ALTHOUGH a controversy, the support for agricultural commodities, particularly coming from top government functionaries, is not only growing, but is also being given a new dimension.

So far, the support is restricted to a couple of commodities and that too of modest nature. Now the key federal minister looking after agriculture has, in a surprise move, come out in support of subsidy for the entire agriculture sector. It means a huge expenditure. The total cost of subsidies Pakistan paid in 2012 came to $897m, which was 0.4pc of the GDP

Malik Sikander Hayat Bosan, federal minister for food security, speaking at an event in Hyderabad on April 24, however, wanted to ensure that the subsidy reached actual farmers. How much the country will gain if the entire sector is subsidised remains to be ascertained?


‘The economy stands to benefit if the support price is gradually replaced with subsidies on inputs and targeted cash transfers in the short run and gradual liberalisation in the long run’


The commodities getting price support are wheat and sugarcane. But crops such as gram, onion, potato, sunflower, canola, soybean and safflower are not covered by this programme.

For the benefit of urban consumer, subsidised wheat is sold to flour mills.Rice and sugar, however, do not get subsidy. Denying subsidy to rice was one of the conditions the country had to accept while seeking financial assistance from the International Monetary Fund. The subsidy on sale of sugar through utility stores was suspended in April last year when the glut of the commodity brought down retail prices in the market.

Another minister extending support to the subsidy is finance minister Ishaq Dar. In February, he refused to accept a plea for terminating subsidies to farmers. He was asked by members of the Economic Advisory Council to get out of the business because it was benefitting the big agriculturists and not small farmers. Ishaq Dar had rejected farmers’ demand for an increase in wheat support price in March last year. Then, in November he suddenly announced a raise in the support price for the year 2014-15 showing a change of mind.

A former finance minister in Pervez Musharaf’s regime has recently opposed support prices and suggested to the government to let local farm products compete with international agricultural products. Theoretically speaking, Salman Shah said the wheat support prices should be determined by keeping in mind the cost of production but, in reality, they are being fixed on the pressure of big farmers.

Another strong opponent of support price is Pakistan Institute of Development Economics which in its recent critique had concluded that if the objectives are to guide the farmers’ production decisions, stabilise price and take care of both small farmers and urban consumers in the face of poorly integrated and volatile markets, this rationale of the wheat support price and wheat procurement by the government has lost ground. It refers to some studies which take the view that the economy stands to benefit if the support price is gradually replaced with subsidies on inputs and targeted cash transfers in short run and gradual liberalisation in the long run.

Incidentally, this was the objective of the government when in December it said in the National Assembly that it was willing to abolish GST on agricultural inputs. But this goodwill gesture was snubbed by the MNAs belonging to landed gentry in the heat of loud protest over absence of raise in support prices for major food crops in the report of the NA standing committee on food security.

In the West, farmers are paid a huge amount of subsidies for growing food crops for internal consumption and export to other countries. In 2010, the EU spent 57bn euros on agricultural development, of which 39bn euros was spent on direct subsidies. Agricultural and fisheries subsidies constituted over 40pc of the EU budget.

The US currently pays around $20bn per year to farmers in direct subsidies as ‘farm income stabilisation’ via US farm bills. The beneficiaries of the subsidies have changed as agriculture in the US has changed. In the 1930s, about 25pc of the country’s population resided on 6,000,000 small farms. By 1997, 157,000 large farms accounted for 72pc of farm sales, with only 2pc of the US population residing on small farms.

According to a WTO report, India has given in 2011 a farm subsidy of $56bn, of which trade distorting subsidy amounted to $13.8bn for 23 commodities, including rice and wheat. But the US and other WTO members have strongly criticised India for not notifying its farm support for a long time because it has breached the 10pc cap.

Published in Dawn, Economic & Business, May 4th, 2015

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