The increase in the wheat support price by Rs100 to Rs1,300 per maund has fallen below farmers’ expectations. Normally, such an increase comes to cover either the cost of production or the cost of living. Farmers complain the current increase has failed on both accounts.

The cost of production has gone much higher in the three years than provided by this increase. If it was meant to cover the general inflationary trend, it has failed even more. In the last three years, the official rate of inflation has hovered around 10pc, whereas the current increase is only a little over 8pc after three years — the last increase in 2012 and the current one would become operational in May 2015 when official procurement starts.

The only rationale, growers claim, seems to be a political satisfaction for the government to claim that it has done something for farmers — while actually doing very little. If the government wants to do something for growers, it needs to change the entire paradigm; link the price either with cost of production or with inflation. It means helping to bring the cost of production down and create a reasonable profit margin for farmers.

The farmers claim that the cost of production has escalated at a much faster pace due to the government policies than the compensation package through support price mechanism. In the last few years, four factors have contributed to the escalating investment on production: devaluation of rupee, general sales tax, power crisis and gas shortage.

The cost of production has escalated at a much faster pace due to the government’s policies than the compensation package for farmers through support price mechanism

The devaluation of the rupee has increased prices of the entire range of imported inputs — fertiliser, pesticides, farm machinery and hybrid seeds. The gas shortages got directly translated into fertiliser deficit and its price has doubled over the last few years.

The continued energy crisis forced the farmers to supplement water with diesel-run tube-wells, which has raised the cost of production of a whole range of commodities. Last but not the least, the imposition of the general sales tax increased prices of all inputs by almost 25pc in one go. The government needs to review its policies, which are impacting the entire range of agricultural activity.

The government needs to help improve farm productivity. The twin crisis that agriculture suffers from is the potential gap and the yield gap. The difference between the potential of seed and

soil and its actual production, in some cases, is more than 300pc. It can be bridged with better investment.

Similarly, the yield gap between progressive and average growers is huge. This gap is more related to the capacity of farmers to invest in crops, rather than on farm practices and awareness. By making inputs cheaper, the government would enable a common grower to invest more on crops and close the yield gap.

These are the areas where the government needs to concentrate on, instead of getting stuck in a single dimensional approach of increasing the support prices of different commodities, which contributes to food inflation.

The higher support price, despite being essential when the cost of production is rising every year, also has a very limited utility. Around 96pc of the farmers in the country own less than 25 acres of land and do not produce much tradable surplus.

Since they are virtually not part of the market, they hardly benefit from the increase. The only beneficiaries are bigger farmers, who are relatively well off and can afford higher investment on inputs and production. Thus, the benefits of the support price mechanism are lopsided, to say the least.

The situation can be looked at from another angle. On average, the Punjab government procures 17pc of the total wheat production in the province. For the remaining 83pc, the open market determines the actual price, with the officially declared price just one of many other factors. The rice crop this year is being traded at rates above the official indicative price.

Published in Dawn, Economic & Business, November 10th, 2014