Although the government’s involvement in the market for important food and cash crops has changed substantially over time, it still intervenes to stabilise prices of major crops and agriculture inputs.

A spike in the commodity prices, the government claims, will not only boost production but will also improve the income of growers.

It is also argued that subsequently the increase in rural income will not only support the industrial and service sectors through higher consumption, but will also benefit the poor through trickle down phenomenon.

The higher commodity prices provide incentive to growers to bring more acreage under cultivation; generally there exists a direct and positive correlation between procurement, support or expected crop prices and the supply.

The pertinent concern here, however, is to explore how benefits of rising crop prices are distributed among rural households. Due to the paucity of relevant panel micro level farm data, no systematic study is available to verify the general perception that the policy of support price improves rural income distribution; eventually income disparity in rural areas has widened as a result of rising crop prices.

It is argued that

• Incomes from the crop sector are roughly proportional to the distribution of land which is quite skewed and as such any stimulus to the crop sector would help large landlords more than small farmers.

• Only 34pc of the rural population is engaged in the crop sector, and a vast majority of them are small landholders. This means that only a small proportion of population in the rural areas stands to gain from increasing crop prices.

• The transfer of additional cash has widened income disparity in rural society even if many small farmers have also benefited from the soaring crop prices because the ‘trickle down’ has been uneven and limited.

In the case of the wheat crop, the contention of `marketable surplus’ is often cited to strengthen the argument of worsening rural income distribution due to the rising prices.

The Pakistan Agricultural Prices Commission (Apcom) has conducted a survey in the major wheat surplus districts in Sindh in 1997 and in Punjab in 1998. According to this study (Dorosh and Salam 2006), only eight and 11pc share in total sale of wheat crop goes to small farmers 12.5 acres) in Sindh and Punjab respectively. Dorosh and Salam (2006) did not disaggregate the share of farmers with land up to five acres, which is in fact the target group for poverty reduction strategies.

An attempt is also made to explore the trickle down phenomenon in terms of rural wages. Pakistan Labour Force Surveys (LFS) records wages in overall agriculture (agriculture, livestock, hunting, forestry, logging and fishing) sector as well as wages of market oriented skilled and subsistence agricultural and fishery workers. To monitor the trend in rural wages since 1991, LFS data is used for plotting monthly nominal and real (adjusted with CPI) wages. Charts 5.4 furnish the trend for overall agriculture sector and for skilled workers respectively.

According to the chart, real wages for overall agriculture sector have declined in the 90s and since then are almost stagnant. However, an upward trend is observed in the case of skilled agriculture workers in the first half decade of 2000s, while in the later half a slight declining trend is evident. Thus the initial analysis of trends in rural wages apparently does not indicate the existence of the trickle down phenomenon.

Edited extract from SPDC study: Profiling Rural Pakistan for Poverty, Inequality and Social Exclusion

Published in Dawn, Economic & Business, March 30th , 2015

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