March 24, 2003	Monday	Muharram 20, 1424

The Agricultural Prices and Policy Commission (APPCOM) had recommended a support price of Rs325 per 40 kgs for 2003 wheat crop. The Economic Committee of the Cabinet (ECC) decided to maintain the previous price of Rs300.

The APPCOM had taken into consideration the input costs to the farmer to arrive at the figure after providing for a small profit. In spite of the proposed raise,the APPCOM admits, “the proposed support price falls short of the estimated total cost of production by 3 per cent in the Punjab.” What use would that support price be if it doesn’t even cover the costs? The government has taken upon itself the responsibility of guaranteeing a profit to only the privileged of farmers because all the farmers are unlikely to be covered.

The ECC while deciding to continue the old support price expressed the hope that the provincial governments will ensure that the farmer got the full price. Obviously the support price wasn’t working and the farmer wasn’t getting the price, hence the need for expressing a hope. According to reports in Dawn (February 26), the ECC while going through the rituals of considering the price support policy expressed a pious hope that ‘effective mechanism should be evolved to synchronize policy structure of wheat to proportionately pass on benefits to growers and other stake holders’.

It went on to hope that provincial governments ‘would make adequate storage facilities to ensure that the quantity procured remained intact. The PASSCO and provincial governments should ensure the proceeds the grower gets are Rs.300/40 kgs, as decided earlier’. The expression of pious hopes by the ECC strongly suggests an admission that the policy is not working. Why is the government determined to continue with is admittedly failed policy?

The Punjab Chief Minister issued a public statement promising to buy the entire wheat crop in Punjab which produces 80 per cent of the national crop or 15 million tons.In order to be able to purchase it Punjab would need Rs112 billion. Obviously it does not have that kind of money. Therefore, the Chief Executive of a Province, overtaken by exuberance of the moment for having achieved long awaited power, indulged in hyperbole. It will only cause his credibility to suffer in the process. Even if the money were to become miraculously available, Punjab does not have even enough open spaces to be able to store the entire quantity. In the year 2000 Punjab procured maximum quantity of 8 million tons and it was faced with serious shortages of storage, with serious consequences including damage and loss as a result. It got rid of its surplus stock by force-selling it to Sindh and Balochistan.

Government involvement in trading is a practice contrary to market economic principles, and is unique to the farming sector only. Manufacturing and trading fortunately do not involve taxpayers’ money in subsidizing their profits, except occasionally like the purchase of unsold sugar, the manufactures cannot dispose of because of a very high production cost. It has stifled the private sector growth. It is itself riddled with typical public sector inefficiencies, corruption and all else.

The procurement incidentals amount to 25 per cent of the support price or Rs75/40 kgs. The wheat is then issued at a price determined by the provincial governments and it is invariably lower than the cost of procurement to the government. For instance against the procurement cost of Rs375 the issue price in May-August 2001 was Rs320. Rs55/40 kgs was picked up by the un-represented taxpayer. This is done year in and year out in the name of helping the consumer in the urban areas. Facts belie the assumption because the issue price has no relationship to the ultimate price that the consumer ultimately pays.

The entire edifice of the support price is based on flawed assumptions. It does not help the farmer or the consumer. It has wide spread negative effects. The flourmills, which possess enormous excess capacity, depend entirely on corruption and connections in order to stay in business by getting subsidized wheat.

The excess capacity is a national cost which has never been calculated. Some foolish proposals have at times been offered at the highest forums of the government to disconnect electricity and similar other draconian measures to stop them from producing or to shut down.

The APPCOM admits in its report meant for the ECC “the logistic(s) and storage capacity available in the public sector is insufficient, particularly in the year of bumper wheat crop. It rues the fact that “the private sector neither has the storage capacity and experience nor logistics arrangements and incentives to handle such large quantities. As a result wheat marketing has suffered from many problems”.The APPCOM fails to notice the irony in this argument. A simpler device would be for the government to get out of the procurement and supply business and allow the market mechanism to take over. In a competitive environment the inefficient mills will die out and the efficient ones will provide good quality flour to the consumers at competitive prices. It should be clear for the government to understand that the APPCOM is part of the problem and not the solution. It has stifled the private sector and has not allowed it to grow the necessary infrastructure. The government would be doing a favour to the farmers, consumers and ultimately to itself, if it stopped meddling in this sector.

The APPCOM is a useless organization and has outlived its nebulous utility by decades. Since a government organization once established does not die, it continues to live.

It was created by Gen. Zia-ul-Haq to accommodate in the top job a man belonging to his tribe. He continued to serve for more than a decade when he was found out by the successor democratic government. The people in the APPCOM have inherited a legacy of mindless support for a philosophy, which finds no takers. As long as this organization exists outdated policies on support prices will continue to plague the atmosphere.

Not only that, but the people at the helm of affairs both in the ministry of food and agriculture, departments of food in the four provincial governments and the PASSCO also have a mind set that runs counter to the free market philosophy. Civil servants in or out of uniform show crass lack of understanding of the principles of economics for want of education in law, economics or management. They fail to realize that the policy spawns comprehensive corruption and the beneficiaries of the ill -conceived policy are the flourmills, employees of the food departments and PASSCO, transporters and their local cronies. Banks earn interest on huge loans that they regularly give for procurement on orders of the State Bank of Pakistan, otherwise committed to market economy.

It may be argued that the West pays huge agricultural subsidies. There are two arguments against aping them. That policy is palpably wrong, and two wrongs do not make one right; and two we simply do not have the money to afford such a misplaced luxury. Very few people realize that the expenditure on wheat subsidies exceeds total budgetary allocation by the federal government on education.

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