IN the run up to the announcement of the federal budget, farmers usually get nervous because they have no clue about what the document would hold for them. It is largely prepared by the bureaucracy, with professional input from urban intellectuals who are not so conversant with the rural setting.

This year, the worry is deeper than usual. The farmers feel that agriculture has become a neglected sector, going by the experience of the last one year. There has hardly been any policy statement that reflects the government’s priority for the sector. The farmers have no idea what the government is planning for them. But they anxiously wait as the federal budget provides the environment in which the sector operates.

Though the sector has been devolved to provinces, there are key areas that still remain with the federation. These have the capacity to make or break the sector. The taxation regime is one such area. Seed certification is another. Import of inputs and export of agricultural products is yet another. To top them all is the monetary policy, which affects marketing and prices of the whole sector.


The government would be well advised to tax the product, not the inputs; let farmers increase their produce with cheaper inputs, and then tax the production. By doing so, the government will not only increase its revenue but also unleash sectoral potential and create necessary social impact in rural areas


These policies provide the crucial context in which agriculture performs in the country. Unless these are in favour of the sector, the provinces can do little, even if they try. And how much the provinces are trying to exploit, if even by a small margin, remains a debatable point.

But the federation, on its part, has failed to establish an enabling environment and lead policy initiatives. Farmers pray that this budget-making exercise, led by the spirited Finance Minister Ishaq Dar, proves to be an exception.

If one can suggest some measures, they must start with taking a long-term policy decision about whether the government wants to use the sector as a revenue-generating source, or if it’s social impact weighs more than the small collection of Rs14 billion in general sales tax?

The question is crucial for two reasons. Firstly, it flies in the face of international practices. Many countries subsidise the sector, whereas Pakistan taxes it. Secondly, taxes on inputs have strangulated production. Even next door India is subsidising inputs and outputs to the tune of over $10 billion in order to promote production and trade.

In Pakistan, the sector assumes added social importance because of its role; it provides food security to 180 million people and provides direct employment to over 44pc of the population (72 million people). If the government keeps on taxing the sector, and production continues to fall (as it has for the last many years), it will be increasingly hard for the state to ensure harmonious economic development.

Since the imposition of the general sales tax, imports of pesticides and fertiliser have fallen exceptionally.

The current taxation regime is hitting production at the cost meager collection. The government would be well advised to tax the product, not the inputs; let farmers increase their produce with cheaper inputs and then tax the production. By doing so, the government will not only increase its revenue, but also unleash sectoral potential and create necessary social impact in rural areas.

The second area where urgent federal attention is needed is the international marketing of agricultural products. Pakistan is currently holding over $1 billion of rice, which has not been exported. For many years, it has carried huge wheat surpluses at massive administrative and financial cost, i.e. unless the domestic crop failed and the stocks were consumed locally. This year, the scenario may be repeated as the country has harvested a bumper wheat crop.

Agricultural exports are banned regularly, even those to low-end markets like Russia and Iran. None of the produce has been able to establish a brand outside our borders because of marketing failure.

This is an area where the government needs to commit its financial, political and administrative capital, because agriculture can earn billions of dollars in revenue every six months with the right set of production and export policies. The budget provides an opportunity to readjust these.

The government’s monetary policy has only negatively impacted the sector. The positive side does not touch the farmers, as the exploitative private sector occupies space between the government and the market.

The fluctuation of the rupee against the dollar is one case in point. The rupee’s depreciation immediately translates into higher input prices, but a 10pc appreciation in the last two months has not impacted the market prices of those inputs. The entire benefit is monopolised by the private sector because of weak regulation.

These are areas where the federal government needs to work on in the upcoming budget. If it can somehow correct the bigger agricultural picture, smaller details would fall in place with little effort by the provinces. However, if the federal policy framework continues extracting cost from the sector, precious little can be expected from the provinces.

Published in Dawn, Economic & Business, May 26th, 2014

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