Agriculture pricing policy and agriculture credit

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Agriculture pricing policy and agriculture credit

  1. 1. Chapter 05Agriculture: Critical Issues Syed Karim Bux Shah 1
  2. 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-agriculturesectors.
  3. 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. 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. 5.  TWO METHODS ARE COMMON: 1. COST OF PRODUCTION METHOD. 2. PARITY APPROACH/METHOD. Syed Karim Bux Shah 5
  6. 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. 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. 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. 9. 1.Open market prices: demand–supply forces2.World prices/international prices. Syed Karim Bux Shah 9
  10. 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. 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. 12. MAIN FEATURES OF APP IN 50’S AND60’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. 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. 14. (F) STRUCTURAL ADJUSTMENT PRIGRAM(SAP) BY IMF AND WB IN19881. ELIMINATE FERTILIZER SUBSUIDIES.2. REDUCE WHEAT SUBSIDIES.3. ABANDON EDIBLE OIL SUBSIDIES.4. MANY OTHER SUBSIDIES ELIMINTEDGRADUALLY. Syed Karim Bux Shah 14
  15. 15.  TYPED BY: RAJA (BBA HONS P 2 ROLL NO:120 2K9) Syed Karim Bux Shah 15
  16. 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. 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. 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. 19. Arguments Against ForExploitative Suitable to Small borrowersHigh rates More Efficient AccessibilityPerpetual In-debtness Emergency LoansImperfect & Monopoly Consumptions LoansMarkets Syed Karim Bux Shah 19
  20. 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
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  25. 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 Syed Karim Bux Shah 25
  26. 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. 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. 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. 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. 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

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