An Analysis of Allocative Efficiency of Wheat Growers in Northern Pakistan

For the last couple of years several agricultural and trade experts have been advocating if Pakistan has to compete in the international market for export of agricultural products then it needs to decrease the cost of production. In the light of Agreement on Agriculture of WTO, member countries are required to provide increased market access, decrease domestic support and tariff. These agreements are likely to increase the cost of production of various agricultural products for farmers producing these products, and make international competition tougher for export of agricultural commodities. There are three possible ways to decrease the cost of production—by decreasing cost of inputs, by developing cost effective high yielding technologies or by improving management practices. There is little hope for decrease in the cost of inputs. Over the recent years prices of the petroleum products, were revised upward several times and this trend is likely to continue in future. Similarly, there was increase in the prices of gas, electricity and other agricultural inputs. Historically, in Pakistan, increase in prices of agricultural inputs has been much higher than the increase in prices of agricultural outputs [Pakistan (1988)]. Under these circumstances there is little hope of decease in prices of agricultural inputs. As far as development of new agricultural technologies, particularly high yielding varieties, is concerned it is a long-term process. It takes several years to develop a new variety and in its formal approval for distribution to farmers. Nevertheless, there is room for decreasing cost of producing through improvement in the management practices. When economists talk about improvement in the management practices they talk in terms of ‘technical efficiency’ and ‘allocative efficiency’. Technical efficiency has been defined as firm’s ability to produce maximum output given a set of inputs and technology.