The State Bank of Pakistan has enhanced, after five years, crop loan limits, which are expected to boost farm production and push up demand for agricultural inputs.

These limits are indicative. And banks can adjust them according to “actual credit requirements of farmers, market conditions, and prevailing prices of farm inputs at respective places,” says a SBP notification.

New per-acre limits for growing of rice, wheat, cotton and sugarcane have been fixed at Rs34,000, Rs29,000, Rs39,000 and Rs53,000 respectively, showing 77-86pc increase over previous limits set in 2008.

“As such, per-acre loans for major crops will now be a bit closer to the actual cost of inputs which has risen sharply over the last five years,” says Malik Sakhawat, an executive member of Farmers Association of Pakistan. “If bank branches implement new limits immediately, the benefits of the move should soon be visible.”

Bankers involved in agricultural lending say that in addition to four major food crops, the central bank has also revised upwards indicative per-acre loan limits of many minor crops. Most prominent among them is maize, which has now emerged as a major crop but is yet to be officially classified as such. The new loan limit in case of maize is Rs34,000 per acre, up from Rs20,000 set in 2008.

Similarly, loan limits for sugar beet and potatoes have been increased from Rs17,000 and Rs36,000 to Rs31,000 and Rs34,000 per-acre respectively. For the first time, hybrid maize has been recognised as an eligible item for attracting a different (a higher) loan limit of Rs38000 per acre. Besides, capsicum and tea have also been included in the list of minor crops and their indicative loan limits set at Rs30,000 and Rs42,000 per acre respectively. “These measures have been taken on the recommendation of a high-powered stakeholders’ committee and the purpose is to promote production of these items keeping in view their growing profile,” says a member of the committee.

The increase in per-acre crop loans at the beginning of 2014 is important in that it has come at a time when fertiliser off-take is on the rise.

In 2013 total urea off-take, for example, grew by 13 per cent to 5.89 million tonnes, data released by National Fertiliser Development Centre show.

Research wings of provincial agriculture departments recommend optimal quantity of fertiliser for different crops, but cash-strapped farmers can’t afford it. As a result, their crops suffer. Larger loans for crops would help address this issue, besides keeping fertilisers’ demand up.

By June 2013, the number of agricultural loan takers exceeded 2.318 million. Bankers say a majority of borrowers were crops raisers. Since 60pc of total agricultural credit is offered as farm loans, the enhanced crop loan limits would raise the number of borrowers in a big way going by the experience of previous re-setting of loan limits in 2008. Besides it should also make easier to achieve this year’s disbursement target of Rs360 billion. The gross agricultural lending of Rs336bn in FY13 exceeded the target of Rs315bn.

The two broad categories of agricultural loans are for crop production and development, and for production and development of livestock, fisheries, poultry and horticulture etc. Bankers say higher loan limits for crop-raising would not only meet financial cost of inputs like fuel, fertiliser, seeds, pesticides and labour but also for purchase of tractors, tube wells threshers, harvesters and levellers etc. This, in turn, should perk up demand for these items.

However, larger crop loans would impact on demand of agricultural machinery after quite some time.

“(In addition to fertiliser), their immediate impact would be on demand for pesticides and seeds. Besides, many of us will be able to spend more on buying usage hours of diesel-run electricity generators,” says a progressive wheat grower of Sindh. Farmers countrywide routinely use heavy diesel-run generators available on rent in the neighbourhood and pay for it on hourly basis.

Since crop loans can be used for opening LCs for imported inputs, higher disbursements would be beneficial for those progressive farmers who experiment with hybrid seeds to increase crop yields.

“This is also good for those medium or large farm owners who are looking forward to import solar energy panels or steel silos,” explains head of agriculture credit department of a local bank, adding that even construction of cold storages and silos also comes under development loans for the farm sector.