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Entrepreneurs will be key players in corporate farming

December 11, 2017

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LATE last month, the federal government allowed export of 1.5m tonnes of sugar with a subsidy of Rs10.7 per kilogram. But the Pakistan Sugar Mills Association was not happy because it considered the subsidy inadequate amid falling international sugar prices.

In every cane crushing season, one witnesses a tug of war between farmers and mill owners over the price of cane. At least in the case of Sindh, the announcement of an “agreed” official price is usually delayed by the provincial government. This works in favour of mill owners and to the disadvantage of growers in the province.

Mill owners want either corresponding support for sugar price as given for cane or a free hand for market forces to set prices of the two commodities on the basis of demand and supply.

The issue remains unresolved despite the importance cane economics holds for the country. Pakistan is among the world’s top 10 producers of cane, and the sugar industry is the country’s second largest after textiles.

Unlike Pakistan, the major cane-producing countries have upgraded and diversified production to a level that sugar has turned into a cheap by-product. The country is moving in this direction at a snail’s pace. Currently the industry’s notable by-products are: molasses, ethanol, bagasse and press-mud. But not all the mills are producing the value-added ethanol.

There is a huge potential for producing a wide of range of ancillary products, a few of which may be financially viable in the currently growing domestic market. Diversifying products, as some developing countries have already done, can reduce the cost of sugar production and make it globally competitive. It is also about time policymakers gave incentives to entrepreneurs undertaking pioneering efforts.

The key challenge facing the commodity-producing sectors is low productivity, as evident from a wide range of subsidies on inputs, on credit for crop production and on processed finished products for exports. The crutches can only be removed by improving per-acre crop yield and industrial productivity to international levels.

Small farmers are the most suitable candidates for corporate and cooperative farming, as they are highly vulnerable to the vagaries of climate and exogenous shocks

Much of the country’s industrial capacity — including textiles, sugar and leather goods — is fed on primary produce such as cotton, cane and raw hides or skins, with substantial supplies coming from uneconomic small farming units and dispersed family holdings of livestock or least productive big farms still managed under crop-sharing arrangement between the rural gentry and the tiller-tenants.

The low productivity in agriculture is a major drag in efforts to improve industrial productivity, though a stable exchange rate for the past two to three years has helped the manufacturing sector to keep the cost of imported intermediate goods largely stable.

In a way, agricultural productivity holds the key to building an efficient, competitive and subsidy-free industrial economy and therefore deserves to be at the centre of the country’s development strategy.

An article published in The Economist on Oct 14 points out that restructuring agriculture is “one crucial factor that has been relatively underplayed” in economic literature on East Asian miracle.

Japan, followed by four original ‘Asian Tigers’ — that is Hong Kong, Singapore, South Korea and Taiwan — and China redistributed farmlands which served a catalyst for “sustained bounded growth for decades”. Most studies attribute the success story to market-friendly policies and their resulting outcome.

In sharp contrast, South-East Asia — Indonesia, Malaysia, Thailand and Philippines — did not do so well for want of inclusive agricultural growth that “prefigured today’s thriving democracies”.

Pakistan’s own experience of moderate cut in ceilings of landholdings, both during military and civilian rules, did not spur enough growth in farm productivity and nor did it promote inclusive agriculture that could make a significant, long-lasting difference.

These reforms were executed by a rural administration under the sway of the landed gentry and in the absence of any social force in the countryside to back them.

Even Sindh’s scheme for distributing state lands to landless peasants did not succeed due to lack of financial and other required support to bring allotted piece of land under cultivation. Many sold their holdings to affluent landlords. Resumed holdings earmarked for leasing to landless were instead leased out by the Zia regime to affluent farmers.

In his recent book How Asia Works, Joe Studwell says farm yields often stagnate as population grows, making land scarce. Landlords jack up rents and lend at extortionate rates. That leaves poor tenant farmers mired in debts, with no money to invest.

In Pakistan, about half of the cost of farm inputs is shared between the tenant and landlord under the existing crop-sharing arrangement — usually on a fifty-fifty basis — at the time of harvest when crop prices are low and tenants burdened with debt are in dire need of money.

However, mechanisation of farms is introducing wage-labour or contract system which is far more efficient in increasing productivity.

The issue on land redistribution has once again surfaced at the international level in Banyan’s column in The Economist which considers grant of ‘land to the tiller’ as of ‘crucial importance of fair farming to Asian prosperity’.

In Pakistan, farm productivity also suffers because of a huge number of small and uneconomic holdings that offer enormous scope for consolidation of fragmented pieces of fertile land into large cooperatives or corporate farming run on economies of scale. The equity investment could come in the shape of these mini-landholdings.

According to the Agricultural Census of 2000, 61pc of the private holdings were then under five acres each and 94pc were in the category of less than 25 acres. The situation appears to be no different today.

Small farmers are the most suitable candidates for corporate and cooperative farming, as they are highly vulnerable to the vagaries of climate and exogenous shocks. They are quite often hit by a bad crop, adverse economic/farm policies and slip back to below the poverty line, says an agricultural expert.

The key players in corporate/cooperative farming will be entrepreneurs. The big question is: will they rise to the occasion to address the daunting challenge?

jawaidbokhari@dawn.com

Published in Dawn, The Business and Finance Weekly, December 11th, 2017