Rural Economy Rescued from Government Missteps: Pakistan's Farm Prices Rise Amidst Recovery

Pakistan's rural economy has been struggling due to depressed farm incomes and weak demand, but there are early signs that this may be changing. Agricultural commodity prices have begun to rise, improving the economics of farming and putting more cash into rural hands.

The government's confused agricultural policies have amplified the damage from the commodity-price downturn of 2023-25 and prolonged the squeeze on farm incomes. The government sought to reform agriculture by dismantling the wheat support-price regime and retreating from large-scale procurement, but continued behaving like an interventionist state whenever food inflation became politically uncomfortable.

The approach was neither a functioning support-price regime nor genuine liberalisation. It amounted to price management without accepting the corresponding obligation to protect producers from the consequences of government intervention.

Traders who accumulated grain cheaply benefited first, but higher market prices are increasingly improving the economics for producers as well. Input costs have not risen nearly as quickly as output prices, domestic urea supply remains relatively comfortable, and DAP prices have not moved in tandem with crop prices.