How to reform Pakistan’s agriculture sector
Agriculture policymaking in Pakistan has been in disarray for decades. Progress is static, contradictions constant and reform evasive. Hence, it does not come as a surprise that the sector has failed to keep pace with demand growth and the country has continued to trail its peers in yields per hectare.
The limelight has been afforded to these challenges due to the unflattering macroeconomic implications, and grim repercussions elsewhere, but the ensuing discourse has broadly focused on cause-and-effect iterations. Covid-19 and locust attacks have been designated, resultantly, as the roots of the problem. Conferring blame on nature suits policymakers, of course, as it systematically absolves them, at least partially, from political culpability.
It should be obvious to any keen observer, however, that deficient crop yields instigating an upsurge in food inflation is not a product of rare circumstantial debacles but rather an inevitable detonation of a tinderbox. For instance, the surge in wheat prices is directly attributable to the demand-supply gulf that has developed on the back of steadily growing demand and static supply. In 2011, Pakistan produced 25.214 million tonnes of wheat which has remained virtually unchanged at 24.946 million tonnes in 2020. With the country having been compelled to import 3 million tonnes of wheat, this could only, theoretically, entail demand surpassing domestic supply and therefore necessitating import.
Of course, statistical inaccuracies in estimations are the talk of the town. But if the production has not budged in the last decade, and demand can be reasonably assumed to have increased steadily with the population, why does it come as a surprise that the country’s indigenous yield is not adequate to satisfy consumption requirements?
With Minimum Support Prices (MSPs) acting as the cornerstone of the state’s food security strategy for the better part of the last decade, the emergence of a demand-supply disparity was all but preordained. The fact that the MSP has done nothing to augment the crop yield is hard to ignore given both the cultivated area and total production remaining virtually stagnant over the last decade. Moreover, its redistributive utility in buttressing farmers’ incomes is at best ineffective and futile.
What the regulators need to understand is that in order to ensure sustainable growth in agriculture, they need to lend support directly to farmers in enhancing productivity. Price floors are nothing short of counterproductive market distortions which have only accrued benefits to eminent landowners who usually end up capitalising on their political clout in securing floor prices for their produce, and commercial banks, that are allowed to expand their top-lines by financing procurement schemes. It becomes urgent, then, especially in the backdrop of widening demand-supply deficit, to prioritise growth in productivity by deploying policies which entail direct benefit to farmers in reducing costs of farm inputs and enhancing productive efficiency.
The government’s announcement of a direct fertiliser subsidy in May indicated the realignment of regulatory direction, a commendable evolution in a sector marred by regressive policymaking. The idea was reinforced when the government decided to restrict subsidies to only phosphate and potassium fertilisers, which have historically exhibited price elasticity and require greater attention to improve the NPK ratio in application. Such decision-making seemed to foreshadow a paradigm shift in agriculture policymaking, an essential switch in context as it seemed to portend a more deliberate and targeted formulation of agriculture policy.
The subsequently unfolding chaos, however, seems to have unnerved incumbents both politically and administratively. The dilly-dallying in decision-making on the obvious shortfall in key staples exacerbated the situation, triggering a surge in inflation, as the government scrambled to instate short term fixes. The approval of a substantial hike in MSPs, then, seems to be a knee-jerk reflex that successive governments have embraced all too often over the last decade. The counter-intuitive essence of it seems to be lost on an administration hustling for political currency.
But the political landscape does not change the fundamentals, neither does it allow the incumbents to prioritise its popular image over the agriculture sector’s outlook. The policymakers need to reconsider the grave ramifications of their decisions: an 18% hike in the MSP has to be financed. With contracting fiscal space and International Monetary Fund (IMF) restrictions, it would most likely translate into retail prices, fuelling inflation; the last thing on the government’s wish list. Moreover, it’s unlikely to increase wheat cultivation, a scenario that policymakers hope for with the timing of the decision, which has remained essentially consistent over the last decade despite multiple increments in the MSP.
And if the economic baggage of a futile market intervention wasn’t enough, the Sindh government seems well on its way to escalating the anomaly. By fixing the provincial MSP at PKR2000/40kg, it has all but sanctioned double-digit inflation in the next marketing year. Again, for political optics or other reasons, policymakers seem to have disregarded the price inelasticity of wheat supply.