ISLAMABAD (January 16 2004): The government had decreased the wheat support price in 2001 mainly due to pressure from the Asian Development Bank (ADB) which had adversely affected farmers and wheat production in the country.

This was stated by Munir Ahmad, chief of Pakistan Institute of Development Economics (PIDE) and Naheed Zia Khan of Fatima Jinnah Women University in their paper "Wheat Production in Pakistan Saga of Policy Disincentives" presented in the 19th annual general meeting and conference of PIDE here.

The paper said that till 1995-96, the wheat prices in Pakistan was lowest in the country but during 1999-2000, owing to the higher support price incentives, the domestic market price of wheat in Pakistan was 20 percent higher then the international market.

In early 2001, the government began implementing ADB conditions on loans given to the agriculture sector.

These conditions require a move away from government intervention towards a market-based system with emphasis on deregulation and liberalisation.

The government, under ADB pressure, has slashed its procurement target from 8.5 million tonnes to 4 million tonnes for 2001 and shut down a large number of procurement centres.

These changes had dramatic effect on the wheat market. Farmers had increased wheat output in response to Rs 300 per kg support price and in light of the size of procurement made by the government in 2000.

The report said that under the rules of the WTO, Pakistan is not obliged to reduce its support to wheat farmers provided the value of support did not exceed 10 percent of wheat output, but it is the influence of the ADB, IMF and the World Bank which may cause further damage to country's small farmers and threaten the self-sufficiency in wheat production.

With dramatic reduction in the 2001 target under ADB pressure, farmers rushed to sell their harvest as fast as possible, in the hope that they could obtain the procurement cushion before prices began to fall.

The report further said that the wheat support price policy of the government is responsible for not allowing the farmers to compete with their counterparts in the developed world.

The paper said that the statistical finding shows that support price policy in Pakistan has positively affected the wheat production levels, however, no affect is observed on the farmer yield.

The wheat support price policy of Pakistan is responsible in parts for not allowing the farmers to compete with their counterparts in the developed world.

The wheat market in Pakistan has mostly been subjected to widely varying forms of government interventions, ranging from monopoly purchases in early years to support price since 1981.

Most of the interventions, however, appear to have been designed for transferring resources both from growers and from the government to the consumers, inflicting an overall welfare/efficiency loss to the economy.

The result of a recent study shows that between 1973-96 wheat market interventions caused an average annual loss of Rs 24 to 25 billion to the producers and a cost of Rs 6 billion to the government while consumers gained Rs 17 billion annually.

The Agriculture Pricing Commission in Pakistan is making efforts to adopt the standard procedure for computing the support price However, their efforts are rendered futile when decisions, taken, do not follow the commission recommendations and are largely governed by the socio-political as well as finance controlling authorities.

The report said that the support price has hardly been seen offering farmers any economic profit on their hard labour.

In Pakistan, the Provincial Food Departments and Pakistan Agricultural Services and Storage Corporation (Passco) are the implementing agencies for the support price of wheat.

However, rather then offering the support price as cushion to the farmers, the main purpose of government procurements has been the maintenance of food security reserves and supply of food to urban population at low and subsidies prices.

The report also criticised the imposition of restriction on district to district movement of wheat and said that the concept of the support price does not require to impose any restriction on the movement of the commodity.

The district administrations have been imposing restrictions on the movement of wheat in the post harvest months to facilitate fulfilment of procurement targets assigned to agencies by the government.

This action depresses the prices of wheat in open market in the surplus producing areas, which are contradictory to the aims of the support price policy.

When it is felt by procurement agencies that the procurement targets given by their respective governments could not be accomplished, they resort to coercive methods. Further more, the study said that public expenditures allocated to agriculture has been much lower then what the sector requires and it is also lower in comparison with India.

For the improvement of wheat production if the government were to give up taxing its wheat growers and invest in rural infrastructure instead, the annual gains could increase phenomenally.

Furthermore, the study proposed that to keep prices both stable and profitable for wheat growers and to keep wheat growers vibrant, the government should support their income, develop rural communities and ensure both sustainability and self-sufficiency in wheat production.

Courtesy Business Recorder