Details

Technical Note

Support Price Mechanism in Pakistan

Hamda Shahid, Choudhry Tanveer Shehzad

INDUSTRY : Agriculture

AREA : Managerial Economics

ORGANIZATION : Government

LENGTH : 16

LUMS No : 11-126-2015-2

PUBLICATION YEAR : 2015

KEYWORDS:

Agricultural policy, support price mechanism, agrarian economy, procurement policy, agriculture, farmers

DESCRIPTION:

This note attempts to explore the concept of support price mechanism. Governments intervene through support price mechanisms in agrarian economies to create stability in the market. In Pakistan major crops such as wheat, rice and sugarcane contribute approximately 29% to the total value added of the agriculture sector and 6% of the total GDP. Therefore, the government of Pakistan intervenes through a procurement price policy to ensure the production of these important crops. The procurement of output prices of the major cash crops including wheat, sugarcane and rice are often fixed by the government. Other crops under the minimum support price program include cotton, pulses, oil seeds, potatoes, and onions. The Agriculture Policy Institute (API) is in charge of reviewing and suggesting the support price for the major crops. Wheat procurement price and quantity is decided by the Federal government after consultation with the provincial governments. The major implementation of this procurement policy is done by the provincial governments and PASSCO. On the other hand, the sugarcane price support system is controlled by the Pakistan Sugar Mills Association. The procurement process for cotton and rice are not as constant as that of wheat and sugarcane. The procurement prices of cotton are implemented through the Trading Corporation of Pakistan (TCP) and mostly the procurement prices of cottonseed are announced by the government. Similarly, the procurement policy with respect to rice has not been constant by the government. Support price programs, when carried out, are implemented through Pakistan Agricultural Storage and Supplies Corporation (PASSCO) and TCP. Overall, there is immense potential to price support programs in Pakistan if implemented properly and the maximum advantage is passed on to the small farmers.

LEARNING OBJECTIVES:

The discussion can possibly begin with an analysis of the price intervention mechanisms through an economic perspective. Demand and Supply analysis can be used to explain the concept. Further, the advantages and disadvantages of price support mechanisms should be discussed. More suggestions should be encouraged by the managers. Further, a significant amount of time can be devoted to discussing the importance of trade restrictions for an effective price intervention. In addition, the role of agriculture price policy of Pakistan should be explored. Special emphasis should be placed on the procurement policy of wheat and sugarcane. The role of PASSCO can be discussed in detail. Further, the effectiveness of the irregular price support policy in relation to cotton and rice can be discussed further. Managers should be encouraged to critically analyse and build their own judgment on the material presented.

SUBJECTS COVERED:

Management, Economics