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1. Chapter 05
Agriculture: Critical Issues
Syed Karim Bux Shah 1

2. APP refers to pricing of inputs i.e. seeds, water,
fertilizers, technologies, and credit etc- and outputs i.e.
agricultural produce.

APP has important impacts on:
1. Income distribution (specially small farmers)
2. Industrial productivity.
3. Urban sector wages.
4. Exports.
5. Cost of living.
6. Linkage between agriculture and non-agriculture
sectors.

3.  A good pricing policy works as an incentive to produce
certain goods (crops) at required quantities during a certain
period.
 Main objectives of APP:
1. Balanced growth of agriculture sector.
2. Meeting domestic consumption requirements.
3. Forex earning sources (exports).
4. Forex saving sources (avoid food items import).
5. Equitable income distribution.
6 Stability in food prices for consumers.
7. Maintain industrial competitiveness.
8. Encourage investment in agriculture sector.
9. Reduce production costs by switching over to cost
effective technologies.
Syed Karim Bux Shah 3

4.  Managerial and governance issues are
also important in uplifting agriculture
sector. For example:
1. Timely equitable/fair availability of seeds,
fertilizers, pesticides etc.
2. Lesser reliance on subsidies.
3. Enhancing managerial efficiency of agriculture of
agriculture sector to minimize costs.
4. Accessible institutional/formal/bank credit.
Syed Karim Bux Shah 4

5.  TWO METHODS ARE COMMON:
1. COST OF PRODUCTION METHOD.
2. PARITY APPROACH/METHOD.
Syed Karim Bux Shah 5

6. 1.COST OF PRODUCTION METHOD:
This approach guarantees fair return of certain crops to
farmers /producers , with maintaining balance b/w
competing crops.
 This method serves as a better option when the
objective is to provide productive incentives for particular
crops and crop combination.
Syed Karim Bux Shah 6

7.  Disadvantages of cost of production
approach:
1. Problem of valuation of certain inputs whose market
is not well developed –such as labor ,management,
and land rent.
2. Problem of using different technologies by farmers.
Farmers using older (expensive) technologies loses,
whereas those using new (cheaper) technologies
are benefited.
3. large/big landlords are more benefited , due to
economies of scale.
Syed Karim Bux Shah 7

8. 2.Parity pricing approach:
“focuses on correcting imbalance in terms of trade
b/w agriculture and non agriculture sectors”
 Attempt is made to bring balance b/w the pricing
of commodities sold by farmers and the
commodities which they purchase.
 Calculated through comparative index of
agriculture and non agriculture products for a
selected year and a base year . Inflation is taken
into account.
 Works to serve objective of long run equity b/w
urban (industrial) and rural (agriculture) sectors.
Syed Karim Bux Shah 8

9. 1.Open market prices: demand–supply
forces
2.World prices/international prices.
Syed Karim Bux Shah 9

10. (D) ISSUESS IN PRICING POLICY(50’s & 60’s)
SOURCE: National Commission A 1988 REPORT
 THE NCA IDENTIFIES THE MAIN CONCERN IN APP
OF 50’s & 60’s:
 To Keep cost of food low
 TO KEEP INDUSTRIAL RAW MATERIAL CHEAPER,
 To KEEP URBAN WAGES LOW IN INDUSTRIAL SECTOR.
Syed Karim Bux Shah 10

11.  MAIN FEATURES OF APP IN 50’S AND
60’S:
1. Fixing of low retail prices of food grains even
below international parity prices.
2. Heavy export duties on cotton in favor of local
textile industry.
3. Ban on inter-district and inter-province
movement which resulted in depressed prices in
areas of surplus production.
4. Over-valued exchange rate (rupee) caused
losses to agriculture sector and agri exports
proceed were converted at over-valued
rupee which reduced agriculture sector
earnings. Syed Karim Bux Shah 11

12. MAIN FEATURES OF APP IN 50’S AND
60’S:
5. Over valued exchange rate benefited
industrial sector in terms of cheaper imports
of industrial machinery.
6. Losses from industrial exports due to over
valued rupee, were offset by bonuses and
subsidies given to industrial sector.
7. Barter deals in which agriculture products
exchanged for industrial machinery and
inputs to the advantages of industrial sector.
8. Overall, Agriculture remained a neglected
sector. Syed Karim Bux Shah 12

13. (E)MEASURES TO UPLIFT AGRICULTURE
1. SUBSIDIES GIVEN TO AGRICULTURE
INPUTS- FERTILIZERS ,SEEDS,
TUBEWELLS.
2. IN 1981, AGRICULTURE PRICES
COMMISION WAS ESTABLISHED.
3. MINIMIUM SUPPORT PRICE PROGRAM
INITIATED TO SAVE FARMERS FROM
MARKET STOCKS AND EXCHANGE
INVESTMENT ,AND REDUCE RISK.
Syed Karim Bux Shah 13

