ISLAMABAD: A low agricultural yield and high waste continue to plague the upstream parts of the value chain while downstream activities remain small, leading to low productivity across South Asia, according to a new World Bank report.

The World Bank study, titled Agribusiness in South Asia, says outdated support prices for cereals, farm inputs and subsidies impede diversification to more productive systems while distorted trade policies also hinder competition, thereby rendering the sector insulated and limiting growth.

Much of the region’s agricultural development has come at a high cost in terms of natural resources. In particular, the overuse of water has been driven by substantial direct subsidies: irrigation charges in Pakistan cover only 10 per cent of the cost and indirect subsidies. Free power enables farmers in Indian Punjab to pump beyond sustainable level.

The study says the stress on land and water resources is exacerbated by rapid income growth, urbanisation and climate change. Climate change also leads to interruptions in supply and volatile prices for the food industry.

The report says agricultural production in South Asia is predominantly small scale, making it cumbersome for processors to secure a steady supply of quality products at a reasonable cost.

Concerns that large processors will bypass smallholders by integrating vertically with intermediaries/aggregators or by importing the produce, coupled with fears that large processors would exploit smallholders, have led some governments to put in place counter-productive policies.

South Asia is still predominately a producer of primary agricultural products, which are larger in value than food processing in all countries. Except for Pakistan, other South Asian countries do not come close in terms of value added as a proportion of primary agriculture.

Also, South Asia is poorly connected to the global food value chains in terms of both exports and imports. South Asia’s share of world agro-food trade is only 3pc for exports and 2pc for imports as opposed to 14pc and 9pc, respectively, for East Asia.

South Asia’s recent increase in the export market share is driven by India, mostly due to the removal of the export ban on rice.

All countries, except Pakistan, export more raw material than processed products. It says that leading firms in South Asia have had to develop linkages with smallholders, who dominate production of raw materials in the region. Firms have increasingly relied on joint ventures with smallholders.

Lack of market information and logistical difficulties prevent small-scale producers in South Asia from accessing markets efficiently.

The region’s agriculture sector is also hampered by some instances of inverted tariff structures. Citing example, it says Pakistan’s import duty on finished poultry products from Malaysia is zero, and from China is 16pc, but local poultry processors must pay 15-30pc duty plus 17pc sales tax on inputs.

Non-tariff barriers (NTBs) have long been cited as one of the major reasons behind low intra-region trade. NTBs are far more pronounced in India and Pakistan than in the other countries. These barriers can broadly be categorised as the positive list approach, technical barriers to trade and sanitary and phytosanitary measures, trade facilitation and customs procedures, financial measures, para-tariff measures and visas.

Most countries in the region have recognised the need for reforms in agricultural marketing. India and Pakistan, which have the most distorted marketing policies, are taking several steps to this end. The ‘mandi’ in Punjab adopted its Agricultural Produce Markets Ordinance in 1978, which was virtually unchanged from the original Act of 1939 and provides for strict control over the marketing of agricultural produce via market committees.

Also, produce must be traded through the market, mostly with a fee levied by the market. As a consequence, there are no private markets to compete with the established markets. There are about 150 fruit and vegetable markets and 150 grain markets in Punjab.

Published in Dawn, October 19th, 2016