PIDE seminar: farm sector profitability has not improved

11 Jan, 2005

Over the last two decades the profitability in agriculture sector has not improved, consequently the farmers depending only on crop income have become victims of rising poverty, says a paper read at the PIDE seminar here on Monday. However, it said that the developed countries' agreement at last August negotiations to cut down their subsidies on agricultural products was a "good news for Pakistani farmers because they can fetch good prices for their products in international market."
Jointly authored by Abdul Aleem Khan of Social Policy and Development Centre and Qazi Masood Ahmad of IBA, the paper aimed at finding the relative price changes in the crop sector to explore whether profitability in the agriculture sector has improved or deteriorated. It also explored the impact of free-trade scenario on the agriculture prices.
The authors said the purchasing power of the farmers has relatively decreased over the last twenty years and so they can buy fewer goods for their personal consumption. "This shows that the standard of living of farmers who solely depend on crop/farm income has deteriorated".
They argued that if the farmers sold their products in the international market under unrestricted trade scenario (and assuming that the developed countries continue to provide agricultural subsidies to their farmers) then the farmers would face a further decline in their purchasing power and a deterioration in their living standards due to falling producer prices.
The fall, however, would not be very significant if the exchange rate continued to depreciate for Pak rupee, the paper added.
The authors said it was worth mentioning that if the developed countries removed the agricultural subsidies they provide to their farmers the prices in the international market would rise giving greater margins to Pakistani farmers. But, the consumer prices of agricultural commodities would also increase then.
The subsidies provided by the developed countries to their farmers have distorted the international prices and there was a continuous decline in international prices, they maintained, adding the declining producer prices in the international market have also affected the profitability of the farmers.
The paper noted that in the domestic market also the input prices have increased more than the output prices. "Except for three years from 1997 to 2000, the domestic terms of trade with respect to input prices have remained below the base year."
Noting that one of the main reasons of rising input prices was that the government has gradually removed the subsidies on the inputs they concluded that the profitability for the farmers has declined in the crop sector.
"This establishes a very strong argument that because of the declining profitability in the crop sector the farmers are now looking for other means of income, for instance livestock, to meet their consumption requirements. Because of rising domestic demand for livestock and the trend among farmers to adopt it as a second means of their income could have resulted in significant increase in value-added livestock," the paper said.

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