Subsidising agriculture: For most farmers, support price mechanism fails to deliver

Corruption by govt officials results in many unable to get promised prices.

KARACHI:

For Kamran Wazir Memon, who grows sugarcane, rice, cotton and wheat on his 250 acres of farmland in Darro, Thatta, the agriculture support price mechanism has practically ceased to exist.

“District-level bureaucrats collude with mill owners and rip off growers every year. The federal government protects the interests of Punjab’s big farmers only,” he said.

Memon believes the devolution of the agriculture ministry to provinces under the 18th Amendment has brought few benefits to the average farmer because of price manipulations in the agriculture sector.

The support price is the minimum, guaranteed amount the government pays the producer of a commodity in case the market price falls below the specified minimum.

The government used to have support prices for 11 commodities. But after 2001, it limited the support price mechanism to four crops, namely wheat, rice, sugarcane and cotton. Its objective is to shield growers from drastic price fluctuations in the post-harvest period, as most farmers have to dispose of their commodities immediately to maintain liquidity.

The current support price for wheat is Rs950 per 40 kilograms. However, sources in the agriculture sector say that the district food controller (DFC), a civil servant who purchases commodities on behalf of the government at a pre-notified support price, charges additional Rs200-300 per 100kg of wheat. “Bribes that these DFCs take run into millions,” a grower said, requesting anonymity.

He added that only influential farmers sold their produce to DFCs. “When ordinary growers contact DFCs, they make excuses like the unavailability of empty bags,” he said, referring to government-issued standardised bags used to stock wheat.

This leaves ordinary growers with no choice but to sell their commodities to mill owners at a rate less than the promised support price. So instead of getting Rs950, they get on average Rs800 per 40kg of wheat, a difference of about 15%.

“Not only the mill owners save Rs150 per 40kg of wheat, they also get two kilograms of the produce for every 40kg wheat bag free of cost as per the standard practice in Sindh,” he said. Instead of the government’s promised price of Rs23.75 per kg, farmers in Sindh end up with Rs19.04 per kg, a difference of 20%.

The World Bank and the International Monetary Fund disapprove of agriculture support prices. However, the World Trade Organisation allows countries to set aside up to 10% of GDP from the agriculture sector for this purpose.

“That’s because big economic powers like the United States and Japan spend billions of dollars on support prices every year,” Participatory Development Initiatives (PDI) Executive Director Sikander Brohi told The Express Tribune.

He said support prices should be revised every year in accordance with inflation and other contributing factors. The government has not increased the support price for wheat this year. That’s despite the fact that the prices of urea, diesel and diammonium phosphate (DAP) have increased by 100%, 22% and 100%, respectively, over the last one year.

According to the procedure currently in place, the Agriculture Policy Institute sends its recommendations about support prices to the federal cabinet for approval every year.

“To be effective, the support price must be announced before the sowing season. However, the government announces it at the time of harvesting,” Brohi said.

Agreeing with Brohi’s view, Memon said farmers of Sindh suffered because of this policy more than their counterparts in other provinces. “Support prices are announced at the time of harvesting in Punjab. By that time, farmers in Sindh have already harvested their crops,” Memon said.

Cotton harvesting in Sindh begins in June. It starts by September in Punjab.

“Neo-liberalism at the international level, cronyism at the federal level and corruption at the district level are eating away at our agriculture sector,” Memon said.

Published in The Express Tribune, October 31^st,  2011.