BANKS last week released agriculture loan data for 2015-16, which claims to have achieved an ‘almost 100pc’ target — disbursing Rs598.3bn against the annual target of Rs600bn.

The disbursement was 16pc higher than the Rs515.9bn loaned during 2014-15. As per data, the number of benefiting farmers also grew from 2.2m to 2.4m during the same period.

This is certainly an achievement of the State Bank of Pakistan, which has been able to push reluctant banks into lending more liberally to the farm sector. Banks maintained that factors such as low productivity of major crops, climate change, wild price fluctuations and poor market linkages make agriculture a high risk area for them.

The small amounts, spread far and wide among farmers, add an unbearably prohibitive administrative cost to the effort. Banks have often paid fines to the SBP instead of venturing into rural Pakistan.

The SBP, however, now also needs to look into the anatomy of the loans: whether all this money has really gone into the agriculture sector or just issued in the name of the sector. Last year’s agricultural picture provides a contrast. It was a year when the sector registered a negative growth of 0.19pc. Major crops’ productivity fell by 6.25pc and important crops (cotton, rice, maize) jointly showed a decline of 7.25pc.

If inputs are dropping, the case needs to be probed by the SBP to see where this loan money is actually being invested

Normally, these loans are divided into production and development lines, with the former claiming a disproportionately large share because it is used for input purchase. However, input usage also provides a contrasting scenario. The drop in input application was one of the major reasons for the lower share of major crops’ in the sector.

For example, the urea off-take during the rabi (2015) was 2.06m tonnes in Punjab against a target of 2.13m tonnes. In 2014, the actual consumption of urea was 2.18m tonnes. The same was the case in the kharif season when only 1.5m tonnes were consumed against a target of 1.9m. In 2014 kharif, consumption was 1.7m tonnes.

Kharif usage of DAP was half of the target (0.267m tonnes against target of 0.468m tonnes) till the government announced a subsidy of Rs500/bag and sale picked up a bit, though still only achieving the previous year level. Tractor sales have been almost negligible for the last three years, with the begrieved industry claiming an over 70pc sale loss and fearing collapse. Similar has been the case with pesticides.

With the inputs sector suffering a massive drop in sales and crops failing countrywide, where this money is going needs some kind of probe. These loans may not directly and proportionately reflect the national crop productivity because productivity is a combination of many variables; climate change, for example, can destroy a crop at the last moment, taking down all the investment and the farmer’s labour.

The faulty management could also hit crops. But these loans must reflect in sales-purchase of inputs because that is what they are largely meant for. If inputs are dropping, the case needs to be probed by the SBP, to see where this loan money is actually being invested

It is also a reality, as pointed out by many bankers, that most of the farmers are not a rich lot and they may not spend the entire loan on inputs; they also meet social obligations out of that money. The bankers’ argument that new avenues (like value chain financing and warehouse receipts financing) also consumed part of the money is an equally valid point.

But still, with nearly Rs600bn pumped into the sector, it should reflect in the overall health of the farming sector. With this money, the government had targeted a growth of 3.25pc. Instead, what it actually got was a negative growth, that too for the first time after 2001. It is necessary to see how much money is going into which areas of the sector and be redirected into vital areas if necessary.

Published in Dawn, Business & Finance weekly, August 15th, 2016