Pakistan’s agriculture has graduated from a transitional stage to market-driven sector. Barring edible oils crops, the sector is presently experiencing sizable surpluses in various crops namely cotton, rice, wheat, sugar-cane, onion, potato, fruits and vegetables. Punjab province is generating most of the crop surpluses.

The effectiveness of the current price support programme has been marginalized to only wheat crop being the staple food of the country. The price support for other commodities is just notional and there is no strong implementing agency to implement a full-blown price support programme.

With the onset of globalization and market-driven policies, the three major bodies, the Cotton, Export Corporation, the Rice Export Corporation, and the Agricultural Marketing Storage Limited, have been abolished. Only the Pakistan Agricultural Services and Supply Corporation (PASSCO) operates in a low profile and procures wheat for the deficit areas. At times, PASSCO is inducted to implement price support programme for edible oils, pulses and onion.

For the past couple of years the government has inducted the Trading Corporation (TCP) as the second buyer for cotton. Recently it has been mandated to export wheat as well. The performance of TCP is less than optimal as it operates in a bureaucratic strait jacket. The private sector syndicates such as the APTMA, rice mills, sugar mills have developed cartel-like situation which has seriously distorted the market-driven policy of the government.

Pakistan’s agriculture has experienced large producer surpluses in cotton (2 million bales), rice (2 million tons), sugar (0.5 million tons), wheat (5-6 million tons), onion (0.4 million tons), potato (0.4 million tons), citrus (0.3 million tons), apples (0.2 million tons) and mango and dates (0.08 million tons each). This has resulted in a sharp decline in farm-gate prices.

Pricing of agricultural inputs and outputs would be a major element of the dynamic agricultural policies necessary to achieve national and provincial production targets. However, domestic pricing of products is not entirely a ‘domestic’ issue, which could be tackled in isolation from the international market trends.

Pakistan even cannot afford to follow an open-door policy in the face of huge subsidies ($362 billion per annum) to agricultural products being given by some of the wealthiest countries (EU and USA) of the world. A pricing policy too closely related to the distorted international price could have very adverse repercussions on Pakistan’s agriculture, especially the Punjab province which generates major surpluses. At the same time, the domestic produce prices should be shielded from day to day variations in the international prices and generally stable outlook should be maintained to enable the producers to plan their production with confidence.

The price support programmes necessarily involve purchases of large volumes of commodities and subsequent sales of these stocks within and outside the country. No matter how carefully the purchase prices are determined, there are bound to be some profits or losses in these transactions. Some times profits would be deliberately obtained by not passing on international prices to domestic producers, especially when global prices show unusual increases.

In other cases, global prices may fall considerably in a short time when local producers have to be shielded against the adverse impact of such fall by continuing price support at a reasonable level. There may be cases when government wants to encourage production of a product by deliberately giving higher than parity prices, as for example for the nontraditional oil seeds at present.

Support prices at higher than the import parity level would involve producer subsidies. However, price support operations would be most efficient when they are financially self-liquidating over a period of time. Support operations would introduce their own undesirable distortions if they accumulate huge surpluses or deficits over a period of time.

Keeping in view the above situation, following marketing alternates are proposed:

i) Free-market mechanism: The government should allow “invisible hand” to work both in the factor and product market. The government should not intervene in utility prices. The anti- monopoly authority must be strengthened with all stakeholders as members. The monopolistic and non-monopolistic tactics must be discouraged by establishing commercial courts.

ii) Commodity price stabilization fund (CPSF): a) A commodity, price stabilization fund may be established and all surpluses from support operations should be credited to it while deficits should be charged to it. The fund may have individual crop accounts so that, as far as possible, surpluses derived from a crop should be used to support its prices when the international price declines.

