April 7, 2003	Monday	Safar 4, 1424

PAKISTAN’s population, estimated around 150 million, is growing at the rate of 2.1 per cent a year. Of this, about 97 million or 65 per cent resides in rural areas and the agricultural sector employs about 19 million people. Rural population depends, directly or indirectly, on the pursuits of this sector.

In fact, it is this sector which provides most of the economic activities in the country. It supplies raw materials to most of the industries and provides market for the locally-manufactured goods; e.g. textile, cement, food, dairy products, leather articles, fertilizers and helps earn over 60 per cent of the foreign exchange.

The growth rate of this sector directly influences the growth of the economy. The higher the growth rate of the agriculture sector, particularly of the crop sub-sector, the higher 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 farmers 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 effect on prices to the detriment of farmers, as their incomes are reduced. Small growers suffer more than the better-off ones.

It was in Zia’s regime that a farmers’s convention passed a strong resolution demanding an urgent action 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 into existence in 1981.

The major task given to this was to advise the government regarding the support prices 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, sugar-cane, onions, potatoes, non-traditional oil-seeds viz sunflower, soybean and safflower.

The recommendations made by the APCom were submitted to the cabinet for four major crops 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 farmers in case the market prices were found to fall below the announced price. This programme progressed well to the distinct advantage of farmers as it protected them against the falling prices below the support level and also brought stability in the intra-seasonal and during-the-year prices.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.

The programme worked smoothly till the mid-1990’s when the international donor organizations like the IBRD, the IMP and the Asian Development Bank (ADP) started putting conditionalties 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 over time done away with, and instead “free-market “ system should be allowed to function, which meant allowing demand and supply to determine the prices, which may or may not cover the cost of production of crops.

Perhaps it was believed that if 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 balanced. It should be pointed out here that the agreement signed by the ministry of food and agriculture with the ADB for obtaining a loan of a few hundred thousand dollars contained conditionalties which proved disadvantageous to the agriculture sector.

It may be pointed out tha a “free market” policy did not work in favour of farmers as over 80 per cent of them hold less than 5 acres of land and their capacity to absorb losses is very low, if not non-existent altogether. They started protesting and demanded revival of support price programme.

Thus, there appeared a clear conflict between those who were favouring the policy as agreed with the international donor agencies and those who realized the importance of support price policy and its impact on the farmers and agricultural production. Taking cognizance of this conflict, the government constituted a committee to make recommendations as to how to help farmers so that adequate incentives were available to them for raising agricultural production not only to reduce imports and increase exports but to have greater impact on the 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, the government decided in May 2001, that support prices of four main crops viz: wheat, rice, cotton and sugar-cane 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 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 sugar-cane. Therefore, no support price for rice for the year 2002-03 was announced. As the Sugar-cane Control Act of 1950 authorizes the provincial governments to announce the minimum support price of sugar-cane, both the Punjab and the Sindh governments announced through their ordinances the support price of sugar-cane for the year 2002-03.

The programme worked partially well in the Punjab, but with the non-cooperation between the mill owners and the sugar-cane growers in Sindh, 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 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 sowing time of each crop to allow the farmers to decide their cropping pattern well in time.

It may 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 agencies.

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 stabilization Fund is created as earlier suggested by Apcom and also by the Commission on Food and Agriculture in 1988.

It should, however, be emphasized 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 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 a serious reaction from the international loan giving agencies 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 it is believed 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 will 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 remain on high priority list of the national development programme.

In the end it may be mentioned that the ministry of food and agriculture needs to improve its capacity to undertake in-depth economic analysis of economic issues.Such analyses can provide alternate options to the policy makers for taking correct decisions.