Parity Pricing as an Approach to Price Support Programme in Agriculture Sector of Pakistan: Policy Analysis

Abstract

Parity pricing is an important approach that helps the government and policy makers to determine the support prices of the different commodities. In this study we will discuss how the parity price ratios will prove useful in determining the price support programs in agricultural sector of the Pakistan. There are two approaches described in this study: First is the cost of production; Second is the parity pricing. The cost of production approach is used to make sure the farmers to get the suitable prices for their products. Parity price approach is used to remove the imbalance between the agricultural sector and non-agriculture sectors. We use the secondary data from time period 2005-2015. The data were collected from Pakistan Development Review and from Pakistan Economic Survey. The data on different crops like wheat, maize, rice, cotton and sugarcane are collected to calculate the parity price ratios. The price indexes are used to calculate the parity ratio. As the parity ratio is the ratio between prices received by the farm owners and prices paid by the farm owners, so these received and paid prices are calculated. Parity ratios are also calculated for different Cultivation models in Pakistan. At the end it is told that support prices can be determined in Pakistan by combining these two approaches of cost of production approach and parity pricing approach so that the farmers of Pakistan become able to get reasonable returns for their commodities and could improve their living standard.