Time to review agricultural policies

Agriculture sector continues to play a crucial role in the economy of Pakistan but its potential has not been fully exploited due to a variety of reasons, including the less than perfect policies designed by the government. At times, some of the agricultural products attract a lot of public attention due to their unusually high prices in the domestic market or occasional shortages and the blame-game between various players associated with the product at various stages.Processing of sugarcane crop seems to be the latest topic of debate in this category, with the accusing fingers pointed mostly at the middlemen, who are blamed for taking over the supply and fleecing both the farmers and the sugar industry. According to a recent letter written to the government by the Pakistan Sugar Mills Association (PSMA), “as against the sugarcane support price of Rs 125 per 40 kg in Punjab/KP and Rs 127 in Sindh, the prevalent price is hovering above Rs 250 per 40 kg level, primarily because of the role of the middlemen, who are playing havoc with the growers and industry.”

At the current prices of sugarcane, the cost of sugar production was Rs 85 ex-mill per kg approximately. The PSMA further complained that after the close of the crushing season, their cost of production would end up even higher and in the event of cheap sugar from India, the local sale of sugar would come to a halt, which would adversely affect the payment to the growers.The Federal government was, therefore, requested to advise the provinces to take stern action against the middlemen, as the PSMA had still two-and-a-half months remaining of the current crushing season. Farmers were also equally unhappy with the present situation. For instance, criticising both the middlemen and the mill managements for acting against the interests of farmers, President, Mirpurkhas chapter of the Sindh Chamber of Agriculture, asserted that mills should buy sugarcane directly from the farmers, without involving the middlemen, and warned that if farmers suffered losses, they would start cultivating other crops.Some of the sugar mill owners, nonetheless, contended that mill managements would not be able to buy cane from the middlemen, if the growers stopped selling their crop to them. In our view, the problem is much more deep-rooted than generally perceived and could only be overcome by complete reappraisal of policies, rather than minor adjustments here and there.

The government, for instance, needs to concentrate its energies and resources on building the necessary infrastructure in the agricultural sector to optimise its potential and refrain as far as possible from price fixation and trading in individual commodities.In fact, in a free market economy, the latter functions could better be handled by the private sector, which could act as a well-oiled machine to keep the system smooth and efficient. The government should intervene only when there is risk of excessive manipulation of the market, the existence of cartels and monopolies or the international trade of an essential commodity is to be regulated through tariff barriers to protect the interests of ordinary consumers.Coming to the instant case, the basic problem has arisen due to a decline/stagnation in the sugarcane crop in recent years, because of the poor infrastructure and inappropriate policies, including the shortage of canal water, load shedding of electricity, high rates of inputs and utilisation of maximum area under the wheat crop on account of its excessive support price which restricted the sugarcane acreage.Such lopsided policies, together with the fixation of support prices, have not only resulted in lower production of certain agriculture products and consequent shortages in the domestic market, but also added immensely to the financial difficulties of the government. Hundreds of billions of rupees stuck up in commodity operations is a reflection of poor economic management and a huge burden on the government budget.

This money could have been used in the productive sectors of the economy by the private sector. There is also no use blaming the middlemen about their greed. They will always take advantage of the situation when the functioning of the market leaves large room for exploitation.The industrial base of the country has also, at times, been structured on unrealistic assumptions. There was a time, for instance, when the setting up of sugar mills was synonymous with a great opportunity to earn abnormal profits, without realising that the government could resort to cheap sugar imports when the need arose or the farmers could prefer to convert sugarcane into gur on their own premises or grow other crops on their fields to take advantage of the market situation.The rush for constructing sugar mills was so heavy that even the principle of comparative advantage was also forgotten. With 82 functioning sugar mills at present, total sugar production capacity of the country is 6.8 million tons but only 3.2 million tons and 3.1 million tons of sugar was produced during 2008-09 and 2009-10 respectively, as against the annual consumption requirements of 4.2 million tons.

The PSMA foresees a production of about 3.7 million tons to 3.8 million tons this year, implying that government will again be obliged to import at least 0.4 million tons of sugar from the international market. Import requirements could even be higher if the reports of gur production in large quantities by the farmers are true.It may be pointed out that cost of sugar production in India is much lower due to lower sugarcane prices and better recovery rate. Simply put, scarce resources of the country have not been utilised in an optimal fashion due to policy distortions and the inability of the government to gauge the potential of comparative advantage in the international market.Our poverty of planning becomes all the more obvious when we compare our per acre yield of various agricultural products with other countries. As such, it is time for the government to review its entire policy framework in the agriculture sector, particularly with a view to prioritising its role for the improvement of the infrastructure and reducing its involvement in the trading of various agricultural products. A sector which accounts for over 21 percent of the GDP and absorbs 45 percent of the country’s labour force cannot be allowed to stagnate – Brecorder