b) The ministry of food, agriculture and livestock (MINFAL) should maintain the CPSF as an endowment fund. The fund will be governed by a board. c) Initially, only 5 per cent of the amount realized from the export of agricultural products may be credited to the proposed fund. An endowment of Rs20 billion may be created free of tax and other liabilities. When the positive balance in such an account remains above specified level for a period of three years, a certain portion can be allocated for promoting primarily the production of crops from which the surplus was realized.

iii) Commodity boards:: a) The objectives of constituting crop specific boards are to increase agricultural production, create working relationship among the stakeholders, increase exports by identifying new products and market and organize export exhibitions. Boards will be established as private sector initiative and the provincial government will only assist the smooth functioning of these boards.

b) The MINFAL may provide Rs100 million to each board as seed money to establish infrastructure, office at the provincial level. Boards will have their constituents’ offices at the district and sub-division level. The respective market committees will provide seed monies to the tune of Rs10 million to each board in their respective jurisdiction. However, commodity boards will generate their own funds through levying of, to the extent possible, minimum levies/cess at production and processing levels.

iv) Marketing cooperatives: Rural cooperatives were strongly emphasized as a vehicle for agrarian change during 1960s, when agricultural development was given greater emphasis. Cooperatives were organized to supply fertilizers and improved seeds, but they primarily served as a channel of government to funnel credit and improved farm inputs to increase food production and agricultural productivity. This role made them an extension of government’s welfare and expenditure policy rather than making them worth while sustaining institutions in their own right.

Although overall record of expansion of rural credit through cooperatives has been impressive in recent years, it admits large variation among different farm size groups. Many studies undertaken reveal that big farmers and politically strong groups have dominated the societies and utilized the services for their own purpose. Out of a total 60,000 cooperatives, 93 per cent are, in Punjab. Despite their steady growth some 60 to 95 per cent of the cooperatives in Punjab have been reported fictitious and/or one-man undertakings.

In the marketing of farm produce and provision of farm requisites, marketing cooperatives have also not proved to be successful. The limited number of marketing cooperatives established face strong competition from private traders and middlemen. Other limitations relate to their trading practices. These societies do not undertake processes such as grading, pooling, bulking of produce and processing where necessary. Many societies do not even arrange sale in the most favourable markets.

There is a pressing need for a serious review of cooperative policy for suggesting possible specific adjustments to cooperative methods and procedures to meet the diverse problems faced by the cooperative institutions in the country.

The following short-term measures may be undertaken for revival of cooperatives:

* Re-organization of marketing cooperatives as multi-purpose enterprises, which should provide services and supplies and would not confine themselves to marketing only but would undertake processing also.

* The reorganized marketing cooperatives should be strengthened to have strong links with outside agencies (PASSCO, Food Departments, etc.) and the secondary and apex cooperatives (supply and marketing federations, cooperative unions, etc.). The government should take measures for the training of the local leaders, assisting farmers in adopting new technology, provide sufficient credit and other requisites, audit cooperative accounts and discipline those responsible for defaults and irregularities.

* Re-organizing and modernizing cooperative banking to help achieve the envisioned objectives, combining it with the mobilization of savings and capital formation for rural economy (incentive through the power of the purse).

* one society should be allowed to be established in one village under the law ensuring the enrolment of as many members of farming population as possible.

* Placing of greater reliance on the initiative of the peoples’ leadership to reorganize market cooperatives.

* Manpower development training of cooperative farmers and others in modern style of market cooperatives to meet the growing requirements.

v) Managing crop surpluses by hedging: Hedging is a method of managing price risks that involves buying and selling of financial assets whose values are linked to the underlying commodity markets. Hedging can be done by any market participants who intend to buy or sell a commodity some time in the future, and who wish to know with greater certainty what price they will pay or receive. Hedging enables better financial management and planning, and allows buyers and sellers of commodities to protect themselves against the potentially catastrophic consequences of an unforeseen changes in market conditions.

In many developing countries barriers that make hedging impractical or even illegal exist. There are number of such obstacles, including legal and regulatory barriers, government intervention, and lack of familiarity with hedging instruments, financial constraints, and basic risk.