14. (F) STRUCTURAL ADJUSTMENT
PRIGRAM(SAP)
BY IMF AND WB IN1988
1. ELIMINATE FERTILIZER SUBSUIDIES.
2. REDUCE WHEAT SUBSIDIES.
3. ABANDON EDIBLE OIL SUBSIDIES.
4. MANY OTHER SUBSIDIES ELIMINTED
GRADUALLY.
Syed Karim Bux Shah 14

15.  TYPED BY: RAJA (BBA HONS P 2 ROLL
NO:120 2K9)
Syed Karim Bux Shah 15

16. Agriculture Credit
 Main Findings of some surveys:
Year % of Informal Credit to
Agri Sector
1985 68%
72-73 90%
85 85%
Syed Karim Bux Shah 16

17. 1995 WB Report Conclusions on
Agri Credit:
 Key to Productivity
 Only 32% of rural take loans
 10% borrow from former sources
 ZTBL 76% Commercial Banks 17%, Cooperatives 6%
 90% of farmers rely on informal sources
 Informal sources dominate rural credit
 Both Sources are short run
 94% of formal credit is for production and investment
 Rich Get cheaper credit, poor get expensive credit
 Formal sources are complex and lengthy
Syed Karim Bux Shah 17

18. Informal Credit Sources
 According to surveys in Punjab only 15% of small
farmers and in Sindh only 8% have access to formal
credit
 Problem of getting credit in time is also there
 Farmers prefer informal credit due to
1. Easy access
2. No red-tapism
3. Timely Availability
4. Consumptions & Emergency loans
5. Deferment of Payment Options
6. No or nominal Collateral
7. High transaction cost of formal credit
Syed Karim Bux Shah 18

19. Arguments
Against For
Exploitative Suitable to Small
borrowers
High rates More Efficient
Accessibility
Perpetual In-debtness Emergency Loans
Imperfect & Monopoly Consumptions Loans
Markets
Syed Karim Bux Shah 19

20. Statistics of Formal & Informal
Sources
 Figure 5.5 (Disbursement of Agriculture
Credit by formal Institutions 1955-2000)
 Table 5.8 (Sources of Loans by Asset
quintile)
 Table 5.10 (Agriculture Credit disbursed in
Pakistan by Agencies)
 Table 5.11 (Agriculture Credit Advanced
by ZTBL
Syed Karim Bux Shah 20

21. Syed Karim Bux Shah 21

22. Syed Karim Bux Shah 22

23. Syed Karim Bux Shah 23

24. Syed Karim Bux Shah 24

25. Agriculture Taxation
 Arguments against  Arguments in favor
 Collection Problems due to:  Justice, Equity and
 Lack of standard Equitability
accounting records  Illogical
 Difficult to assess actual
income
 Exemption to small farmers
 Scattered and Large
 Encourage ax evasion
number of farmers.  Income elasticity
 Costly to collect taxes
 Uncertainty in agri income
 Difficult for record keeping
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26. Others Issues: Is Agriculture sector
over-taxed
 Lion’s share of indirect taxes in Govt’s tax revenue is
paid by the
 Lower procurement prices for agri. Produce (Hidden
Taxes)
 Export duties on agriculture commodities
 Increase in agricultural income offset by increase in
population
 And higher expenditure on inputs and equipments
 Taxing agri-sector barrier to saving and investment in the
sector.
 Taxing would discourage addition the cultivable land
Syed Karim Bux Shah 26

27. Taxation- Economic and Political
Perspective
 National Commission on Agriculture (NCA) 1988
Report arguments against Agri-tax
 Lack of sustainability in agri-income
 Majority of the small landholders unable to produce
taxable surplus.
 Nature-dependent income, highly unpredictable to
rely.
 Uninsurable income due to greater uncertainty.
 Farmer act as their own insurer.
 Incidence of indirect taxation on agri-population.
Syed Karim Bux Shah 27

28. Taxation- Economic and Political
Perspective
 National Taxation Reforms Commission
(NTRSC) (1986) favor agri-tax on the following
grounds:
 The presence of large landholders which can be brought
under the tax net.
 Increase in agri-income resulting from green revolution.
 Encourages and a loophole to tax evasion: Nonagri-
income is claimed as agri-income and taxes are evaded.
 Creates feeling of jealousy/injustice among non-agri
sectors.
Syed Karim Bux Shah 28

29. 5.6: Water Crisis
 Of 22.15mh cultivable land, 18.04 mh (81%)
land depends on irrigation through canals and
tube wells.
 During 1960’s Govt. main focus was on
investment on irrigation system.
 Later no serious effort made in that direction,
which resulted in water crisis in 1980’s onwards.
Syed Karim Bux Shah 29

30. Main Problems
 Poor maintenance.
 Lack of regular desilting.
 Crumbling canal banks.
 High seepage and water losses. (35-40% delivery from
head to tail. (WB study 1994).
 Tail-enders sufferings
 Water logging.
 Salinity (Sindh the main victim)
 Inadequate reservoir capacity.
 Uneven water flow pattern (85% water flow in summer).
 Inadequate drainage system.
 Loss of land due to water logging and salinity.
 Corruption in water distribution.
Syed Karim Bux Shah 30