LAHORE:

The economy has gone through a stagnant phase with the Large Scale Manufacturing Index decelerating by 0.20% in the first two months of FY 2025. Similarly, the agriculture sector has been facing acute challenges since last year.

Most international commodity prices have fallen over the past year. There is a 20% reduction in corn prices. Additionally, cotton prices are down 30% since February 2024. Wheat prices are fluctuating and falling.

The domestic price situation is almost similar. Domestic maize prices fell in fiscal year 2024. Specifically, small and medium farmers barely received their expenses.

The government has fixed the support price of wheat at Rs 3,900 per 40 kg. Large influential farmers could sell their wheat stock around the support price, medium farmers had to rely on the market where they initially sold wheat at around Rs 3,300 per 40 kg, while small farmers had to sell their stock to traders and got approx. 3,000 Rs. at 40 kg.

A large part of the farmers kept their stock expecting the price of wheat to rise in the domestic market. As international prices remained tight, the domestic price of wheat continued to fall.

Most farmers had to sell their stock in September to get cash for their new crop. As they released their stock, the price of wheat fell further to around Rs 2,500 per 40 kg.

The country experienced a bumper crop of wheat along with a high yield per acre. In addition, international wheat prices have fallen over the past two years.

High demand for agricultural commodities increases their prices. In the presence of large stocks of wheat, demand remained low. As a result, the price could not rise.

The mass production industrial sector depends on farmers’ income. Specifically, small and medium farmers, small producers and landless peasants sell their goods and buy consumer goods produced by the industrial sector.

The demand for industrial goods comes from these segments of the population. Thus, the sector producing consumer goods becomes constrained by the demand in the presence of low incomes of these segments.

If the prices of agricultural commodities remain low for several years, the incomes of these segments of the population will be affected.

Extraordinary crops usually lower commodity prices. For example, the bumper crops of corn and wheat have greatly reduced their prices over the past year and a half. This shows that the mass production industrial sector will face severe mandatory constraint from agriculture.

When farmers get low income from one crop, they tend to choose another crop the following season. As the farmers were getting low income from wheat, now they will reduce the cultivated area and switch to another crop. Therefore, we should expect lower wheat production in the coming season.

In addition, the international price of wheat could increase in the coming months. Given these factors, the price of wheat could rise in the coming year.

The benefits of high wheat prices will be limited to a small segment of the population. The elaboration of this point requires another article. However, small and medium farmers and small producers will not benefit from the high price of wheat. Hence, the consumer goods industry will feel the pinch.

In short, the growth of the mass consumer goods industry requires increased production of staple crops. If the government does not adopt an adequate policy to maintain the income of small, medium and small farmers, the consumer goods industry will either stagnate or contract. Let’s see how events unfold in the future.

The writer is an independent economist who has worked at SDSB, Lahore University of Management Sciences (LUMS)