Govt advised to scrap sugarcane support price

ISLAMABAD: Prime Minister's Advisor on Institutional Reforms and Austerity Dr Ishrat Husain has suggested to the government to put support price for sugarcane on ice in order to provide a level-playing field to cotton growers.

Dr Husain, who has already resigned as Advisor to PM, to be effective from September 1, 2021, gave his opinion in writing about the matter of intervention price of cotton for 2021-22.

According to him, he had circulated a written note among the FCC members on May 5, 2020 providing cogent reasons as to why such price intervention would not meet its stated objective i.e., help the small farmers get a remunerative return for growing cotton.

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Dr Husain pointed out that when Pakistan was producing 14 million bales in 2015 there was no minimum support price or procurement by the government. The decline in cotton production has been mainly due to poor quality seeds, smuggled cotton seeds, adulterated pesticides and non-adoption of BT cotton at larger scale. The argument that a one-off price intervention is required is not tenable on political economy grounds. Once such a concession is made, it becomes entrenched and its withdrawal or discontinuance evokes strong resistance from powerful farmer lobbies.

Agreeing with the plea of Ministry of National Food Security and Research (MNFS&R) plea that cotton production in this country has to be boosted for its significant contribution to the economy, large multiplier effect and the positive impact on livelihoods of the rural households, Dr Husain said that he is less sanguine if the proposed minimum support price is the most appropriate tool for achieving this goal. There is no observable correlation between the minimum support price of wheat and production response.

In 2010-11, total wheat production was 25.2 million tons in response to Rs950/40 kg. The same level was achieved in 2019-20 when the minimum support price (MSP) had risen by 47 percent to Rs.1400. Recent reports on sugar and wheat clearly indicate that the present policy of government interventions in both these crops has neither helped the urban consumer nor the average farmer despite the public exchequer incurring heavy cost in the form of subsidies, incidental charges and guarantees to the banking system for commodity operations. Inflationary pressures have been created due to higher end-use prices of these commodities. The main beneficiaries of wheat procurement and issue prices have been flour mills, officials of the Food Department and some traders while in case of support price for sugarcane it has been the sugar mills, large farmers and brokers.

Given this repetitive experience, he said, the government should learn lessons and avoid making the same mistake. In his view, the groups that would benefit from the intervention in cotton market would be the ginners, officials of TCP and some middlemen. Ginning technology in Pakistan is outdated and inefficient and quality standards are not met. Cotton seed oil and cake prices would remain unregulated. There is no premium on cotton free of contamination but price paid to small farmers by the ginners is discounted for trash, arbitrarily. The farmer would sell seed cotton not at the price announced by the Government but at discounted prices to the ginner who would sell lint cotton at regulated price to the TCP and bye-products at unregulated prices. Connivance between unscrupulous TCP officials and ginners has been the case in the past and cannot be ruled out.

Dr Husain maintained that after including the transportation, storage, insurance costs, financing charges and their commission, the TCP would auction the procured 2 million bales; if the realized price at the auction falls short of the purchase price, the government would have to bear the differential as subsidy, as well as, guarantee the bank credit for 2 million bales. His rough calculations based on cotton futures indicate that the import parity price at Multan would be Rs 5400/ 40 kg while the TCP procured prices inclusive of incidentals would be Rs5750/40 kg.

Given the precarious fiscal situation, Dr Husain said it is his considered view that this is not a prudent use of the country's fiscal resources, particularly when the small farmers are not direct beneficiaries of this subsidy. Since the Rice Export Corporation was wound up, the exports of rice have increased significantly.

Copyright Business Recorder, 2021