The federal budget for FY15 envisages certain key initiatives for agriculture, like the creation of the National Food Security Council and a credit guarantee scheme for small farmers.

Effective implementation of these initiatives should help boost agricultural growth rate that fell to just 2.1pc in FY14 against the target of 3.8pc.

After the devolution of agriculture to the provinces, the federation’s main role is to ensure food security and promote agricultural research. So, the federal initiatives cover such broad areas as crop loan insurance, tax-easing, commodity financing mechanism, farm loans —and agricultural products’ processing in, and transportation from the country’s remote regions.

The proposed National Food Security Council will ensure policy coordination among provinces on productivity improvements, market reforms, value addition and fair prices for farmers, Finance Minister Ishaq Dar said in his budget speech on Tuesday.

This can help in boosting per hectare crop productivity without which our main objective of feeding the nation and creating export surplus cannot be obtained. “How poorly coordinated policy can take a toll in productivity is evident from inconsistent growth trend in production of all our major crops including cotton,” says a former secretary of Sindh’s agriculture department.

The credit guarantee scheme, if implemented efficiently, can help farmers engage in the

physical trade of their produce by having access to a pool of commodity warehouses

“From developing a centralised early warning system on crop diseases to sharing certified seeds to setting fertiliser prices, there are a lot of things that need more synchronisation (to sustain growing trend in any particular crop),” he added.

On the other hand, a good example of coherent policymaking yielding desired result can be found in higher production of maize, oilseeds and some pulses in last few years.

From FY15, the federal government will also facilitate bank lending up to Rs300,000 to some 100,000 small un-banked farmers. It will pick up 50pc of loss if such loans remain unpaid.

The government has earmarked Rs30 billion for this credit guarantee scheme. All banks will participate in this scheme, the details of which will be outlined by the State Bank of Pakistan.

This, coupled with the increase in the agricultural lending target from Rs380 billion for FY14 to Rs500 billion for FY15 should make bank financing to agriculture sector more inclusive. But bankers point out that credit guarantees often end up nowhere for ‘they inherently encourage loan defaults and are used more for political support,’ as a senior NBP executive puts it.

Perhaps, a more worthy initiative in the federal budget is the extension in the scope of crop loan insurance which can now be availed by farmers with land holdings up to 25 acres. Earlier, it was meant for those with land holdings up to 12.5 acres. The federal government has set aside Rs2.5 billion to reimburse crop loan insurance fees to be paid by farmers. The scheme is open for growers of five major crops including cotton, wheat, rice, sugarcane and maize and is projected to benefit 700,000 people.

Farmers lobby groups, however, complain about little or no access to crop loan insurance scheme. The Pakistan Economic Survey makes no mention of how this scheme fared in FY14 nor did the finance minister say anything about it.

The reality is that the scheme has so far not yielded any worth mentioning outcome, inquiries made at banks reveal. “The extended scheme can work only if inputs from real representatives of small farmers are incorporated in the how-to-go-about-it mechanism,” says a senior executive of Sindh Bank.

But another budgetary move, an improved version of the old commodity warehouses/ receipts financing scheme seems to be appealing. The federal government has now decided to invest Rs1bn as its equity for establishment of a public-private partnership company to regulate and monitor this system. In addition, the central bank will provide concessional long-term financing for setting up of storage and cold-chain facilities.

“Pakistan Mercantile Exchange (PMEX) is very keen to work in close coordination with the SBP (in making this scheme a success),” says PMEX Managing Director Ejaz Ali Shah.

The scheme, if implemented efficiently, can help farmers engage in physical trade of their produce by having access to a pool of commodity warehouses, and banks can benefit by offering innovative agri-financing products.

Published in Dawn, June 9th, 2014