Budget 2016-17: Reinforcing the same old Pakistani agricultural story - no improvement!

Even though sugar is sold at Rs40-45 per kg internationally, our consumers buy it locally at Rs55-60 per kg.

Muhammad Shafiq Haider June 11, 2016
Imagine the trickledown effect on the economy of a country when its largest employer, absorbing 42.3% of the country’s total labour force, and the highest contributor to the national export basket (up to 73.1%) fails miserably!

During Fiscal Year (FY) 2016, the performance of the agriculture sector witnessed a negative growth of 0.19%. The growth of important crops (cotton, sugarcane, rice, maize and wheat) other crops (bajra, jowar, gram, barley, tobacco, potatoes, onions) and cotton ginning registered a growth of -7.18%, -0.31% and -21.26% respectively.

But in view of random and arbitrary agricultural reforms and policy interventions by successive military and civil governments, this was expected sooner or later. Agricultural reforms in Pakistan, for major part of them, have been focused on short-term troubleshooting instead of creating an environment for sustainable growth of the sector in the long run.

The agriculture sector is sickened by shallow post-farm policy interventions that are not linked, at all, with enhancing productivity of the sector; they only incentivise production of certain crops at larger scales without any positive effect on per acre yield. The instruments of these interventions are so casually designed that they exhibit the sheer want of empathy, understanding and capacity on part of the policymakers.

For example, consider the impact of wheat procurement price on per acre productivity. There is probably no verifiable correlation between the two. Around 95 per cent of the landholders own less than 12.5 acres of land. Resultantly, their economics of feasible farming is so poor that they end up selling their wheat crop to middlemen before they harvest it. The other small landholders, who are able to finance their crops themselves, also end up selling them to the middlemen at visibly lower prices since the government system for procuring wheat from small farmers is coarse, slow and inefficient. Who ends up gaining? Farms, farmers or the rent-seeking middlemen? Resultantly we have per acre yield of ancient times whereas our neighbouring country has almost doubled the productivity of its farms.

Another example of ill-designed post-farm policy intervention is subsidy on the export of sugar. Sugarcane farmers are forced to call strikes to negotiate prices with mill owners who, on the other hand, pressurise the government for freight and export subsidies, pretending that the cost of production is higher than foreign competitors. The government then ends up regulating the import of sugar, applying hefty duties on imports to protect the local sugar industry. This results in the erosion of consumer welfare to such an extent that even though sugar is sold at Rs40-45 per kg internationally, our consumers buy it from local producers at Rs55-60 per kg.

Who ends up gaining? The farms, farmers or the sugar industry? How does a subsidy on the export of sugar contribute to enhancing the productivity of sugarcane farms? It only ends up incentivising the cultivation of more and more land for these sure selling crops.

This is most probably why only wheat and sugarcane production witnessed a positive growth of 1.58% and 4.22% respectively during FY 2016.

A quick glance at the most agreed chronic issues of agriculture in Pakistan and their corresponding policy interventions announced in budget 2016-17 reflect a similar short-term troubleshooting instead of focusing on long-term sustainable solutions.

There is no denying the fact that some of the interventions approved in the budget 2016-17 will directly ease the burden of a farmer’s cost of production. Whereas the others, such as those related to agriculture credit, is the same old story. The credit system is so inefficient that small landholders hardly avail it. Therefore, without reforming the agriculture credit system, enhancing the amount of credit is of no use.

Similarly, concessional electricity tariff on agriculture tube wells is another targeted and encouraging instrument but then the government seriously needs to look at the issue of frequent over-charging by Distributed Energy Services Companies (DESCOs). Farmers are humiliated hovering around DESCO offices for correction of their bills and there is no effective mechanism to hold DESCOs accountable for malpractice. At end of the day, instead of correcting their bills, DESCOs, being gracious, allow the farmers to pay the bill in instalments; the bill he never owed in the first place!

Most importantly, many interventions approved in the budget 2016-17 may work as a short respite for the rapidly sickening agricultural sector; they do not significantly contribute to enhancing farm productivity.

In order to revive and sustain a thriving agriculture sector, Pakistan direly needs to introduce pre and on-farm policy interventions – in preference to post-farm interventions – such as making investments on agricultural research and developing indigenous high yielding varieties/seeds, incentivising farm mechanisation, building of farms to market infrastructure, simplifying credit system and subsidising farm inputs.

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