The Economic Survey of Pakistan 2024-25 reported a sharp 13.5 per cent decline in the production of major crops. While many blame climate change for this downturn, the crisis is far more complex and multifaceted — one that has jeopardised the financial viability of the agriculture sector. At its core lie four primary, interlinked factors: high production costs, falling agricultural commodity prices, an ineffective marketing system, and low crop yields, which have further worsened by recent climate change. All other factors are either secondary or merely offshoots of the primary four.

Over the past three years, the cost of agricultural production in Pakistan has surged due to sharp increases in the prices of fertiliser, pesticides, hybrid seeds, electricity, and diesel — even as global prices of these inputs have generally declined over the same period. For instance, urea — the most widely used fertiliser — peaked at $925 per metric tonne (MT) in April 2022 but dropped to $392 per MT by May 2025.

However, local manufacturers and suppliers failed to pass on the benefit of lower international prices to farmers. Instead, they raised domestic prices to offset the impact of soaring electricity and gas tariffs, escalating direct and indirect government taxes, and a growing cost of doing business in the country — all to maintain or even expand their profit margins.

At the same time, the government chose not to pass on the relief of declining global petroleum prices to consumers, including farmers. In addition, it raised electricity tariffs for agricultural tubewells three times over the past three years, further straining farm budgets.

If left unaddressed, the sector’s ongoing decline and falling rural incomes will ripple across the broader economy, straining multiple sectors

All this culminated in a sharp decline in the sales of fertilisers, pesticides, and tractors (whose prices doubled in three years). The burden of rising costs was even heavier for small and medium-sized farmers, who rely on informal credit or borrow from banks at commercial interest rates.

On the other hand, the post-Covid commodity boom (2019-2022) — a short supercycle driven by supply disruptions and surging demand — is over. Global prices have been steadily declining for the past three years and are projected to fall further (World Bank’s Commodity Market Outlook). This reversal has left Pakistani farmers squeezed by rising production costs and falling farm-gate prices.

For instance, global prices of maize dropped from $319 per MT in the year 2022 (annual average) to $204 by May 2025. Likewise, over the same period, wheat declined from $430 to $237 per MT. The coarse variety of rice witnessed a downward trend from $557 per MT in 2024 (annual average) to $380 per MT in May 2025. Cotton, oilseeds, and other crops also followed the same pattern.

Meanwhile, in 2025, the government of Pakistan deregulated the wheat market. It withdrew from decades-long wheat support pricing and direct procurement. However, it failed to ensure a smooth transition or introduce an alternative mechanism. Consequently, wheat prices fell to Rs2,100–2,200 per 40kg levels — nearly half of the 2023 prices and well below the import-parity prices.

Punjab, which produces nearly 75pc of the country’s wheat, began phasing out direct procurement even in 2024. To make matters worse, it enforced district-specific price caps of Rs2,800–2,900 from July 2024 to keep roti (bread) prices low for urbanites — a move that undermined the very idea of market deregulation.

The sharp decline in prices of wheat — a driving force of Pakistan’s agriculture sector — triggered a knock-on effect in 2024. Farmers lacked the funds to invest in subsequent crops, which affected crop yields considerably. Meanwhile, the Punjab government attempted to cushion the blow through agricultural credit schemes, like the Kissan Card, but the loan amount was only Rs150,000, targeting only 500,000 out of six million farmers.

Falling commodity prices are worsened by an ineffective marketing system. In the absence of farmers’ cooperatives and contract farming, growers depend on middlemen who often exploit them, drastically cutting their returns. Farmers, who usually lack financial strength and storage facilities, cannot hold produce and are forced to sell during harvest, when prices hit rock bottom.

Additionally, the bandwagon effect often causes a surplus of one crop and a shortage of another within the same year. This imbalance stems from the government’s failure to assess national requirements, offer credible and timely incentives, and provide real-time data and guidance to farmers on crop selection. Consequently, farmers make uninformed decisions based on short-term market trends.

Farmers could better withstand rising production costs, falling commodity prices, and a weak marketing system if crop yields were strong. Unfortunately, Pakistan’s crop yields remain below their potential and those of comparable countries, mainly due to three key factors.

First, due to inadequate investment in agricultural research and the lack of an enabling environment for the private seed sector, Pakistan continues to lag in developing high-yielding seed varieties.

Second, farmers’ financial constraints and an ineffective credit system prevent them from using adequate agricultural inputs — even when inputs are used, they are often applied inefficiently and wastefully. Third, the public-sector agricultural extension has fallen short in improving farming practices or providing effective advisory services due to deep-rooted flaws in its concept, structure, and execution.

Adding to the challenge, Pakistan has neglected to promote climate-smart agricultural practices or even ensure the availability of climate-resilient, high-yielding seeds. As a result, existing low yields have declined further in recent years. This trend has raised serious concerns about the long-term viability of farming.

This is the grim reality on the ground. The government must urgently develop a coherent policy framework and long-term strategy — rather than rely on a piecemeal approach — to steer the country out of this deepening agricultural crisis. If left unaddressed, the sector’s ongoing decline and falling rural incomes will ripple across the broader economy, straining multiple business sectors.

Khalid Wattoo is a development professional and a farmer, and Dr Waqar Ahmad is a former associate professor at the University of Agriculture, Faisalabad

Published in Dawn, The Business and Finance Weekly, June 23rd, 2025