs belonging to landed gentry in the heat
of loud protest over absence of raise in support prices for
major food crops in the report of the NA standing committee
on food security.
In the West, farmers are paid a huge amount of subsidies for
growing food crops for internal consumption and export to
other countries.
In 2010, the EU spent 57bn
euros on agricultural development, of which 39bn euros was
spent on direct subsidies. Agricultural and fisheries
subsidies constituted over 40pc of the EU budget.
The US currently pays around $20bn per year to farmers in
direct subsidies as ‘farm income stabilisation’ via US farm
bills. The beneficiaries of the subsidies have changed as
agriculture in the US has changed.
In the 1930s, about 25pc of
the country’s population resided on 6,000,000 small farms.
By 1997, 157,000 large farms accounted for 72pc of farm
sales, with only 2pc of the US population residing on small
farms.
According to a WTO report, India has given in 2011 a farm
subsidy of $56bn, of which trade distorting subsidy amounted
to $13.8bn for 23 commodities, including rice and wheat.
But the US and other WTO
members have strongly criticised India for not notifying its
farm support for a long time because it has breached the
10pc cap.
May, 2015
By: Ashfak Bokhari
Source: Voice
of Journalists