KP needs to create a vibrant rural economy

June 10, 2019

Email

Fruit farmer Adil Khan holds ripened loquat harvested from his orchard in Mardan, KP.—Reuters
Fruit farmer Adil Khan holds ripened loquat harvested from his orchard in Mardan, KP.—Reuters

Accounting for 14 per cent of the provincial GDP and providing livelihoods to 85pc of the population, the agriculture sector in Khyber Pakhtunkhwa now requires a paradigm shift towards greater private sector engagement for sustainability, according to a World Bank assessment.

A project has been designed seeking World Bank assistance for fostering commercial agriculture, linking small holders to markets and stimulating the development of private sector service providers.

A loan of $175 million has been sought for improving community irrigation systems, introduction of modern irrigation technologies and capacity building and establishing a knowledge-base for inclusive growth in the future.

Efforts to push forward the shift are reflected in the Khyber Pakhtunkhwa Irrigated-Agriculture Improvement Project. Under this project, maximise finance for development (MFD) approach is set to be adopted.

The purpose of MFD is to optimise the allocation of limited public finance resources and identify opportunities for crowding-in private sector financing using experience from projects in the irrigation sector.

Integration of Fata with KP has created new challenges as the province will have to expand its development expenditure to cover the needs of both

Currently, the uptake of modern irrigation technologies in KP is low since farmers perceive it as risky. Mitigating risk for private sector investment — from farmers to large agribusinesses — is at the heart of the MFD approach and is used in the project to reduce the risk associated with these technologies.

That same risk perception constrains the financial sector from lending to the agriculture sector, which further compromises technology adoption. In KP, the financial sector allocates less than 5pc of financial resources to the agriculture sector and most of it is concentrated on agricultural manufacturing and large-scale operations.

The project’s support to introduction of modern irrigation technologies lies firmly on the MFD spectrum of using public investments to reduce private sector risks. Similar projects in other provinces, such as Punjab, have convincingly demonstrated the important role played by the public sector.

One example is of the now dynamic and vibrant private market for precision land levelling services — after almost 10 years’ support from the World Bank and the government, which no longer requires any public funding support.

Achieving the paradigm shift from both supply and demand angle is a requirement for change, the World Bank believes. The project will contribute to the paradigm shift not only because it will improve water usage efficiency, which leads to higher productivity and greater competitiveness, but also because it will help lay the groundwork for greater market integration for smallholders who make up 96pc of farmers in the province.

The issues of on-farm inefficiency in both water conveyance and water application will be tackled by carefully designed interventions that effectively reduce water loss in watercourse delivery and in field application.

The project will contribute to the capacity building of farmers and government institutions, value chains profiling and assessment of end-market requirements for future investments in market connectivity.

Water Users’ Associations (WUAs) are in the driver’s seat of watercourse improvement and community water resource management. The key to success of watercourse improvement programmes in Pakistan, and indeed globally, is farmers’ participation in WUAs.

According to the World Bank, the project will introduce a set of customised activities, such as rehabilitating community watercourses, establishing WUAs, introducing modern irrigation technologies, strengthening farmers’ capacities and filling knowledge gaps on agriculture market opportunities and constraints.

These activities will be implemented through a market-oriented approach by leveraging private sector capital investment. The expected outcomes include an improved and more climate-resilient community water management system, increased water and agricultural productivity and strengthened ability to diversify cropping structure in response to better understood market opportunities.

The integration of the former Federally Administered Tribal Areas (Fata) with KP has created new challenges and opportunities for the province. The challenges for the provincial government will be to expand its development expenditure to cover the needs of both KP and erstwhile Fata.

Given that Fata is one of the poorest regions of Pakistan and is expected to retain its tax-exempt status for the next five years, this merger will affect KP’s fiscal situation and increase the need for development financing, the World Bank assessment says.

The total cultivated area in the province is 3.95m acres which accounts to 7pc of the country’s total, half of which is rain-fed. KP produces about 75pc of the country’s tobacco, 17pc of maize, 16pc of barley, and 8pc of sugarcane.

However, the province is a net importer of agricultural produce and depends heavily on production from other provinces — especially from Punjab — for important food commodities such as wheat (64pc import share), rice (74pc), citrus (75pc) and vegetables (90pc). Promoting agricultural development and creating a vibrant rural economy is thus crucial for the province’s economic and social progress.

Published in Dawn, The Business and Finance Weekly, June 10th, 2019