FOR the first time in decades, the agriculture output shrank 0.19pc in 2015-16. This is significant in view of 2.9pc growth last year and the target of 3.9pc for the current year. The contraction has reduced the share of the sector in GDP to 20.5pc from 20.9pc this fiscal year.
Agriculture is commonly termed as the backbone of Pakistan’s economy as, apart from its significant share in GDP, it provides livelihood to 43.5pc of rural population and contributes to 73.1pc to the national export basket.
The secular decline in farm output is spearheaded by a plunge in cotton production from the targeted 15.1m bales (170kg each) to 10.78m bales. Cotton provides raw material for the textile sector which constitutes nearly 60pc of export earnings and employs 40pc of the industrial labour force.
On the other hand, the predicament in wheat is that of surplus rather than scarcity. Due to unsustainable procurement price ($360 per tonne), almost double the international rates, the surplus stocks cannot be offloaded because the combined organisational effort of the federal and provincial governments has been insufficient to counterbalance the market forces.
Sugarcane crop has the analogous problem of contrived overproduction, induced by inflated support price. The surplus sugar is to be exported with subsidy, that too, quite often turns out to be insufficient.
Rice, the only crop with major part shipped abroad, is facing crunch on the international market. The premium quality basmati rice has drastically lost market share to Indian extra-long-grain basmati look-alikes, precipitating the crunch in farm incomes which have been halved during the last two years.
The agriculture crisis is not only endemic but systemic as well. At the core of the predicament is the dual problem of low productivity and avoidable market intervention
Horticulture, the second largest non-textile export product, is heavily dependent on three fruits (kinno, mango, date) and two vegetables (onion and potato). All these products are facing critical issues — kinno orchards are infested with canker; mango exports face frequent voluntary export bans due to ubiquitous quarantine pests; dates are marketed with low value addition; onion and potato become competitive on the international market only when the domestic market crashes.
Consequently, despite being an agrarian economy Pakistan is a net food importer with $5.03bn imports and $4.56bn exports of food products in the outgoing fiscal year.
The agriculture crisis is not only endemic but systemic as well. At the core of the predicament is the dual problem of low productivity and avoidable market interventions.
Crop yields in Pakistan remain significantly lower than other countries with comparable agro-climatic conditions. According to FAO, “The agro-ecological potential for irrigated wheat in Punjab suggests that yields of about six tonnes/ha could be attained, compared with current yields of 2.5-3 tonnes/ha”. The yields of all other major crops, for example, cotton, rice, sugarcane and maize show a similar picture.
The commercialisable agricultural research in development of indigenous high yielding varieties has long been lacking in the past. The Rice Exporters Association of Pakistan rightfully complains that “Since the approval of Super Basmati in 1995, no high-yield, short-duration, disease-resistant and extra-length rice variety has been developed by Pakistani scientists whereas during the same period India has developed 21 varieties of basmati and its hybrids”.
The Bacillus Thuringiensis (Bt) cotton, developed abroad, accounts for around 90pc of cultivated area in Pakistan. Similarly, almost all the cultivated varieties of sugarcane, maize and potato are developed abroad and adopted in Pakistan. The foreign varieties, developed for different agro-climatic conditions, cannot provide optimum yield. Thus Pakistan’s productivity is bound to remain low.
While ensuring food security, the government is expected to protect farm incomes, which can be secured through either increased price or enhanced productivity/yield or a combination of both. The preferred policy so far has been market intervention through (a) procurement of produce at a higher than real price (for wheat), (b) enforcement of minimum purchase price (for sugarcane).
The increase in price without enhancing yield renders Pakistani produce uncompetitive on the international market and even the domestic market is to be protected through high import tariffs, at considerable cost to the consumer. Conversely, the increase in yield leads to higher returns for the farmers without additional cost to the consumer.
The cyclical price variations driven by open market are intrinsic to the agriculture sector and are not worrisome unless market mechanism is interfered. The price and production cycle in agriculture works naturally — price-boom benefits farmer while consumer pays; higher price encourages over-supply which in turn causes price depression; lower prices benefit consumer while farmer loses; price slump discourages production which pushes the prices upward again, thus completing the cycle.
The cycle is disturbed if the attractive domestic market, during price escalation phase, is opened for foreign producers to bring down the prices. Consequently, the farmer is unable to recover his loss and the government has no choice but to advance outright farm subsidies which are usually insufficient to compensate the loss of farmer’s potential gains from the price tide. The farmer, therefore, remains at a perpetual economic disadvantage.
The turnaround of agriculture sector and consequent food security, depends on productivity increase rather than market interventions. To make farming effective in supporting sustainable economic growth trajectory, a policy framework is needed to boost yield of major crops and shift focus to high value agriculture that includes horticulture, livestock and fisheries.
The writer is joint secretary (ExIm), Ministry of Commerce
Published in Dawn, Business & Finance weekly, June 6th, 2016