Farmers are up in arms as general inflation skyrockets and the rupee takes repeated plunges.
One faction of the Pakistan Kissan Ittehad blocked the Lahore-Multan Highway for more than 48 hours — as this piece is being written on Thursday — whereas the other faction is holding talks with the federal government in Islamabad for a relief package to neutralise the impact of rising prices and rupee depreciation.
Inflation for the first four months of 2018-19 was 5.9 per cent against 3.5pc during the corresponding period last year. Estimates show it may reach 7.5pc by the end of the year.
Prices will go further up if the government intervenes to help farmers by raising the prices of wheat and sugar cane
The dollar became costlier by more than 31pc in the last one year, impacting prices of all inputs like pesticides, phosphatic fertiliser and diesel.
Apart from the protesting Pakistan Kissan Ittehad, all farmer bodies are expressing identical concerns and may soon follow suit if the situation does not improve. They want the government to either help them control the rise in the cost of production or simply increase the prices of wheat, cotton, sugar cane etc, which will recover their additional costs.
The farmers build their case for the cost of production on three factors. One of them is the rising rates of pesticides, fertiliser and water. Although the federal government withdrew 15pc general sale tax on pesticides, the rupee devalued by 31.5pc in the last one year. This resulted in a net increase of 16.5pc in the cost of production for farmers.
For example, the cotton crop takes seven sprays of pesticides to mature. Until last year, each spray would cost anywhere between Rs2,800 and a little over Rs3,000 per acre. This year, this cost has jumped to Rs6,000-7,500 per acre because of inflation, devaluation and other market forces.
In the China Agro-Chemical Moot recently held in Lahore, Chinese officials substantiated the farmers’ claim by saying that their national pesticide production fell 35pc in 2017-18, but sales increased 21pc. This indicates a cumulative increase of 56pc over a year.
“In Pakistan, the full impact was not passed on to the farmers because the manufacturers had healthy stocks from the previous year. This year, however, the entire impact will be felt as the industry has run out of cheaper stocks,” explains Saad Akbar, a pesticide manufacturer from Lahore.
The same is the case with phosphatic fertiliser. The price of di-ammonia phosphate (DAP) has jumped to Rs3,850 per bag from Rs2,200 last year. The rise is because of the government ending
subsidies while imports of around 1m tonnes, or 55pc of consumption, have become costlier owing to the changing rupee-dollar parity.
The famers use one and a half bags of DAP on each acre of the cotton crop, which translates into a cost increase of Rs2,500 per acre. Prices of urea fertiliser have also increased following the withdrawal of a subsidy, thus adding another Rs800 per acre to the cost of production.
The water crisis is also driving up the farmers’ cost of doing business. With Rabi water shortages estimated to be at a massive 38pc, Punjab will get only 12.36m acre feet (MAF) against the demand for 19.83MAF. The gap of 7.5MAF will be bridged by pumped-out-of-soil water. The pre-litre price of diesel rose from Rs78 to Rs110, up 41pc in the last one year. It takes around 10 litres of diesel to irrigate an acre of land, thus inflating the cost by well over Rs300 per acre.
The government is in jeopardy. If it increases the support/indicative price of wheat/sugar cane or intervenes in the cotton market to help the farmers recover the additional cost of production, it will not only be stoking inflation but also creating social and political unrest in urban areas.
Each intervention will have ramifications. For example, an increase in the cotton price will impact textile exports. But if the government does not intervene to help the farmers, it risks a huge increase in rural poverty.
People in urban areas are bound to suffer as the devalued rupee makes the entire range of pulses, which constitute the poor man’s diet, costly by at least 30pc. Pakistan imports pulses amounting to around $1bn, depending on domestic production. In the case of mash and lentil, domestic production meets only 10pc of the demand while the rest comes from abroad.
Around 30pc of moong consumed in the country is imported while the ratio can be 40-60pc in the case of gram. “If these imports would cost Rs100bn a year, they will now cost Rs130bn. Add the edible oil imports of Rs310bn, which will now shoot beyond Rs400bn, and you have a disastrous situation at hand,” says Muhammad Jabbar, an importer from the city.
Published in Dawn, The Business and Finance Weekly, December 10th, 2018