Devouring a morsel of bread may be quite simple, but the practices and decisions that determine the price of this morsel may not be as straightforward as commonly perceived.
As of late, the issue of wheat support price has been stirred by local media to a considerable extent.
On the back of calculations by the Agriculture Policy Institute (API), which claims that prices of agriculture inputs have increased by 20-25 percent, the Minister of Food and Agriculture (Minfa), Nazar Muhammad Gondal, has called for an increase in the wheat support price by Rs50 to Rs 1,000 per 40-kg.
However, an increase in support prices thrusts the brunt of the burden on the consumer and is of negligible help to the small farmer for whom it is supposedly intended.
Delayed wheat procurement by the government at the decided support prices hardly benefits wheat growers and small farmers who want to expedite the sale of their harvests owing to inadequate storage facilities.
Consequently, the benefit flows down to the middlemen, who have the resources to store excess wheat.
They purchase the wheat stock from the small farmer at prices lower than the support price, hold the stock, and sell them later at the support prices set by the government when the provinces and Pakistan Agriculture Storage & Services Corporation (PASSCO) begin the procurement process, according to Anis Shahid, General Secretary of the Karachi Chakki Atta Association.
Aside from this operational mismanagement, the support price hike is probably not the best answer to the countrys farming economy, argues Dr. Ashfaque Khan, Director General & Dean NUST Business School.
"The criminal increase in support prices will be disastrous! The price has climbed up by nearly 125 percent in the last 2-3 years and any further increase in support prices will be devastating for the consumers. Empirical evidence suggests that CPI inflation rises by 3 percent for every 10 percent increase in support prices," says Khan.
Internationally, wheat prices are under tremendous pressure due to a diminished supply outlook, after the United States Department of Agriculture (USDA) claimed that global wheat inventories will be 1.8 percent less than last months projection.
In the first week of October 2010, the benchmark US wheat price was quoted at $281 per ton, some 55 percent higher than at the beginning of July 2010 when prices started their upward trend.
Yet, ironically, a support price of Rs 1,000 per 40 kg will bring the net price of wheat locally at $290 per ton. Clearly, the Pakistani consumer ends up paying more than what is being charged from consumers internationally.
With a rise in support prices spelling a backbreaking price spiral for the consumers, needless to say, offering invisible benefits to small growers, this form of subsidy may not sound like an optimal move.
On the contrary, the Economic Coordination Committees (ECC) recent decision for granting Rs 2,400 per acre to small farmers holding 12.5 or less acres of land is a more appropriate step. And, on a similar note, granting concessional loans at 8 percent to farmers holding more than 12.5 acres of land seems like a more feasible form of subsidy than support prices.
While the decision over support prices has been deferred by the ECC for the moment, one hopes the ECC will assess the situation objectively and reach a decision in the best interests of the local consumers.