The cost of agricultural inputs showed a rising trend during the last fiscal year, reflecting the impact of a weaker rupee and higher fuel prices.

The overvalued rupee lost 16 per cent worth against the dollar between July 2017 and June 2018. Meanwhile, domestic prices of petrol and high-speed diesel increased more than 26pc and 29pc, respectively, during this period. Whereas the rupee-dollar parity during the first two weeks of the current fiscal year has remained almost intact, prices of petrol, diesel and other fuels have risen even further, creating inflationary pressures.

This twin menace continues to take a toll on agricultural input prices, making life difficult for growers, especially food crop producers. Unlike cotton producers, food crop growers cannot immediately pass on the additional cost to buyers.

Farmers’ lobbies are complaining about a sharp increase in fertiliser prices within a year and are accusing manufacturers of resorting to profiteering. But manufacturers hold erratic gas supplies to production plants responsible for the higher cost of production and, thus, higher prices.

Changes in the gas pricing mechanism made towards the end of the PML-N government along with the rupee depreciation and higher fuel prices have also led to the higher cost of fertiliser production, industry officials say. An upward trend in international fertiliser prices seen in recent months has added fuel to the fire, they insist.

Retail prices of domestically produced fertilisers have witnessed 10-20pc increase in the last year

Depending upon the type and brands, retail prices of domestically produced fertilisers have witnessed 10-20pc increase in the last one year, according to officials of the Farmers Association of Pakistan (FAP). Manufacturers say, however, that ex-factory prices have seen a much smaller increase — 5-10pc maximum — adding that the claim of FAP is based on excessive rates charged by some unscrupulous fertiliser distributors at certain places.

Prices of imported crop seeds and insecticides and pesticides have risen chiefly due to 16pc depreciation in the last fiscal year. But inflationary trends — and more so general inflationary expectations — rekindled by a weaker rupee and higher fuel prices have also pushed up the cost of domestically produced seeds and insect and pest killers.

Growers’ lobbies claim that prices of seed bags of major and minor food crops, like wheat, paddy, maize, pulses, potatoes, onion and garlic, have gone up by 15-25pc in Punjab and Sindh. Rice growers say acute water shortages in paddy-growing areas amid a rising cost of inputs may result in higher domestic prices of exportable rice in the next season beginning October. They say that 20-kg bags of Basmati and non-Basmati paddy seed varieties that were available at around Rs2,000 and Rs1,200 per bag during the last season are selling for as high as Rs2,500 and Rs1,500 during this season.

Whereas enhanced prices of seeds, fertilisers, insecticides and pesticides boost the cost of crop production immediately, pricier agricultural machinery and implements have a similar cost-push effect with a time lag. And whereas the falling rupee increases the cost of imported farm machinery and implements in real time, it also pushes up prices of domestically produced machinery and implements after a while.

Add to this the elements of obsolete methods of obtaining seeds from standing crops and improper storage facilities, wheeling and dealing in the fertiliser distribution system and charging premium on subsidised farm machinery by politically connected dealers, and you can see why the cost of agricultural inputs in Pakistan remains high.

Quite naturally, farmers are not able to pass on the additional cost of inputs to consumers as they don’t directly deal with them. There are many intermediaries, including traditional arhtis or money-lenders-cum-brokers, provincial food departments and federal agencies dealing with agriculture like the Pakistan Agricultural Storage and Services Corporation (Passco).

The end result is that whenever factors contributing to a higher cost of agricultural inputs come into play, farmers’ profit margins slip and consumers ultimately have to pay a higher price. This is exactly what is happening after the recent rupee depreciation and the increase in fuel prices. Serious media outlets occasionally report about higher prices of agricultural inputs and food items. But those reports do not convey the full impact of the miseries of consumers or growers as the baskets of goods and services used in the indices for measuring inflation are less representative and the price collection mechanism lacks transparency.

The decision of the caretaker government to launch a study on data reporting gaps is a welcome move. It would be great if the study can also examine our inflation indices and recommend ways for removing data reporting gaps in industrial and agricultural outputs and their price collection for those indices.

According to a Dawn report, the study to be undertaken by our Planning Commission and the United Nations Development Programme (UNDP) has three key objectives: to examine whether data is available; to examine the level of disaggregation of the available data; and to develop a fact sheet for each indicator at the disaggregated level.

We in Pakistan certainly need a fact sheet on almost every key economic indicator but more so on inflation, keeping in view not only its huge importance but its vulnerability to manipulations by the government of the day for political gains.

Coming back to the issue of the rising cost of agricultural inputs, apart from making every possible effort to keep this cost under check, policymakers also need to introduce the concept of economisation of these inputs.

With greater use of technology, a larger area of cropped land can be fertilised and a smaller amount of seeds sprayed in fields with mechanised spreaders can produce bigger and fatter crops.

Besides, the issues of the fertiliser industry need to be addressed to boost their output and cut imports. This has become all the more necessary as the country is currently facing a severe balance-of-payments problem and every dollar saved through import substitution matters.

In the first 11 months of the last fiscal year, Pakistan’s import bill of manufactured fertilisers increased 36pc year-on-year to $782 million, data compiled by the Pakistan Bureau of Statistics showed. In terms of volumes, imports rose 34pc year-on-year to 2m tonnes during this period. An 8pc decline in the local manufacturing of fertilisers — in the first 10 months of the last fiscal year — explains the need for larger imports. But should this have happened?

Published in Dawn, The Business and Finance Weekly, July 16th, 2018