Reforming Punjab’s agriculture sector

Last week the Punjab government launched the Connected Agriculture Platform. The platform aims at creating a digital ecosystem for farmers, where they would use smartphones to access weather updates, crop advisory services, loans, subsidies and even markets. Two distinguishing features of this initiative are use of technology for direct transfer of subsidies and charging a fee for the phones. The first one demonstrates better targeting of subsidies, eliminating the role of fertiliser companies, whereas the second emphasises a focus on cost recovery and therefore sustainability.

The last three years have witnessed many such initiatives in Punjab, signifying the government’s renewed focus on the much-neglected yet critically important agriculture sector. But the question remains whether these initiatives are adequate to address the chronic productivity deficit in Punjab.

The productivity gap is demonstrated by a wide difference between average yields in Pakistani and Indian Punjab. These two provinces have same topography, climatic conditions, soil characteristics and plant diseases, yet the Pakistani side remains far behind the Indian side. Punjab’s average yield for wheat, sugarcane, rice and maize remains 25-45% behind average yields in Indian Punjab and about 45% behind progressive farmers in Punjab province (Pakistan). This deficit is costing Punjab about $6 billion in nominal GDP every year and is attributed to several reasons.

The first and foremost is the landholding structure in Punjab and high number of subsistence farmers directly inhibiting productivity. About 42% of farms in Punjab are less than 2.5 acres claiming 9% of the total farming area. Another 22% farms are between 2.5 and 5 acres with 13% area. In comparison, only 7.5% farms in eastern Punjab are smaller than 2.5 acres while another 8.5% are between 2.5 and 5 acres, altogether covering merely 1.3% of the farming area. No wonder then Punjab has about 140 tractors per 10,000 acres, compared to 295 in eastern Punjab.

The second issue relates to seed provisioning mechanism in Pakistan and Punjab. About 80% of seed used by farmers come from informal sources, not only casting a doubt on reliability of the source but also depriving farmers of allied extension services and advice. The Punjab Seed Corporation (PSC) provides only 1-4% seeds to farmers for a small range of crops, while costing millions to the exchequer. In the presence of a highly vibrant private sector for seeds provision for crops like cotton, sugarcane, wheat and rice, the only justification for the PSC’s existence could be to provide seeds for orphan crops, while letting the private sector take the lead for others. It seems however that Pakistan is taking a reverse direction in terms of regulating the private sector. The Seed Act puts excessive restrictive requirements on prior seed testing and certification as well as registration of dealers. In many other countries, including India, standards are specified and the private sector is expected to comply with these standards. The regulators can then identify violations and take action on a case-to-case basis.

Lastly, the productivity difference can also be attributed to the difference in the cost of production. Irrigation costs constitute 30-60% of the cost of production depending upon the crop, owing to use of diesel and electricity to run the tube wells. While electricity comes at a subsidised cost for our farmers, it is virtually free in Indian Punjab, where the state government pays for electricity bills to run tube wells.

Although Punjab is taking a number of steps to improve the agriculture sector, there is a need to do more, especially in terms of structural reforms. Not only is there a need to massively reform the seed provisioning system, but the government should also re-think its subsidy regime. In the longer run, the government must look at streamlining farm sizes and land holdings. Without these meaningful yet difficult reforms, public investment in other areas may not yield desired results.

Published in The Express Tribune, March 20^th, 2018.

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