The prices of agricultural commodities are known to vary widely on a periodic basis owing to the biological and seasonal nature of farm produce.

A small increase in production and a marketable surplus can lead to a disproportionate fall in prices, while a small shortfall in output may lead to a higher price increase.

During harvest time — especially for crops like wheat and rice with short harvesting spans — and with farmers hard pressed for cash, the market gets glutted with supplies and prices are usually at their lowest level in the season.

The commodity markets are often imperfect, riddled with colluding processors and other vested interests with considerable clout in the power corridors.

The farmers, a diverse group and not much organised either, lack the necessary wherewithal to influence the markets. They are handicapped in bargaining better prices for their output against the powerful lobbies controlling flour, rice, sugar and other items. The MNAs and MPAs from rural constituencies seldom debate the problems, challenges and issues facing the rural economy and agriculture.

Farmers in general, and smaller ones in particular, have neither adequate storage facilities nor the financial capacity to hang on to their marketable surplus in the hope of getting better prices later in the season. Under such circumstances, farmers may not get fair compensation and have to sell their produce at market prices.

It is imperative to have some mechanism for assuring a reasonable level of prices in the market, especially during harvest season, so that farmers do not suffer financial losses. V.S. Vyas, a noted economist, has argued for a positive farm policy for agricultural countries on the grounds of equity, productivity and stability.

Farmers in general, and smaller ones in particular, have neither adequate storage facilities nor the financial capacity to hang on to their marketable surplus in the hope of getting better prices later in the season

The equity considerations include ensuring a price level for important commodities that covers farmers’ cost of production; assuring reasonable terms of trade for agriculture; and containing output prices to check inflationary pressures.

The productivity considerations include assuring a conducive economic environment for farm investments and the adoption technology by announcing incentive prices, and impacting resource allocations through inter-crop price relationships.

The stability concerns are meant to reduce seasonal price fluctuations. Thus, for considerations of equity, productivity, agricultural development and regular consumer supplies, support prices of important farm commodities are in the overall interest of the economy.

A large majority of farmers comprise small and marginal peasants. According to the 2010 Agricultural Census, ‘small’ growers, operating farms of less than 12.5 acres, accounted for 89pc of the total farms and operated around 49pc of the total farm area. These farms, accounting for 55pc of the cultivated area, contribute 60pc of wheat, 58pc of rice, 74pc of maize, 57pc of cotton and 51pc of sugarcane acreage in the country.

These farmers are under tremendous pressure to sell their produce at market rates so as to meet their financial obligations in the harvest season, when prices are at their lowest levels.

The situation is often aggravated by money lenders pressing for the return of their money immediately after the harvesting of major crops.

Growers, in the absence of a support price mechanism, would be hard pressed to sell their produce at low prices to meet their liquidity requirements. This is particularly true given the vagaries of the imperfect markets, which are dominated by cartels of processors and middlemen who fully exploit the deficiencies of the fragmented market system.

Given these constraints, the coverage of the support price programme must be limited to the more important crops, leaving the market to fix the prices of the rest of the commodities. But every effort must be made to improve the marketing infrastructure and market intelligence and related aspects to help producers get due reward for their efforts and to assure regular supplies to the consumers.

It has often been observed that supplies of inputs — improved seeds, fertilisers, pesticides, diesel etc — become scarce at critical stages of the crop cycle, and farmers have to run from pillar to post in search of these elusive inputs.

There is no justification whatsoever for subsidising inputs if adequate supplies cannot be made available in the regular markets and the farmers have to buy the ‘subsidised’ inputs in the black market.

When farmers are willing to pay the price, all efforts need to be directed at removing supply bottlenecks and improving market intelligence and infrastructure. Measures need to be taken that will ensure competition in the input markets, rather than wasting resources to subsidise the inputs.

However, the provision of input subsidies and the policy of having a support price for important crops also have their limitations.

Both have a role to play in the development of agriculture. Input subsidies will be helpful in promoting technological developments and innovations, benefiting only those who adopt modern technology.

The support prices will apply only to those who have a marketable surplus. Judicious determination and effective implementation of the support price policy can help develop agriculture in line with resource endowment and the comparative advantage of the economy.

No policy comes without a cost. But these costs need to be carefully weighed and evaluated against their likely benefits. There is no point in having a policy or programme that is not effectively implemented.

In the course of deliberating a pricing policy, it is also imperative to keep track of our WTO obligations and commitments. This requires the development of expertise and analytical capacity to monitor, analyse and address the emerging challenges and watch out for policy developments in countries that compete with us in export markets.

The writer is a professor of economics at the Federal Urdu University of Arts, Science and Technology, Islamabad

Published in Dawn, Economic & Business, May 18th, 2015

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