Rural poverty in Pakistan increased during the late 1990s after having declined in the 1980s and early 90s. One hypothesis suggests that this shift was caused by the downward trend in world commodity prices, including agricultural commodities such as wheat, rice, and sugar, as well as cotton—a major commercial crop in Pakistan. Poverty in the late 1990s was found to be substantial among cotton-producing households; 40 percent were below the poverty line based on per capita consumption expenditures.
To assess the possible causes, IFPRI undertook simulation analysis to evaluate the effects of cotton prices on poverty. The study examined the impact of a 20 percent increase in cotton prices, which reflects the decline of real prices in Pakistan during the late 1990s and is consistent with several analyses of how much world prices might increase if all subsidies and tariff barriers were removed globally. The study estimates that such a price increase would reduce the poverty rates among sharecropper households producing cotton from approximately 57 percent in both Punjab and Sindh to 38 percent and 45 percent, respectively. At the national level, a 20 percent increase in cotton prices would cause poverty to fall from 40 percent to 28 percent among all cotton-producing households. Subsequent analyses showed higher wheat prices would have similar but smaller positive effects on the incomes of a larger group of farmers.
Results from this study were published in “The impact of global cotton markets on rural poverty in Pakistan” (Orden et al. 2006), as part of an Asian Development Bank (ADB) series: http://ageconsearch.umn.edu/bitstream/21381/1/sp06or01.pdf