Background
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The agriculture commodity markets are not only imperfect but also fragmented in Pakistan. During the post-harvest period, the price of farm commodities in the open market generally tend to crash to the disadvantage of growers. In order to safeguard the interest of growers, the government announces the support price of important crops. The support price acts as minimum guaranteed price especially during the post-harvest period when the market prices tend to crash particularly in years of bumper harvest.
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Abdul Rauf Chaudhry, Deputy Chief, API
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B. Objective of the Paper
The paper aims at providing a primary definition pricing policy and introducing the reader with fundamental building blocks of agricultural pricing mechanism.
C. Discussion
The pricing policy for the agricultural commodities is constructed on the basis of following major factors:
1. Why support price?
The support price of the agricultural crops serves the following purposes:
1. A Minimum Guaranteed Price as a safeguard
2. Essential for food security of staple diet in every country
3. Prices generally tend to crash in post-harvest, if no state intervention
4. Small farmers at the mercy of middlemen, otherwise
5. Seasonal nature of agricultural production
6. Price stability and sustainable production
7. In-built incentive for productive farmers
8. Poverty alleviation
2. Crops covered under the programme
In the past, the Support Price Policy Programme covered Wheat, Sugarcane, Cotton, Rice, Gram, Onion, Potatoes, Sunflower, Soyabean, Safflower and Canola. In May 2001, it was decided by the Chief Executive to continue Support Price Policy Programme for Wheat, Sugarcane, Rice and Cotton crops only. Later on it was decided in the meeting of ECC held on 23-9-2002 that the Support Price Policy of Wheat, Rice Paddy and Seed Cotton will be determined by the Federal Government while Provincial Governments will consider fixing the Support Price of Sugarcane.
D. Steps Taken by API in Price Policy Formulation
In the formulation of pricing policies for the agricultural commodities, the Agriculture Policy Institute adopts a number of steps including but not limited to the following:
1. Annual field surveys
The API annually conducts a field survey in major producing areas of a particular crop in order to review the last crop situation. The major objective of this field survey is to review the input situation, availability and quality of inputs, input prices, cost of farm operations, production and marketing problems faced by the growers and seek their viewpoints as remedial measures.
2. Consultative mechanism
The API has developed a Consultative Mechanism in the form of standing committees on crops in order to solicit the viewpoints of all the stakeholders. These committees constitute growers, grower associations, traders, industry, research and planning departments and procurement agencies both Federal and Provincial. The meeting of the standing committee on a particular crop is convened before the price policy formulation. The issues relating to input situation, production and marketing are debated at length in a full-day meeting. The viewpoints of the committee members are duly considered in the process of price policy formulation by API.
3. Determinants of support price
The API performs indepth analysis of following parameters before formulating the price policy proposals for the respective crop;
i. Short term and long-term changes in area, yield and production of respective crops
ii. Domestic and World demand, supply, stock and price situation
iii. International prices
iv. Export or import parity prices
v. Cost of production
vi. Comparative economics of competing crops
vii. Nominal and real support and market prices
viii. Profitability in the use of fertilizer
ix. Parity between input and output prices
x. Impact of proposed prices on other sectors of economy
xi. Economic efficiency in domestic production
xii. Improving productivity and marketing.
The API submits detailed commodity-specific reports providing background analysis and recommendations on the support prices. In addition to provide recommendations on the level of support prices, these reports also include proposals for improving the production and marketing systems of the respective crops. The policy reports prepared by the API provide detailed analysis on the above price determinants for the respective commodities.
E. Transition in Price Policy Analysis
In view of trade liberalization under WTO regime, a transition in the price policy system has taken place during the last decade. Currently the Support Price policy is only announced for wheat crop. The API performs indepth analysis in the light of above parameters well before the sowing season of a crop. The MINFA finalises the summary in the light of technical analysis provided by the API on the subject. The summary is reviewed by the Task Force on Food and Agriculture and Cabinet committee on Agriculture. Then the final summary is put up for approval of the ECC/Cabinet. As it is approved by the ECC or Cabinet, it is conveyed to the Federal Procurement agencies and Provincial Governments for implementation. The support price is announced only for wheat price mainly for the sake of food security. The procurement of wheat is made to meet the target fixed by the Government.
For seed cotton and rice paddy crops, major role of marketing is played by the private sector. The Government mainly monitors and regulates the marketing system. Only in case of urgent need, the Government Announce Intervention Price to intervene as a alternate buyer to cushion the market at a reasonable level if the price is likely to crash below the break even level.
In sugarcane, the Federal Government through API/MINFA provide indepth analysis on price policy and the provinces announce the Indicative Price which is implemented through the sugarmills in the private sector.
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