Need to Revamp Agriculture Marketing System

Economic Review, January-February 2009 | Go to article overview
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Need to Revamp Agriculture Marketing System

The crash in prices of cotton and rice by a whooping 30 to 40 percent this year has renewed growers' demand for revamping domestic agriculture marketing system.

They want to replace the existing system with one that takes care of at least five factors, which are essential part of the agriculture cycle.

These include stability of prices, which get depressed at a time of glut when farmers sell due to lack of holding capacity; distress selling by small farmers, who account for 93 percent of total farms, because they have to meet their fiscal (consumption and investment) requirements; biological cycle in which production cannot he adjusted to ever changing prices; fragmented markets that are dominated by cartels (middlemen and industrialists) and production uncertainties due to the weather vagaries.

Substantiating their demand for revamping the existing marketing system, they claim that while the world prices of these markets fell by 10-15 per cent only, the domestic price crash of has been steeper. They are convinced that these cartels are making additional profits of 20-25 percent at the cost of farmers.

The international price of rice (basmati) has fallen from $1,500 per ton last year to $1,350 per ton this year. But in Pakistan, they are down by almost 40 per cent. All official efforts to stabilise an indicative paddy price of Rsl, 500 per 40kg have fallen apart due to nature of the marketing system.

Pakistan Agriculture Storage and Services Corporation (Passco) was to procure the marketable paddy surplus and keep prices stable; a target of one million tons of rice was set and Passco was given Rs30 billion for the purpose.

If spent judicially and efficiently, this kind of money should have stabilised the market on the higher side. The Punjab Food Department entered wheat procurement drive with Rs30 billion last season and kept price stable during its 2.5 million wheat purchase drive.

But it has not been the case hecause the Passco entered the market late by at least 15 days and has so far been able to procure 200,000 tons when over 90 per cent of crop has already changed hands. Now the rest of Passco procurement would most probably come from the middlemen, thus benefiting them at the cost of growers.

The crisis worsens during Kharif when three major cash crops (cotton, rice and sugarcane) hit the market. The growers of rice and cotton are normally caught in distress sales because both commodities have to be treated before storing: rice has to be demoisturised and cotton rid of oil seed, which being a living organism, gets heat up and spoils the crop.

Farmers lack the treatment capacity and sell their crop in hurry, routinely causing a price crash. For all practical purpose, the government does not play any role in trade of these crops. Paddy and cotton suffer regular price crash and cane growers chase sugar millers for years for recovery of their dues.

Though any attempt to improve agriculture marketing system should be made at three levels-policy, management and farms - but it must begin with improving the credit system, which, in its current formulation, holds over 90 per cent farmers hostage to middlemen, along with their crops.

Out of total credit requirement of Rs 800 billion, formal sector hardly provides Rs200 billion, with the rest, around 80 per cent money (Rs 600 billion) coming from informal sector (middlemen).

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