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Updated on June 12, 2012


The government of a country can play an effective role in deterring as to what agricultural goods are to be produced, how much to be produced. The government can also regulate the prices of agricultural goods keeping in view the interests of the consumers as well as of the producers.

Agricultural price policy up to mid 1960s Pakistan.

Negative Pricing Policies. Before 1960, the government's agricultural price policy was to provide cheap food to urban consumers and industrial workers, cheap raw materials to agro-based industries and to transfer resources from agriculture to the urban sector for investment. In the light of these objectives, the main pricing and trade policies followed up to mid- 1960s were as under:

(a) Monopoly procuring of wheat and rice at deliberately fixed low price.

(b) Heavy export duty on cotton which kept low prices for the farmers but benefited the local industry.

(c) Restrictions on inter-provincial and inter - district movement which depressed seed prices in surplus producing areas.

(d) Prices of vegetable ghee controlled at low level depressing prices of cotton seed and oilseeds.

(e) Agricultural imports at confessionals prices depressing local prices.

(f) Overvalued exchange rates which depressed prices of agricultural exports .

Underlying assumptions falsified: The above policies were based on the following assumptions:

(a) That farmers would not react to low price by reducing their production and would continue to produce to their capacity.

(b) The country could be developed industrially without first developing the agriculture sector.

The above assumptions provide to be wrong resulting in shortage of food and other products and balance of payment problems. It was recognized that agriculture had to be developed to sustain industrial development. This led to policies in favour of agriculture.

Positive pricing policies from 1972

The shift from negative to positive pricing policies has been gradual. The first major correction in the overvalued exchange rate was made in early 1972 when the rupee to dollar exchange rate was decreased from Rs. 4.76 to Rs. 11 per dollar. Thereafter, rupee exchange rate was adjusted to bring it closer to the market rate. Monopoly procurement was changed into voluntary procurement in 1960s in case of wheat and much later in case of rice. Export duty was first abolished in case of rice and in the recent past in case of cotton. Agricultural imports at confessional prices have also been reduced and phased out steps have also been taken to increase the prices of vegetable ghee. The two important phases of these policies worth-mentioning, however are input subsidization and raising output prices which are discussed below:

(a) Subsidization of inputs. In the first phase Government decided to provide to cheap inputs to the farmers through provision of input subsidies. Under this programmer which was started around mid-9168. Government met a part of the input costs either through budget or by recovering full costs. The objectives was to popularize their use to increase agricultural production. The subsidies were provided on the following inputs:

(a) Chemical fertilizers: In the beginning, subsidy was provided through the budget to the extent of 60% which was gradually reduced/phased out.

(b) Pesticides: To start with 100% subsidy was provide was provided through the budget which was gradually reduced and ultimately phased out.

(c) Improved seeds: Subsidy was provided through the budget only on the improved and certified seeds in order to encourage their use for raising productivity.

(d) Tube wells: Subsidy was provided through the budget on the cost of diesel and electric tube wells.

(e) Power tariff for tube wells: Agricultural consumers as well as domestic consumers were charged relatively lower rates and were subsidized by other consumers by charging higher rates from them.

(f) Irrigation water rates: Subsidy was provided in the form of less than full cost recovery of the operation and maintenance cost of canals and SCARP tube wells.

(g) Credit: Subsidy took the form of interest free, short term loans and low interest medium and long-term loans.

(h) Agricultural machinery operations: Subsidy was provided by not recovering full cost of bulldozers used for development of waste lands for cultivation.

Shortcomings of the policy: The input subsidization policy played an important role in popularizing the use of modern inputs. Experience, however showed that this policy suffered from the following shortcomings.

(a) As the use of the inputs expanded their budgetary burden mounted and became unbearable.

(b) The subsidies mainly benefited the large farmers who were the main users of the subsidized inputs rather than small and medium farmers.

(c) The relatively low output prices gave little incentive to producers particularly small and medium ones to produce more.

(d) The lower input and output prices encouraged smuggling to neighboring countries particularly India and Afghanistan.

As a result a policy shift was started in early 1980s from input subsidy to raising output prices: By now major input subsidies have been gradually reduced and eliminated except electricity and water rates where subsidies have gone up.

Raising output prices from 1980s

The main features of this policy are:

(a) The Government fixes minimum floor prices of selected commodities and is willing to purchase any quantity offered for sale. The price support programme is however voluntary and farmers can sell their produce in the open market if they can get better prices.

(b) The support prices are reviewed annually and raised appropriately to provide and maintain economic incentives for higher production.

(c) Criteria of revising the prices. While revising the prices of important crops (wheat, cotton, sugarcane, rice, gram onions, potatoes) the following factors are taken into consideration.

(i) Cost of production of the crops.

(ii) Inter-crop relative profitability.

(iii) Profitability of fertilizer in terms of the crop and fertilizer prices.

(iv) Impact on cost of living.

(v) Production responses to input use i.e. input-output ratios.

(vi) International prices.

(d) In order to improve production efficiency the Agricultural Price Commission (APCOM) makes important recommendations for support prices and yield per acre. It also suggests measures for improving the marketing efficiency of the goods.

(e) The price support programme is implemented through the departments of food. PASCO, Cotton and Rice Export Corporations, Ghee Corporation and Agricultural Marketing and Storage Limited (AMSL).

(f) Commodities for which prices are set through the price support programme include wheat rice, sugarcane, cotton, gram, sunflower, soybean, onion, and potatoes on the whole. This programme has contributed in stimulating agricultural production. The system has worked quite satisfactorily in case of wheat rice cotton and sugarcane but fallen short of expectation is case of gram, paddy, non-traditional oilseeds, and potatoes. The Govt. of Pakistan, on the recommendation of Agricultural Price Commission (APCOM) fixes the prices of cotton and wheat well before their sowing time.


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      zain ullah 3 years ago

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