STAGES OF AGRICULTURAL

PRODUCTITIVITY GROWTH
AND AGRICULTURAL PRICING
POLICY
Instructor: Muhammad Fahad Malik
 STAGES OF AGRICULTURAL
PRODUCTITIVITY GROWTH
• (1) the pre-Green Revolution phase:, when growth
is driven by (irrigated) area expansion, and
productivity growth is modest.
• (2) the Green Revolution phase, when growth is
driven by high yielding varieties with increased
responsiveness to inputs.
• (3) the first post-Green Revolution phase, when
growth is driven by intensification of input use,
especially chemical fertilizer and irrigation water
(which facilitates multiple cropping).
 STAGES OF AGRICULTURAL
PRODUCTITIVITY GROWTH
• (4) the second post Green Revolution phase, when
input use begins to plateau, and the source of
growth becomes increases in input efficiency,
coupled with the ongoing release of new verities.
• According to this framework, the Green
Revolution shifted the production function
upward, and raised the marginal responsiveness to
inputs.
• Farmers did not operate initially on the
production frontier.
 STAGES OF AGRICULTURAL
PRODUCTITIVITY GROWTH
• In the first post-Green Revolution phase, use of
complementary inputs rose and farmers improved
allocative efficiency (equalizing marginal
products and prices).
• In the second post-Green Revolution phase,
farmers encountered diminishing returns to
inputs, and moved towards the production frontier
by raising their efficiency.
• Resource degradation is a form of technical
regress which would shift the production function
downward .
 FACTORS DETERMINING
AGRICULTURAL GROWTH IN
CURRENT SCENARIO
• This scenario seems to fit Pakistan, which is now,
according to Rashid Faruqee, in the second post-Green
Revolution phase, where input efficiencies are seen to be
the main sources of growth now that high yielding variety
seeds have been extensively disseminated and the use of
irrigation and fertilizer is leveling off.
• While in the past, land expansion, multiple cropping,
liberal availability of water, and a technical package were
responsible for high growth in agriculture, for Rashid
Faruquee, “future growth must rely almost entirely on
efficiency gains, the potential for which is considerable.
 FACTORS DETERMINING
AGRICULTURAL GROWTH IN
CURRENT SCENARIO
• For the World Bank, The efficiency gains arise
through, amongst other mechanisms,

• (a) output prices that are market determined,

where the government does not distort prices.

• (b) Ends all forms of directed credit.

• (c) Introduces a large number of institutional

reforms.
 FACTORS DETERMINING
AGRICULTURAL GROWTH IN
CURRENT SCENARIO
• The significant increase in support prices by the
Pakistan People's Party government 2008-13, which
resulted in farmers receiving far higher prices for
their produce-wheat's price was doubled from Rs. 425
in 2006/07 to Rs. 950 in 2008-09.

• Support price is a minimum price guaranteed to a

farmer for agricultural produce and maintained by
subsidy or the buying in of surplus stock.
 FACTORS DETERMINING
AGRICULTURAL GROWTH IN
CURRENT SCENARIO
• While Basmati rice from Rs. 460 in 2005/06 to
Rs. 1,250 in 2009/10, with International Rice
Research Institute (IRRI) rice also doubled-
vindicates (justifies) the claim that formers are
rational and respond to price incentives.
• The jump in food Production as well as domestic
food prices for consumers, of course- after 2009,
despite the extensive floods in 2010 and 2011, is
indicative of these incentives.
 AGRICULTURAL PRICING
POLICY
• As the last slide Indicates, and as we have seen in
Pakistan over the last five years since 2008,
government can play a critical role in determining
what, and how much, to produce through its
pricing policy.
• Along with the right types or seeds, water,
fertilizer, and other inputs, as well as a package of
technology and credit, the pricing policy of
agricultural inputs and outputs can determine the
direction of agricultural productivity and produce.
 AGRICULTURAL PRICING
POLICY
• Agricultural pricing policies can also impact
significantly on income distribution, With
particular reference to the incomes of small
farmers .
• The consumer boom noticeable in Pakistan's rural
areas since 2008/09, is proof of the fact that
higher· prices for farmers, despite in-egalitarian
land holdings such as Pakistan's, can have a
positive impact on the overall rural economy,
simply by giving the right price incentives.
 AGRICULTURAL PRICING
POLICY
• They can also have a noticeable effect on
industrial productivity, urban wage, goods,
exports, and the cost of living, determining the
terms of trade between agriculture and other
sectors.
• Higher prices for agricultural commodities which
might mean higher incomes for farmers, also
translates to higher prices for urban consumers, a
fact also noticeable in Pakistan in recent years.
 AGRICULTURAL PRICING
POLICY
• A good agricultural pricing policy can be
defined as one where, ceteris paribus, price
acts as an incentive to produce certain goods in
required quantities.

• This, however, has not always been the case in

Pakistan, and agricultural prices have been
used for various purposes by different regimes.
 AGRICULTURAL PRICING
POLICY
• The comprehensive report of the National
Commission of Agriculture (NCA) in 1988
examined the issues around the agricultural
pricing policy of the first two decades following
1947, and had this to say,
• In the beginning, Government’s main concern in
regulating agricultural prices was to keep the cost
of food low for the urban industrial workers and
provide cheap raw materials for domestic
industries.
 AGRICULTURAL PRICING
POLICY

• The objective was to enhance international

competitiveness of the infant industries by
maximizing the so called “labor” advantage.

