1. INTRODUCTION The current debate on policy issues for enhancing agricultural productivity in Pakistan revolves around one issue and that is the substantial misallocation of resources in Pakistan's agriculture. As a result, it is believed, resources are drawn away from commodities in which Pakistan has a strong comparative advantage and towards commodities in which it is a relatively inefficient producer. Cotton is cited in the former and sugarcane in the latter case. It is suggested that if prices of these commodities are corrected and all distortions are removed, then increased specialisation, strictly in accordance with the comparative advantage principle, would ensure maximum gains from improved farm efficiency and enhance the welfare of the farm population. It is also argued that even if international prices of agricultural commodities decline due to the increase in production, Pakistani farmers should not suffer great losses since they currently receive prices which are far below the international prices [Chaudhry and Kayani (1991)].
