Support Price Mechanism Takes Toll On Poor

By Amir Zia
The News
March 27, 2011

The gain of the landed political class remains a net loss for the ordinary people, who are now paying double the price for wheat compared to three years ago

Finally the World Food Programme (WFP) has raised a red-flag over the abnormally high food prices in Pakistan, which is making life tough and bitter for majority of ordinary Pakistanis. Wolfgang Herbinger, WFP’s director in Pakistan, painted a grim picture about the food security situation in the country, where malnutrition levels are on the rise despite good agricultural crops.

One of the key reasons for the food-inflation remains the government’s decision to increase the wheat support price by more than 120 percent that indeed benefited big landowners, but proved a blow for the majority of people, especially belonging to the poor and fixed income groups.

But even before the WFP director made remarks on Pakistan’s food security in Geneva earlier this week on the sidelines of an international conference, there were rational voices in Pakistan that had been highlighting the issue.

In recent months, The News’ opinion pages carried several articles by leading economist and former advisor of the finance ministry Dr Ashfaque Hasan Khan, who questioned the people’s government “criminal” move of pushing the wheat support price to 950 rupees per 40 kilogram from 425 rupees in the early 2008.

“Empirical evidence suggests that a 10 percent increase in the support price of wheat increases the general price level by three percent. The more than 120 percent increase in the support price of wheat has pushed food prices up by 32 percent,” he told the scribe, explaining his point-of-view. “The support price mechanism has long lost its utility and remains beneficial only for big landowners. Today, the domestic wheat rates have surpassed international prices.”

But for a parliament dominated by mighty feudal lords and ladies and tribal chiefs, the temptation of increasing the wheat support price and giving huge subsidies on agricultural inputs remains too great. It is not just the lawmakers belonging to the ruling Pakistan Peoples’ Party (PPP), who reap the benefit of such decisions, but members sitting on the opposition benches also enjoy the windfall.

However, the gain of the landed political class remains a net loss for the ordinary people, who are now paying double the price for wheat ñ the main staple diet in Pakistan — compared to three years ago. No wonder, more and more people now find it difficult even to get two decent meals a day. Poverty is on the rise and so are incidents of suicides.

But economic experts belonging to the PPP say increasing the farm gate price of wheat and the government’s dominance of its market remains necessary to encourage farmers to grow this crop and prevent the smuggling of this commodity to Afghanistan, which remains impossible to stop because of the porous frontier.

“Yes, it has an inflationary impact, but that we have already factored it in,” says Kaiser Bengali, an advisor on finance to the Sindh Chief Minister. “To ward off the inflationary impact of the wheat price increase, the government is giving targeted subsidy to protect the poor. More than 4.6 million families are being given 1,000 rupees a month under the Benazir Income Support Programme (BISP).”

But in a country of more than 160 million people, this kind of subsidy remains insufficient as it leaves the ‘undeserving’ poor out of its ambit. The undeserving poor comprise all those working men and women — from domestic helps to daily wage earners and school teachers to policemen — who work on extremely low wages and are deemed unfit to receive alms, charity and government subsidies. Unfortunately, they comprise a bulk of the population.

The WFP’s warning should not be brushed aside by the people at the helm of affairs. It calls for a serious review of the support price mechanism, which now mainly serves the vested interests of agricultural landowners rather than providing a fair deal to the majority of Pakistanis and protecting their interest.

The thesis of some top government functionaries that big landowners only go for cash crops and it is the small farmers who benefit from an increase in support price is flawed and misleading.

According to Dr. Ashfaque Hasan Khan, the small farmers do not produce surplus marketable wheat and they remain unable to benefit from the government procurement centres because of their limited reach and delay in payments.

It is an irony for the country that despite a much-touted agricultural base and good wheat production, the basic food staple remains unaffordable for a vast number of Pakistanis. One of the options, which the government may now consider to beat food inflation and help the poor, is to keep the wheat support prices capped over the next couple of years. This will help gradually reduce the inflationary pressure. However, the ideal stance, in line with the free-market mechanism, would be to allow the market forces to determine prices of every commodity.

But will the vested interest allow the government’s financial managers to follow a sensible course? The record is disappointing so far.