The free fall of the rupee against the US Dollar and other major currencies has sent alarm bells ringing among the stakeholders of the agriculture sector, who rely on imported inputs like seeds, fertiliser, pesticides and machinery. They fear that an over 14 per cent drop in the value of the local currency since March 1 this year is set to further increase the cost of production for farmers, disturbing rural livelihoods as well as jeopardising national food security.
The American currency was being sold for Rs202.34 this weekend against the rate of Rs177.41 on March 1, 2022, a fall of around Rs25 or 14.05pc in less than three months, whereas this decline is Rs79.34 or more than 60pc since August 2018, when the dollar-rupee parity stood at 1:123.
The devaluation is fuelling a hike in the prices of farm inputs like fertilisers, seeds, pesticides, diesel (consumed by water pumps for irrigation purposes), and electricity costs. This reducing purchasing power of the rupee is causing the growers to go for ‘bad’ decisions: the preference for cheaper but low-quality alternatives though these may lead to dwindling yields of crops.
“Import prices of farm inputs have shot up because of the currency devaluation. And the levy of 17pc general sales tax on imports has further worsened the situation, making quality farm inputs unaffordable for a majority of the small landholders,” says Momin Ali Malik of the Guard Agricultural Research & Services Private Limited.
The depreciation of the rupee is causing growers to go for ‘bad’ decisions: the preference for cheaper but low-quality alternatives though these may lead to dwindling yields
“The growers are compromising on the standards of the farm inputs as the sale of quality hybrid rice seed has so far dropped by 20pc at least in Punjab.” Calling for the reversal of the GST to offset some of the negative impacts of currency devaluation, he warns that the use of substandard or traditional seeds will mar the crop yield and this will ultimately harm national food security.
A similar 15 to 20pc decline in the sale of imported corn seeds has been reported by Jawad Ahmad, an agricultural consultant from Sahiwal. He paints a gloomier picture for the autumn sowing of maize when the impact of the depreciating rupee on import costs will be more visible after June. The pricing factor coupled with water blues has cut the paddy cultivation by 40 to 45pc in Sahiwal, Pakpattan and Okara districts, he says.
“As canal water is not available for irrigation purposes, the growers have to depend on water pumps to lift sub-soil water. But higher power tariff and costlier diesel in view of the rising fuel prices in the world markets are barring the farmers from adopting the water-guzzling crop as they apprehend that it will become uncompetitive in the market.”
The region is also witnessing a diesel shortage these days creating hurdles in the harvest of spring corn and rice cultivation.
Farm machinery, fertiliser and pesticide markets are witnessing similar jolts due to the sliding rupee. For example, the Belarus tractor which was available for Rs2.4 million three years ago is being marketed for Rs4.3m these days. According to Mr Ahmad, this imported machine may now become affordable only for big landlords and farming cooperatives.
Likewise, the price of di-ammonium phosphate (DAP) has crossed Rs11,000 per 50kg bag mark, while it used to be sold for Rs6,500 per bag two years ago. Though urea compost is locally manufactured, its rate has gone up to Rs2,700 per bag this week against its official sale price of Rs1,768 per bag. This was available at Rs2,200 to Rs2,300 per bag during the peak Rabi season earlier this year.
Though the prices of agricultural produce are also going up, these are not in proportion to the escalating cost of production creating a disparity between the incomes and expenses of the farmers, making them poorer and reducing their purchasing power to acquire farm inputs.
Former chief of the Federation of Pakistan Chambers of Commerce & Industry’s committee on agriculture, Mr Ahmad says the rupee depreciation has pushed up fertiliser prices by 150pc, making it difficult if not impossible for the farmers to apply them in their fields. This in return is forcing crop yields to decrease as organic matter in the soil is dead and cannot give proper returns without the application of phosphate- and potassium-based composts.
“The farmers’ cost of production has shot up but rates of their produce have not increased proportionately. It is similar to the case of sugar cane whose rates range between Rs200 to Rs225 per 40kg for the last few years even though the price of sugar has doubled during this time, while fertiliser rates have registered an over 150pc hike.
This increasing cost of production with no proportionate hike in farm produce is reducing farmers’ revenues and profits and thus is bound to add to the rural poverty already reeling under lack of resources,” says Mr Jawad.
He regrets that other sectors have been given incentives in the form of duty cuts on raw material imports, provision of cheap gas (RLNG) and financing on special markup rates to offset the impact of Covid-19 but the agriculture sector was ignored altogether and any announcement in this regard remained confined to paperwork.
He holds the 18th amendment partially responsible for the travails of the farming community as the subject has been devolved to provinces while all the means and powers to effectively reduce the cost of production still rest with the federal government. “The amendment says that agriculture is a devolved subject but it has not been fully devolved. The provinces have no means to intervene effectively and reduce the production cost of the farm sector. All these powers are still in the domain of the federation.”
Mr Malik is concerned that the situation will squeeze the financial space for the agriculture sector available currently in government circles, while the chances of improving their financial condition through banking channels are dim with the increase in interest rates.
“How can a farmer think of getting a loan when the Karachi Interbank Offered Rate has shot up to 13.75pc with at least 2pc bank’s service charges? Survival of the agriculture sector through the loans acquired at 16pc markup rate is simply impossible.”
Published in Dawn, The Business and Finance Weekly, May 30th, 2022