In October 2022, thousands of farmers protested in Islamabad, demanding a reduction in the prices of agricultural inputs. The recent hike in prices of fertiliser and electricity has resulted in a higher cost of crop production, which in turn has negatively impacted farmers’ income and the profitability of the agriculture sector.
Successive governments in Pakistan came up with numerous policy measures to develop the agriculture sector, but the primary thrust of initiatives remained on enhancing GDP of the agriculture sector and not farmers’ income. Only some selected piecemeal measures were taken in the form of subsidies on agricultural inputs or increase in the minimum support price (MSP) of crops.
On the contrary, India launched a comprehensive medium-term programme in 2016 called “Doubling Farmers’ Income by 2022” to enhance real farmers’ income after adjusting for inflation. There are three determinants of farmers’ income, i.e. cost of crop production, per acre yield, and realised crop price.
First, let’s analyse the cost of production. A farmer has to buy five major agricultural inputs, i.e. petroleum products (diesel), electricity, fertiliser, seed and pesticide. Out of these, fertiliser and electricity costs are currently at the top of the list.
New private investment in the agriculture sector is a prerequisite for improving productivity and achieving food security
Due to various national and international factors, prices of diammonium phosphate and potassium fertilisers have skyrocketed in the last year. A decline in the sale of these would mean a decrease in crop yield. Thus, in turn, additional subsidies will have to be pumped in to ensure the survival of the agriculture sector.
Pakistan’s fertiliser usage (kilogram per acre) is already low compared to India, Bangladesh, and Sri Lanka. And even in the face of the government’s claim of providing huge fertiliser subsidies, prices are higher than in India and Bangladesh. The substantial hike in electricity prices recently has almost doubled the cost of irrigation.
Second, productivity (per acre yield) is the crux of the matter which can eliminate the dependency of the agriculture sector on subsidies. For a country to be competitive, crop yield must be above a certain level. There are various precedents worldwide where countries gradually withdrew subsidies as productivity increased.
Third, another matter raised at different forums is the MSP of crops. The government has been announcing MSP for two crops only — wheat and sugarcane. Recently, cotton has been added to this shortlist. On the other hand, the Indian government has brought 23 crops under the realm of MSP. In addition, due to multiple intermediaries, cartels, and price manipulators in the supply chain, farmers almost feel helpless to get a fair price for crops.
Against this backdrop, it can be asserted that the government may have the intention to increase the profitability of the agriculture sector, but it faces the difficulty of balancing the competing interests of farmers and the general public — the buyers of agricultural produce. Giving benefits to farmers through an increase in the price of wheat and/or other essential commodities can affect consumers badly, especially when Pakistan is experiencing one of history’s highest inflation rates.
Efforts should be made to increase the efficiency and effectiveness of fertilisers and pesticides applied in fields. Due to improper application, a significant quantity is wasted, which increases the cost of production. Likewise, the cost of irrigation can be saved considerably through improved irrigation practices, the use of water-saving technologies, and improving designs of tubewells.
There is a need to initiate new projects to increase farm productivity through improving agricultural infrastructure, promoting agricultural technologies, increasing coverage of high-yielding seeds, ensuring the optimum number of plants in an acre and providing effective agricultural extension.
One of the farmers’ demands is to take note of the black marketing of urea fertiliser. It is strange that a farmer can buy even a truckload of urea from a small village-based fertiliser seller if he is ready to pay extra money amounting to Rs500-800 per bag. Therefore, the claim of urea shortage does not hold water.
It is time for farmers to have direct marketing opportunities to reduce the influence of middlemen, cartels, and rent-seekers. Promoting contract farming, warehouse receipt system, farmers-processors direct linkages, and other proven models can help farmers realise better prices.
The government should establish an institutional mechanism for determining the cost of production, import parity price, and GDP deflator (price deflator) to adjust inflation and equalise prices in real terms every year and accordingly decide the nature and magnitude of subsidies.
New private investment in the agriculture sector is a prerequisite for improving productivity, achieving food security, and combating climate change. However, unless a certain level of profitability and returns are ensured through various policy measures, new investment would remain a dream.
Khalid Wattoo is a farmer and a consultant in the social sector.
Rahema Hasan is a political economist and graduate of the London School of Economics and Political Science
Published in Dawn, The Business and Finance Weekly, October 31st, 2022