Can agriculture be a leading sector?

Agriculture is usually the stepchild of the development process. As countries grow, its importance shrinks while that of the manufacturing and services sectors expand. However, Pakistan has failed to make this transition. It has failed to build up an efficient competitive manufacturing or services sector; it has failed to develop its exports of high value goods and services; and it has failed to keep up with neighbouring countries in terms of high and sustained growth.

There is no doubt that over the medium to long term, Pakistan has to develop an efficient and export-oriented manufacturing and services sector. However, this will require overcoming a plethora of structural constraints. These include poor infrastructure, unreliable energy supplies, a lack of skilled and educated manpower, a heavy dependence on imported inputs, and limited access to global value chains. Even if appropriate policies and programme are set in place, overcoming these constraints will take time.

In the interim, could agriculture play a greater role? Currently, Pakistan has a bloated and inefficient agriculture sector. It employs about 40% of the labour force but produces only a quarter of GDP. The vast majority of farmers cultivate small plots which become increasingly uneconomic with each passing generation. The lack of capacity of small farmers to earn and invest in machinery, land improvement and training is a major bottleneck to growth.

Deprived of investment, skilled labour and entrepreneurship, inefficiencies abound. Yields on major agriculture products are well below their potential and critical resources such as land, water and energy are utilised inefficiently. The result is a consistently anemic growth of between 2% and 3% — barely above population growth.

There are several reasons for prioritising agriculture in the current economic environment. First, higher agriculture growth would generate many positive effects: it would reduce our dependence on imported food and on cotton — an essential raw material for our textile industry; it would help enhance exports of high value fruits, vegetable and livestock products; and, most importantly it would raise incomes and nutrition level among the rural poor — a large and particularly vulnerable group in our society.

Second, agriculture growth would improve our foreign exchange situation. Agriculture does need some imports such as machinery and chemicals but the main inputs — land, water and labor — are domestic. Higher growth would help save on imports and enhance exports; and the overall impact on the balance of payments is likely to be positive.

Third, there has been a rising interest from the private sector in agriculture over the past 2-3 years. This is due to shortages and high prices for food and other agricultural commodities resulting from Covid, the conflict in Ukraine and various trade disputes. Private sector operators have seen the scope for expanding investments in the sector.

Increasing interest in agriculture can be seen, for example, in the creation of production clusters. In suitable areas, farmers, traders and transporters, as well as new investors and entrepreneurs, work together to specialise in production and marketing a particular crop. Examples of such production clusters include bananas in lower Sindh, potato in Punjab and cherries in Gilgit Baltistan. Another way has been through “diversified farming” where several crops on the same plot of land. The mix of crops is chosen with the help of seed suppliers, market agents and transporters in such a way that they have different planting and harvesting times. This means that farmers have a smooth cash flow over the year, and that agronomic and market risks and reduced.

But these developments, while innovative and exciting, are still not enough to bring about strong growth in the entire sector. Much more has to be done and Government has a key role to play.

Among the most important policy change would be to remove distortions and allow markets to work. Currently restrictions on internal and international trade create production and consumption distortions. The ongoing chaos in the wheat market is a case in point where bans and controls are creating local shortages and price spikes. Similarly, in the case of sugar, import restrictions, the occasional export subsidy and virtually free supply of irrigation water has artificially raised the profitability of sugarcane production to the more economically viable cotton crop.

There is also a need improve markets for key inputs. Sale and lease of agricultural land should be made easier, for example by greater use of computerised land records; surface irrigation water should be priced closer to its true price which would encourage better and more equitable use; and credit flows to small farmers should be increased for example greater use of financial intermediaries.

Finally, there is a need is to improve the impact of public expenditures allocated to agriculture. Over the past decades, billions of rupees have been spent on fertiliser subsidies and public procurement of wheat. Both have largely benefited the larger farmers who are more interested in maintaining rental incomes than in enhancing productivity. Similarly, the benefits of irrigation development have been largely hijacked by large landholders to the detriment of small farmers who often live in the tail end of canal systems. The Government also spends large amounts on maintaining support services such as extension, research and animal health which are inefficient and largely ineffective.

Public money saved from cutting back on the above expenditures should be redirected.

Among high priority actions are technology generation for products with high potential which have received little or no attention such as fruits, vegetables and livestock; development projects aimed primarily at creating services and facilities for small scale farmers and the rural poor; and for improving the regulatory framework in areas such as control of animal diseases which cripple our exports, or in the area of food safety.

Published in The Express Tribune, May 24^th, 2023.

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