The federal government has allocated Rs5 billion for the Kissan package for the next fiscal year starting July 1. The amount is equal to a little over the two-day expense of running the civil government (for which the government has projected a Rs839bn expense for FY25, bringing the daily expense to about 2.36bn).

This federal fund for agriculture will be used through a markup and risk-sharing scheme — designed in 2022 — that will offer subsidised loans to farmers for the purchase of agricultural machinery.

When talking about provincial budgets, Punjab and Sindh have allocated Rs117.2bn and Rs30.7bn to the sector, respectively. While Khyber Pakhtunkhwa has allocated Rs31.5bn, Balochistan’s budgetary allocation was Rs23.8bn.

Provincial allocations for agriculture as a percentage of the total budget are surprisingly low: Punjab at 2.2 per cent, Sindh at 1pc, KP at 1.8pc and Balochistan as 2.5pc. After including Sindh’s Rs35bn allocation for irrigation, a sector closely related to agriculture, its spending rises to 2.1pc, comparable to Punjab’s.

Pakistan cannot create an exportable food surplus with modest allocation to the agriculture sector in the federal and provincial budgets

Considering this low level of planned spending amidst rising input costs of all major and minor crops and livestock industry through energy price hikes and subsidy withdrawals, millions of small farmers are likely to face significant hardships.

According to Federal Finance Minister Muhammad Aurangzeb, agriculture accounts for 24pc of Pakistan’s GDP and 37.4pc of employment generation. Nominal allocations for the agriculture sector indicate that agricultural growth in the upcoming fiscal year would remain modest — around the targeted 2pc — the creation of net additional jobs in agriculture remaining a dream.

How that affects our fractured political economy and our ability to export more food products at better per-unit prices isn’t unfathomable.

While a clear divide between parliamentarians — the ones who represent the landed gentry and the industrialists along with the ones advocating for rural and urban Pakistan — already exists, terrorism continues to emerge from sanctuaries in remote areas, exploiting the poverty of people dependant largely on agriculture and forestry.

Amidst this situation, the provincial governments could have avoided the mistake of low agricultural allocations by reducing administrative costs and making more informed decisions on competing budget priorities.

Provincial allocations for agriculture as a percentage of the total budget are surprisingly low

Pakistan’s external sector is struggling, hence the need for maximising non-debt forex inflows. Exports and remittances are major sources of these inflows, with food exports contributing significantly. What else can sustain this growth momentum if not a continual increase in exportable surplus?

If the provincial governments make less than required agricultural allocations, it won’t be possible for the country to continue creating enough exportable food surplus in the next fiscal year — since agriculture is projected to grow just 2pc against 6.2pc this year.

In just eleven months of FY24, Pakistan’s food exports grew 46.4pc to $6.83bn, equal to 24pc of total goods exports of $28.12bn. Moving forward, the country must maintain this share of food exports since the largest export sector, textiles, and other non-textile, non-food sectors cannot grow faster than before.

The FY25 budget, shaped by International Monetary Fund projections, offers limited incentives for the textile and non-textile sectors. The energy price relief announced by Prime Minister Shehbaz Sharif for industries and efficient export-oriented firms may have a limited impact on export efficiency due to wage increase pressures following a 25pc salary hike for federal employees and similar or higher raises by the provinces.

The key takeaway is that food exports must grow significantly, requiring adequate agricultural funding from all provinces and respectable token support from the federal government.

Ideally, the surge in food exports should result from better per-unit prices of food and associated products, rather than larger export quantities. This approach aims to avoid higher food inflation and mitigate overall inflationary pressures, which could challenge the State Bank of Pakistan’s target of achieving an average headline inflation of 12pc in the upcoming fiscal year.

That requires an increase in per-acre yields of crops and minimising pre-harvest and post-harvest losses. It also requires an increase in per-head milk and meat production of the livestock that requires larger, smarter agricultural spending.

Withdrawals of tax exemptions from fertilisers and other agricultural inputs announced in the federal budget, plus the potential increase in electricity charges on tube wells along with an increase in sales tax on food products and measures to impose standard tax rate on food exporters would restrict efforts to control food inflation.

They will also make it difficult for food exporting firms to remain competitive in the international market. In ten months of this fiscal year, annualised food inflation in urban Pakistan oscillated between 40.2pc (July 2023) and 11.3pc (April 2024). In rural areas, the rate of food inflation ranged between 41.3pc (July 2023) and 9.5pc (April 2024). Only time will tell if the unusually low readings of May 2024 — 2.2pc in urban areas and minus 0.1pc in rural areas — are sustainable.

Published in Dawn, The Business and Finance Weekly, June 24th, 2024

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