• The main features of the Government trade

and pricing policies during the period up to the
mid-sixties were as follows:
 AGRICULTURAL PRICING
POLICY
• a) Government fixed retail consumer prices of
food grains at low levels which had the effect
of depressing market prices for producers.

• Studies show that during this period the

domestic prices of food grains remained
consistently below the international parity
prices calculated at the equilibrium rate of
exchange.
 AGRICULTURAL PRICING
POLICY
• b) Heavy export duties were levied on cotton
which had the effect of reducing domestic prices
of cotton for the benefit of the local textile
industry.
• c) Monopoly procurement of wheat and rice was
resorted to at fixed prices which were deliberately
kept low in order to minimize subsidies to
consumers.
• Producers often sold to merchants at lower than
the Government prices in order to receive prompt
cash payments.
 AGRICULTURAL PRICING
POLICY
• d) Inter-district and inter-province restrictions
or movement were imposed with the result that
producer prices were depressed in the surplus
producing areas.
• e) Prices of vegetable ghee were controlled at
an artificially low level which had a depressing
effect on produce prices of seed cotton and
oilseeds like rapeseed and mustard.
 AGRICULTURAL PRICING
POLICY
• f) Proceeds from the agricultural exports were
converted at an overvalued fixed exchange rate.
• The implicit exchange tax on agricultural exports
from 1960 to 1971 averaged 89 per rent.
• In contrast, the industrial sector benefitted from
the overvalued exchange rate which reduced the
domestic cost of imported machinery and other
inputs.
 AGRICULTURAL PRICING
POLICY
• When it came to the industrial exports, the
exchange losses were offset by bonuses and
subsidies.
• This heavy protection of the industrial sector at
the cost of the agricultural sector failed to produce
an efficient and viable industrial base for the
economy.
• It rather became the cause of the dismal
performance of the sector despite its highly
privileged position.
 AGRICULTURAL PRICING
POLICY
• g) For nearly a decade after independence no
systematic attempt for the development of
agriculture was made.
• The first agricultural development program in the
country was launched in 1955.
• h) Barter deals were a common feature of
Pakistan's international trade in which agricultural
produce was exchanged for industrial machinery
and inputs to the disadvantage of the agricultural
producers.
 AGRICULTURAL PRICING
POLICY
• i) Government freely accepted the agricultural
commodity imports at concessional prices
which, when converted at the overvalued
exchange rate, resulted in depressing the
domestic prices.
• The adverse effect of the imported
commodities was further intensified by
budgeted subsidies given by the Government
on their local sale prices.
 AGRICULTURAL PRICING
POLICY
• It is not surprising that, due to the above policies, agriculture suffered and
was seen as a means to subsidize industrial production and urban
consumers-part of the pro-industrial strategy which was heavily biased
against agriculture.
• As the NCA Report argues, the implied objectives of the pricing policies
during the period I 960-5 were to provide
I. low cost food to the urban consumers.
II. to provide cheap raw materials for the domestic agriculture-based
industries.
III. to keep wages of industrial workers low by supplying cheap food.
IV. to transfer resources from agriculture to the urban sector for investment in
industries and other non-farming a activities
 THE OBJECTIVES OF AN
AGRICULTURAL PRICING POLICY
• The study by the National Commission of Agriculture
argues as follows
• Pricing of agricultural Inputs and outputs would be a
major element of the dynamic agricultural policies
necessary to achieve national targets of agricultural
production.
• The Government should pursue an active price support
policy seeking to consolidate the gains in four major
commodities achieved in the last few years making the
policy fully effective for minor crops including oilseeds
and extending the policy to cover more products as
found necessary.
 THE OBJECTIVES OF AN
AGRICULTURAL PRICING POLICY
• The pricing of inputs and outputs should be closely,
coordinated keeping in view the following objectives.
• i) Carefully devised price signals
a) Can promote a balanced increase in production of
agricultural products so as to fulfill domestic
consumption requirements.
b) Increase earnings of foreign exchange through exports
of products like cotton, rice and horticultural products
c) Save foreign exchange expenditure by reducing
dependence on 'imports of agricultural products,
especially edible oils, milk and sugar.
 THE OBJECTIVES OF AN
AGRICULTURAL PRICING POLICY
(ii) Gradually rising but stable prices can create a
suitable economic and psychological
framework for positive response fro
producers to production incentives and move
to the desired cropping patterns.
(iii) The Price Policy should help to achieve
and maintain equitable terms of trade for
agriculture and support the incomes of the
farmers.
 THE OBJECTIVES OF AN
AGRICULTURAL PRICING POLICY
(IV) It should help maintain stable food prices
for consumers.

(V) It should keep domestic prices of export

commodities and potential exports largely
in line with the international prices to
maintain competiveness of agricultural
commodities and minimize subsidies.
 THE OBJECTIVES OF AN
AGRICULTURAL PRICING POLICY
(VI) It should encourage larger investment in
agriculture, especially in production of the
products in which, the national targets call
for major increase in production.
(VII) It should encourage Increase in agricultural
productivity and reductions in production
costs by promoting the use of better
technologies and other non-price measures.