WITH the federal budget announcement only three days away, farmers are holding their breath, not knowing what it would mean for them. Caught between their expectations and harsh economic realities of Pakistan, they are keeping their fingers crossed.

However, those involved in some kind of pre-budget discussions, or lobbying, with official financial wizards think that it would be, by and large, a repeat of last year as far as the incentives and subsidies for the sector are concerned.

They believe that the government does not have fiscal space to expand the subsidy regime or change the taxation regime. Besides, it would be equally difficult for it to withdraw incentives that it gave last year — especially in an election year. The overall picture, thus, would remain the same.

But still, farmers did present a charter of demand during their meetings with the prime minister, asking for a range of subsidies and tax relaxations to off-set the impact of a deteriorating rupee, expanding international prices of some imports (like pesticides) and increasing diesel prices, which, put together, are expected to raise their cost of production next year.

Their charter of demands included cutting the general sale tax (GST) on fertiliser to a uniform two per cent and the income tax, which the government collects at the port on imports, to zero per cent.

They also want the government to provide gas to three urea plants that have been closed owing to gas shortage, or allow imports. Similarly, they want all regulatory duties be withdrawn on pesticides and the impact of increase in international prices be bridged through subsidies.

The government does not have the fiscal space to expand the subsidy regime, but it will be equally difficult for it to withdraw incentives in an election year

Farmers also seek a flat rate of Rs4 per unit for agriculture tubewells. They also want the government to fix the support price of all big crops (cotton, potato, maize and rice), provide gypsum free of cost to treat soils for poor health, and cut GST to 2pc on the import of agriculture machinery.

On its part, the government is only considering a reduction in GST on fertiliser for its own reasons. Federal officials, along with farmers’ bodies, think that cash subsidies do not fully benefit farmers, especially smallholders. For this reason, it is likely to bring varying rate of GST (4pc to 11pc on different fertilisers) to a flat rate of 2pc because it would only adjust Rs52 billion subsidy, which it granted last year and intends to continue this years as well, with reduction in tax income.

Government officials, however, believe that the price of urea may have to be increased to Rs1,500 this year instead of Rs1,400 per bag last year even after this GST adjustment. It is because of expensive liquefied natural gas (LNG), which is now costing the industry a little over $10 per million cubic feet (mmBtu) against the $5 per mmBtu price of natural gas. So, despite this tax adjustment, farmers may still end up paying Rs100 more on a urea bag — or an overall burden of Rs12bn, given the national consumption of urea at 120m bags.

An increase in the cost of production might also come from pesticides, which saw their basic poisons freed of GST last year but have around 20pc regulatory duty on other ingredients, which form 30pc to 35pc of the cost of production. Global prices of basic poisons have also gone up by 80pc in the last one year.

Add the impact of 11pc rupee depreciation in the last few months and pesticide prices could go up by 80pc to 90pc, as compared to last year.

Pesticide prices have already gone up by 25pc to 30pc, as market competition is not allowing manufacturers to pass on the entire impact to consumers. But they would certainly rise once budget is passed and no remedy is found in it. This is the area where farmers want the government to intervene and keep prices to a minimum.

Government officials claim that the subsidised tariff on agri-tubewells would stay at Rs5.35 per unit for off-peak hours at the estimated cost of Rs27bn to the national exchequer.

The subsidy on concessional loans (that came through agriculture development and national banks at 9.9pc) to small farmers (up to 12.50 acres) might also stay and so would be duty relaxation on the import of agriculture machinery and seeds.

This relaxation helped the country when the Pakistan Bureau of Statistics reported 31.98pc increase during the first quarter of the current fiscal year (July-September) as compared to the same period of last year. According to the bureau’s data, agricultural machinery worth $42,733 was imported during the first quarter as compared to $32,378 a year ago.

Published in Dawn, The Business and Finance Weekly, April 23rd, 2018