As Pakistan gears up to liberalise its trade with India over the coming year, the inefficiencies in the agriculture sector – built up by decades of neglecting the infrastructure and technology – will likely expose that sector to international competition and will likely cause financial strain for many farmers, say agriculture experts.
“In my opinion, agriculture will remain under stress during 2012,” said Iqrar Ahmed Khan, the vice chancellor at the University of Agriculture in Faisalabad. “One of the newest issues will be Pakistan’s decision to grant Most Favoured Nation (MFN) status to India. MFN does have the potential of ruining the agriculture sector in Pakistan.”
Pakistan may be one of the largest producers of major agricultural commodities in the world, but the lack of investment and poor infrastructure render much of the country’s farm produce uncompetitive on the global market. In years past, such a risk was minimised by the market being closed. But as Pakistan opens up to competition, its disadvantages will become more apparent. Khan gave a run-down of why he believes India alone will be very difficult for Pakistani farmers to compete with.
“Indian agriculture has an edge in technology and a huge domestic market for their produce. India has genetically modified crops fully integrated into the system and we are still struggling with BT cotton alone. India manufactures most of its agro chemicals and farm machinery and we import it,” said Khan.
Yet all is not quite as bleak for Pakistan as that picture might suggest. Even the vice chancellor admits that the country’s natural endowments are so vast that even the most minor of investments can pay huge dividends.
For instance, experts contend that Pakistan is now about to enter the “mango and citrus exporters” club, thanks largely due to the concerted backing of the government of Punjab, which provided farmers assistance with applying the latest production and post harvest technologies.
Experts, however, warn that budget constraints may begin to force the federal and provincial governments to cut back on their research and development spending, which would have a negative impact on productivity gains. Some point out that in the 1970s, Brazil got rid of all of its subsidies for the agriculture sector and channelled all of the money saved into the Brazilian Agricultural Research Council (known by its Portuguese acronym, Embrapa). Brazil is now one of the largest producers and exporters of agricultural commodities in the world.
Another problem faced by farmers is the high volatility in agricultural commodity prices. While the overall trend for the past decade has been upwards, in any given year, the prices can vary widely. Given the lack of a functioning commodity futures market in Pakistan, most farmers remain exposed to the fluctuations in spot prices without any ability to hedge their risks.
The Pakistan Mercantile Exchange has been trying to introduce the trading of agricultural commodities on its exchange and plans to roll out the trading of rice in 2012. It is unclear, however, whether they will be able to add more commodities to their offerings.
Additional input by Farooq Tirmizi
Published in The Express Tribune, January 1st, 2012.
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