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Pakistan has agreed with the International Monetary Fund (IMF) to phase out its decades-long policy of setting minimum purchase prices for agricultural products, including wheat, and discontinue the practice of procuring essential commodities for buffer stocks. This decision, which will be implemented over three years, has raised concerns about the country’s food security, potentially affecting over 240 million people.
Agricultural Price Fixing to Be Abandoned
The decision impacts key agricultural products such as wheat, sugarcane, cotton, and fertilisers, with the government transitioning to a free-market mechanism. Farmers, who have long relied on these support prices to ensure stable incomes, are now facing uncertainty as the government has made these decisions without consulting the agricultural community.
Countries like India and the United States continue to use price controls and procurement mechanisms to maintain commodity prices and buffer stocks for food security. However, Pakistan is now moving away from this model under IMF pressure.
Impact on Farmers and Crop Planning
The decision has caused significant unrest among farmers, who are left without a clear understanding of the government’s future plans. There is concern that the absence of support prices will lead to a decrease in crop cultivation, particularly for wheat, which is a staple crop for the country. Farmers are uncertain whether to proceed with the October 2024 to March 2025 sowing season due to the unclear pricing mechanisms.
The lack of planning and communication could result in a decrease in crop production, forcing Pakistan to import commodities at a much higher cost. For example, a drop of one million tons of wheat production would cost the government an estimated $1-1.5 billion in imports.
Wheat Procurement and Inflation Reduction
The Punjab government had already refrained from procuring wheat in the 2024 harvest season, a move that significantly reduced the prices of wheat and flour, helping bring headline inflation to single digits. However, this led to many wheat growers switching to other cash crops like sunflower, as the reduced wheat prices were not economically viable for them.
This shift in crop preference could reduce wheat plantations, which are crucial to meeting the country’s consumption needs of around 30 million tons annually.
Lessons from India’s Experience
Pakistan’s decision mirrors an attempt made by India in the late 2020s to deregulate its agricultural market without consulting farmers. India was forced to roll back these reforms after facing months of farmer protests and sit-ins, demonstrating the importance of involving the agricultural community in such significant policy shifts.
Farmers Demand Clarity
Leaders of Pakistan’s agricultural community, such as Sindh Abadgar Board President Syed Mahmood Nawaz Shah, have expressed frustration with the government’s lack of transparency. They emphasize the need for a clear communication strategy to enable farmers to plan their future actions effectively. Shah also suggested that the government should relinquish control over import and export regulations, allowing farmers to benefit from better prices in the international market.
Sindh Chamber of Agriculture General Secretary Zahid Hussain Bhurgari echoed these concerns, stating that farmers were delaying wheat sowing in Sindh due to the uncertainty surrounding support prices. In the absence of government procurement, wheat prices in the market have fallen to Rs2,600-2,700 per 40 kg, a sharp drop from the Rs4,000 support price set last year.
The Role of SECP and PMEX in Future Pricing
To address the concerns of farmers, Securities and Exchange Commission of Pakistan (SECP) Chairman Akif Saeed suggested that the government should strengthen the market mechanism, particularly through the Pakistan Mercantile Exchange (PMEX). He proposed building market infrastructure, such as warehouses and grading systems, to help farmers secure better prices in the absence of government-set prices.
The SECP is working with provincial governments and the Asian Development Bank (ADB) to create a robust market structure that ensures farmers are not exploited in the new free-market system.
