FARMERS, officials and experts unanimously believe that the rupee devaluation against the US dollar — around 20 per cent during the last eight months or so — is set to impact the agriculture sector by increasing the cost of farm inputs and machinery, curtailing the flow of funds towards the sector and disturbing the rural economy.

In a bid to check depletion of its foreign reserves the State Bank of Pakistan (SBP), a week before the general election, devalued the rupee for the fourth time since December. The central bank set the new rate at Rs128 per dollar, making the rupee the worst performer in a basket of 13 Asian currencies according to Bloomberg.

The farming community complains that owing to the devaluation there has been a hike in price of farm inputs. “The fall in value of the rupee has resulted in an immediate rise in the price of fertilisers, pesticides, diesel consumed by water pumps for irrigation purposes, and power tariff,” grumbles Sarfaraz Ahmed Khan, senior vice-president of the Kisan Board Pakistan, which represents small landholders in the country.

“The fall in the value of the rupee has resulted in an immediate rise in the price of fertilisers, pesticides, diesel consumed by water pumps for irrigation purposes, and power tariff,” says a growers’ representative

“I have to pay more than Rs150 extra for each bag of urea for the paddy crop I finished cultivation on just two weeks ago. The petroleum ministry has also raised the price of diesel in-line with the rupee-dollar parity, whereas the electricity supply company has not lagged behind in transferring the oil price-hike impact onto its consumers. All this will have an immediate impact on the cost of farm produce, while the farmer will be able to recover it, that too partially, months later when the crop will hit the market.”

Dr Abid Qaiyum Suleri, who heads Islamabad-based policy research think-tank Sustainable Development Policy Institute, says that the price of a farm input has a direct relation with the depreciation of the currency. The cost of imported raw material for the agriculture sector will go up in proportionate to the rate of devaluation directly impacting the sector, he says.

He rejects the argument often put forth by exporters that currency devaluation benefits the country by increasing its export volume.

“The export volume does register an increase with a cut in rupee value but that doesn’t meant it helps earn more dollars. Rather the fact of the matter is that when the rupee depreciates, farm export volume increases but earnings through it drop. For, now one dollar is able to purchase, for instance, 2.5kg of wheat against its earlier range of 2kg while freight and other expenses incurred on account of wheat exports will shoot up with the increase in its volume.”

Farmers Associates Pakistan’s Ebadur Rehman argues that even if the currency depreciation benefits exports, the gains remain limited to the trading community and do not trickle down to the growers and rural economy that’s jolted both by a sudden addition in the cost of farm inputs and ensuing inflation.

Increase in labour rate is another aspect being attributed by some growers to the rupee devaluation and usually neglected while analysing the sector. As devaluation leads to inflation everything, from products to services, gets costlier in the local market.

Asad Bhatti, a sunflower grower, claims that he has recently reaped his crop only to pay labourers 25 per cent more than what he had paid the previous year.

“As devaluation automatically results in a price-hike in the market, workers argued that their wages should be enhanced in proportion to the increase in price of essential items. One has to bow down to demand when one’s crop is at the harvesting stage and has to be shifted to safer storages as early as possible in order to avert the havoc caused by monsoon rains.”

A finance department official fears that as the steep fall of the rupee against the dollar and other major currencies has added to the burden of public sector loans and agriculture policymakers will have to re-prioritise items owing to reduced funds coming their way.

Requesting not to be named, he perceives that the coming government will use the changing rupee-dollar parity for doing away with farm-sector credit schemes initiated by the outgoing government.

Published in Dawn, The Business and Finance Weekly, July 30th, 2018