Agriculture Reference
In-Depth Information
Creating Level Playing Fields
The support price program in theory has been premised on the voluntary sales
of produce by growers to government agencies. However, there have been many
instances for which the private sector did not enjoy a level playing field or an
environment conducive to participation in wheat marketing, and growers were
forced to sell wheat to public-sector agencies. This resulted from restrictions
on commodity movements or from the administrative pressures on farmers to
sell wheat to public-sector procurement agencies, which had to achieve their
procurement targets. Inadequate availability of credit for commodity procure-
ments or discrimination in the form of higher mark-up also constrained the ac-
tivities of the private sector in wheat marketing. These shortcomings also re-
sulted in extra pressure for the procurement of the marketable surplus of wheat
by the public sector.
Interestingly, even in the wake of a record crop in 1999/2000, the private
sector was not given a free hand in the wheat market, as the Punjab government
tried to buy all the surplus wheat. However, government agencies, despite buy-
ing 8.55 million tons of wheat (that is, more than 40 percent of the production),
did not succeed in defending the government-fixed support price. Subsequently,
the government has encouraged the private sector in wheat marketing. The
banking sector has also supported the private sector through liberal cash credit
for purchasing wheat; during 2002/03 cash credit was provided at the same
mark-up as that enjoyed by government agencies.
The wheat crops of 2000/01 and 2001/02 were considerably smaller than
that of 1999/2000. The private sector was also encouraged to procure wheat dur-
ing the later years. The support price was the same as in 1999/2000 but it still
could not be protected. The private sector, realizing that the government had
large stocks of carryovers and limited storage capacity, adopted a wait-and-see
policy and so did not aggressively procure wheat. The public-sector agencies,
also keen to reduce their losses in storage, asked farmers to tender wheat of
higher-than-average quality. This scenario resulted in small procurements and
falling market prices, to the chagrin of wheat growers. The private sector bought
about 500,000-600,000 tons of wheat in 2001/02.
In the wake of the drawing down of wheat stocks, crop sizes below ex-
pectations, availability of liberal credit to the private sector, and a policy of cas-
cading ration prices announced in 2001/02, the private sector was quite ag-
gressive in wheat marketing in 2002/03. It is estimated to have procured over 1
million tons of wheat in the season.
What do these experiences tell us? The message is that for promoting pri-
vate sector participation, it is imperative to have continuity in policy and a con-
sistent framework, which has been lacking in Pakistan. Availability of credit
from the banking sector is also a necessary condition for providing the liquid-
ity to finance the procurement and storage operations. The private sector makes
