The need to prioritise agricultural development

Pakistan’s agriculture performance has generally been mediocre. Growth has averaged 2-3% over the last few decades as compared to a 4-5% growth needed to meet overall economic targets. Crop and livestock yields are lower than other comparable countries. The output of several key products are below domestic needs and necessitate imports while exports are well below potential.

One of the underlying reasons for poor agriculture performance is the inequitable access to resources and in particular a highly skewed pattern of land ownership. Some 2% of farmers own 45% of all agriculture land with 98% owning the remaining 55%. Pakistan’s farm economy is dominated by the 7.4 million small holders who cultivate less than 12.5 acres. The skewed land holding pattern translates directly into major imbalances in power, access to government services, and to other productive resources such as water, credit and technology. For example, irrigation water flows disproportionately to larger farmers who often overuse or even waste water while small holders, especially those located at the tail end of irrigation channels, get little and unreliable water.

Public services, such as those for animal heath, are often provided free and on a priority basis to large farmers and commercial dairy units while small livestock holders have to ‘incentivise’ government animal health workers to visit their sick animals. Government subsidies mostly go to large famers and credit flows predominantly to big landlords, commercial livestock units and processing units. These inequities not only lead to poor overall performance but also high levels of rural poverty with severe consequences on the well-being of large swathes of the population. And with climate change, things could rapidly get worse.

Are there ways to get out of this situation? One way forward is through a movement of labour out of rural areas. Such out-migration allows consolidation of land into larger and more efficient farms. These provide better incomes to those who remain, and allows them to save and invest in productivity enhancement. Migration also fundamentally changes the power balance in rural areas by changing the land:labour ratio. This process has happened in most developed countries and more recently in several rapidly growing Asian countries. In China, the percentage of people employed in agriculture dropped from about 60% at the start of the 1990s to about 25% at present. Similarly, in Vietnam, the percent over the same period dropped from over 70% to below 40%. But such a shift of labour out of agriculture requires a strong focus on manufacturing and on the export of manufactured goods — policies that Pakistan has generally not followed. As a consequence, not enough off-farm jobs have been created and the proportion of labour employed in agriculture has hardly budged from 45% in 1990 to 38% in 2020 — a fall of 7% over three decades, as compared to a drop of 35% in China and over 30% in Vietnam.

Economists working on Pakistan have been for years pointing out problems associated with the closed and inward-looking nature of Pakistan’s economy. The most important of these is the chronic balance of payments problem — a problem that periodically explodes into a foreign exchange crisis, a rush to IMF, and a sharp brake to overall economic activity.

But the structural transformation needed in Pakistan, even if initiated now, will be a slow and painful process. In the short to medium term, the only way forward is by raising the productivity levels of agriculture, in particular those with the greatest potential for growth vis-à-vis small farmers. This requires a strong focus on reforms accompanied by well-implemented development projects.

With regard to reforms, the first thing to address is distorted pricing, marketing, and regulatory frameworks facing small farmers. At present there has been a tendency to adopt restrictive domestic and foreign trade policies, which lock producers into a handful of products that are considered strategically important such as wheat, cotton, sugar and rice. Other products such as fruits, vegetable, pulses, oilseeds and livestock — for which demand is growing in domestic and export markets — are largely ignored.

Governments have shown a stubborn tendency to ignore agriculture policy documents prepared by donors and think tanks. Often this reluctance reflects powerful lobbies that have grown up around distorted policies.

Should this or any successive government undertake the needed reforms, it will have to be complemented by measures to redirect inputs and technological improvements towards small farmers. Yields among small farmers are a fraction of those on research stations and well below those of larger farmers. Measures to address low productivity among small farmers have shown mixed results. Subsidies, often the mainstay of many government programmes tend to be largely ineffective in raising output and, in any case, largely go to better-off farmers.

Projects specifically targeting small farmers do succeed but mainly when they are supported and pushed by donors who provide assured funding, set well defined performance indicators, and closely oversee implementation. Sometimes they also work when a particularly dynamic minister creates a strong implementation team with top civil servants or technocrats from the private sector.

But the Pakistani government, at either the federal or the provincial level, simply does not have the implementation capacity of countries such as China or Vietnam. Also, unlike India and Bangladesh, it does not have a network of NGOs that can provide local and national level support to the government. As a result, most development projects and programmes for small holders often fizzle out once donor funding is over or the dynamic and reform-orientated minister changes, and his or her team disbanded. Actions aimed at improving provisions of inputs — such as water, credit or subsidised inputs — to small farmers once again falls victim to sabotage or capture by rural elites. Similarly, public research and extension services quickly retreat into chronic inefficiency and irrelevance.

But this must change. Agriculture, particularly small holder agriculture, is the only way we can make progress on national development goals. The government must give due attention both to the reform agenda as well as to design, and above all to the implementation of projects and programs.

 

Published in The Express Tribune, August 8^th, 2022.

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