As we have seen in the different sections of this paper, the effects of the support price on farmers, consumers and taxpayers are multidimensional. The equally disturbing fact is that for schemes of “sasti roti” (cheap chappati) and “Ramdhan Package” a lot of money has been spent on the subsidy. If we see both policies of the government in economics, we get a graph. The market equilibrium of demand and supply is at point E where the consumer is ready is pay price Po for quantity Qo. However, due to interventions of the government in an enhancement of the price support at Pp, the farmers supply more wheat, and an excess burden is created as a-b which the government has to purchase to ensure minimum support price. The consumer can no more buy the same quantity of wheat due to a decrease in her real household income, so demand for wheat falls. The government provides subsidy on which the demand of wheat on subsidized price increases and the government has to pay for c-d quantity to satisfy the demand. The results are long queues, corruption, a lot of infrastructures, management problems, etc.
Due to these agricultural policies, the government faces certain fiscal and financial issues. When I was moving towards Singapore, the Punjab Government had already over drafted. Secondly, checks issued to the contractors of the development works were being returned from the banks, so they had stopped spending on the development projects. Thirdly, the government had started selling the state land (instead of monetization) under privatization policy. Fourthly, previously the Punjab government had been spending billions of rupees every month, on students, widows and needy families, from Zakat fund. However, after the introduction of these policies, the supply of money to these targeted beneficiaries have been reduced.
1- The best way to help farmers is to create maximum production and marketing options for them. When a government announces minimum price support on grain, the farmers’ options become limited to the maximum supply of wheat. The government may introduce contract farming which may help farmers in many ways.
2- The impact of wheat support price on the distribution of income among farmers has not received any attention. The main focus is on support price or subsidies, which are considered tools for redistribution of income from consumers and taxpayers to the farmers. It is evident that bulk of support price goes to better off farmers while incidence mainly falls on the low-income group of consumers as they are more sensitive to the price. We have seen previously that 90% small farmers don’t get any benefit from the minimum support price. This implies that rather than providing blanket support price, an efficient and equitable way to help low-income farmers would be to transfer income to them directly. (Thompson n.d.)
3- “Farmers can also buy a form of price insurance in the futures markets. Commodity-futures options are really a form of price insurance for which a farmer pays a premium (the price of the option). Before planting his crop, a farmer can purchase a guarantee of a minimum price, without incurring the obligation to sell at that price should the market price be higher at harvest time.” (Thompson n.d.)
4- The government may also try to increase demand for wheat in the global market. It shall give an incentive to farmers to grow more, and prices in the local market shall be stabilized.
5- Preferably there should be no support price. However, if politically impossible, the government may reduce and freeze the support price for a couple of years. It may allow the market to create a balance in wheat production and prices.
6- Similarly, instead of providing a blanket type subsidy, the government may consider issuing vouchers to the low-income group consumers in the urban centers. Though mismanagement can still create a lot of distortion yet, it shall cause less burden on the taxpayers.
European Commission, Università di Siena. "Consumer Interests in the Common Agricultural Policy." 2003.
Nation, The. Pakistan, September 29, 2008.
Thompson, Robert L. http://www.econlib.org/librar/Enc1/AgriculturalPriceSupports.html
Ellis, F., 1992. Agricultural Policies in Developing Countries. Cambridge, Cambridge University Press, Chapter 3, 'Policy Analysis: Economics'.
Colman, D. and Young, T., 1989. Principles of Agricultural Economics, Cambridge, Cambridge University Press. Chapter 12, 'Food and agricultural policy'.
Timmer, C.P., 1986. Getting Prices Right: The Scope and Limits of Agricultural Price Policy. New York, Cornell University Press.
Tsakok, I., 1990. Agricultural Price Policy: A Practitioner's Guide to Partial Equilibrium Analysis. New York, Cornell University Press.
“The Express Tribune”, April 22, 2011
You are welcome with your opinion.
We find value in differences between learning, interpreting and discussions. Please share your thoughts freely about this topic, but remain respectful.
Please provide reference to the opinion and material, if not yours. Without proper reference, your post may not be accepted.
Thanks for your interest!