Pakistan:Wheat support for whom?

The poorest of farmers never actually benefit from the high procurement prices of wheat. The main beneficiaries are the influential elite with large landholdings, and the powerful middlemen who procure wheat from small farmers at cheaper rates and resell it to government through their links with the officials, reported “Kazakh-Zerno” IA with reference to the “Daily Times“.
Being the primary means of subsistence, wheat is one of the most consumed commodities of the world. Even in today’s capitalism-dominated world, governments strive to manage the commodity’s supply and fix prices in order to avoid shortages. This model is widely followed, especially in the developing countries or those with an agricultural base in order to avoid the exploitation of farmers. 
Over the years, Pakistan’s government has also followed the practice of procuring a certain percentage of the production at a rate that was deemed suitable, keeping in view the prevalent economic conditions of the time. The support price of wheat in 2007 was set at Rs 510 per 40 kg, which received severe criticism from some sections, as it was about 15-20 percent lower than international prices. In 2008, the newly elected Prime Minister Yousaf Raza Gilani raised the support price to Rs 625 per 40 kg, and then further increased it to Rs 950 per 40 kg in 2009. This increase was far beyond the expectations of many and came as a surprise.
For the current year, the government announced to fix the price at Rs 950 per 40 kg. This decision came as another shock for analysts who were expecting a reduction in view of the current state of the country’s economy. The fact that Pakistan’s economy cannot carry the burden of the government’s magnanimity in setting such prices is proved by the State Bank of Pakistan’s (SBP’s) stated inability to finance the Rs 178 billion needed to achieve the target of 7.5 million tonnes. SBP would be able to contribute Rs 89 billion only. Currently, the price in the international market is around Rs 650-750 per 40 kg. However, the government has stood by its decision in order to “safeguard the rights of poor farmers”.
Keeping in view the current economic scenario of Pakistan, I would like to highlight three points that were not given due consideration by the government while deciding on the support price. First, it is important to highlight what percentage of small farmers actually benefits from the minimum support price. Second, the government should have considered how exorbitant wheat prices have eroded the impact of the Benazir Income Support Programme (BISP) on the economy of the poor, and third, how the current wheat price levels are influencing the inflation indices in the country.
Coming to the first issue, our political leaders have repeatedly advocated the importance of high wheat procurement prices in order to support small farmers of the country. On the contrary, a study conducted by Pakistan Institute of Development Economics (PIDE) highlights that wheat sales are highly concentrated. According to the Pakistan Integrated Household Survey conducted in 2001-02, 20 percent of the top wheat producers (five percent of the country’s households) account for 67 percent of total wheat sales and the top 10 percent of farmers account for 47 percent of total wheat sales. This pattern of wheat sales is a result of concentration of the country’s agricultural land in the hands of a few individuals. The Agricultural Census of 2000 shows that holdings greater than 25 acres account for only about 5-6 percent of the total number but cover around 45 percent of the total area. On the other hand, holdings less than five acres account for 62 percent of the total number and cover only 15 percent of the total land.
The poorest of farmers never actually benefit from the high procurement prices of wheat. For many it is an additional burden. The main beneficiaries are the influential elite with large landholdings and the powerful middlemen who procure wheat from small farmers at cheaper rates and resell it to government through their links with the officials.
Second, the BISP was started by the current government to support the poorest of the country. The government actually contributed to eroding the net effect of the scheme by raising the wheat price to the current level. According to available statistics, the average household consumption of wheat can be estimated at around 80 kg (11.67 kg per person per month multiplied by seven, which is the average household size). The increase in price of flour has been around Rs 13-15 per kg due to the increase in the wheat procurement price. This means that an average household has to spend around Rs 1,040 more on flour, an amount slightly greater than that provided under the BISP. It means that the government would be spending around Rs 40 billion more on wheat procurement (due to higher local prices compared to the international market) and then providing Rs 70 billion to the poorest in order to enable them to afford this high price of flour. Thus, BISP would not be able to achieve its desired objective of raising the living standards of the targeted population.
The purpose of this analysis is to highlight the fact that the government’s policies and decisions should not be based upon emotions or personal interests. The funds should be directed towards the development of the agricultural sector to increase the per acre yield of the sector. This could actually benefit the common farmer in the longer run. The yield in Indian Punjab, which enjoys similar climatic and environmental conditions, stood at around 1,800 kg per acre in 2008 which is in stark contrast to our per acre yield of 1,030kg in 2009.
It can be concluded that wheat prices should be linked to the international market so that a justified price is set through the forces of demand and supply. These are testing economic times for the country, and the need for effective and prudent decision-making is greater than ever. Estimates reveal that the budget deficit for the current year can soar close to Rs 1,000 billion, an indication of the dire financial crunch that is afflicting the government. Economic revival is not possible unless the rulers wisely utilise the available resources instead of wasting them by their perfunctory decision making practices.

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