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Graded discussion board, Microeconomics

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The Case:
In Pakistan, sugarcane, wheat, rice and cotton accounted for 90% of the value added in crops and 6% of GDP in the last fiscal year but the average yield of these crops is very low as compared to other countries. There are several factors for this low productivity like soil conditions, low income and purchasing power of growers, unavailability of proper inputs, lack of modern technologies of production etc. Due to high dependency burden, expensive health facilities, inflation and high prices of energy, farmers hardly fulfill their domestic expenditures which restrict their investment capability. Upward price fluctuations of all inputs (seed, fertilizer, pesticides etc) and varying prices of outputs (cotton, rice, wheat, sugarcane etc) adversely affect the farmer’s ability and choice to invest. At the start of crop season, there is demand pressure for inputs when growers have to purchase inputs for cultivation whereas at the end of crop season, there is supply pressure of output in the market. Farmers have to sell their crops immediately after harvesting due to financial stress and lack of storage facility. Suppliers of inputs create shortage and force farmers to buy inputs at higher costs. Middlemen purchase farmer’s products below the market prices. Farmers have no choice but to accept the whole situation. They pay some part of total input bill and promise the suppliers to pay rest of the bill at the end of next crop season. This sometimes bounds them to sell their products to the same supplier year after year. The present market system is inefficient that supports middlemen and discriminates against farmers.

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