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Farm productivity spurs manufacturing

January 06, 2013

If large-scale manufacturing, which grew less than 1.2 per cent over last two fiscal years, is expanding at a little faster rate this year despite energy crisis, higher farm productivity has a hand in it.

In four months to October 2012 large-scale manufacturing (LSM) expanded by about two per cent chiefly because its sub-sectors dealing in farm inputs, food products and durable goods managed to produce more.

Better performance of agricultural sector has invariably entailed increased capacity utilisation and expansion of industries such as cotton ginning and textiles, cooking oil and oilseed extraction. Besides it has also boosted demand for tractors, trolleys, cycle and motorcycles and agricultural appliances and machinery, including sugarcane machines, cultivators, harvesters and wheat thrashers, etc.

For example, in FY11 and FY12 , production of sugarcane machines recorded 44 per cent and nine per cent annual expansion respectively as sugar output increased by 33 per cent and by over 11 per cent in these two years.

Encouraged by consistent upward revisions in support and market prices of major crops in the last four fiscal years, farmers have been able to produce more of both food and non-food crops including wheat, rice, sugarcane, maize and cotton year after year though not all crops have shown continuity in growth pattern.

As a result, income levels have increased in the rural areas and helped the grower spend more on purchase of better farm inputs, tools and implements than they did earlier. This has somewhat mitigated the impact of lower-than-required overall lending by banks even though banks’ agricultural loans were higher than targeted over the last two years.

The impact of a record cotton output in the last season and higher-than–estimated production of cane during this season has been more visible as a catalyst for growth in textile exports, and stability in sugar prices. Back in FY11, the bumper wheat crop had helped in enhancing capacity utilisation of flour mills and led to the launch of a new series of flour-based food products for local and export markets.

That cotton production during this season (up to December 15, 2012) is only 2.5 per cent down from that of the last year is not going to throw a spanner in the works of cotton and textile economy.

And whereas prices of wheat continued inching up—and the trend is still on—due to a shorter crop in FY12 than that of FY11 (23.6m tonnes vs. 25.2 million tones respectively) when harvesting of this year’s crop begins in mid-April, the pressure on prices would ease.

One important pointer to productivity of the agriculture sector is that whereas agriculture sector now utilises only 45 per cent of the country’s overall employed workforce (aged 10 years and above) it still accounts for slightly more than one-fifth of the total GDP. Five years ago the economy used to get almost the same contribution from farm sector with larger allocation of the employed workforce—over 50 per cent to be specific.

“This alone shows that not only our farmers are producing larger agricultural outputs but they are also doing this with fewer hands,” said an official of the ministry of National Food Security and Research.

“By extension, this also indicates that the use of technology has gained. Some evidence is already in, like replacement of old ginning plants with the new ones or investment made in water conservation or use of small biogas plants.”

But in order to have a full picture, provincial governments need to carry out a specific and extensive physical survey of farms.

If this is true, then per-acre yield of various crops and per cattle head milk production could serve as meaningful indicators. Here, statistical evidence is somewhat erratic. Whereas cotton output showed 2.4 per cent and 12.6 per cent increase in per acre yield in marketing years of 2010-11 and 2011-12, and sugarcane 7.7 per cent and 6.9 per cent in marketing years of 2009-10 and 2010-11, and rice 17.5 per cent in 2011-12, per acre yield of wheat fell 4.2 per cent in the last marketing year after posting an 11 per cent growth a year earlier, according to the Economic Survey of Pakistan.

Price stability achieved in some food items like sugar, higher exports of maize, fruits and vegetables in the last two years, increase in the number of oil extraction plants, investment made in edible oil refining and setting up of dedicated grain terminal at Port Qasim, and larger grain storage facilities, and mushrooming of wholesale and semi-wholesale grain markets in rural and sub-urban areas — all point to the fact that agricultural sector activity has benefited industries in several ways.

Cooking oil production that jumped six per cent to 312,000 tonnes in FY11 grew five per cent more to 328,000 tonnes in FY12 only after installation of half a dozen new edible oil refineries—two of them in Karachi. Higher farm productivity is also making its impact on corporate profitability by way of fattening the bottom-line of food processing companies. Corporate results of 2012 show companies like Nestle, Unilever, Rafhan and Engro Foods wallowed in after-tax profits in CY11 primarily due to larger sales of their food-based products. Engro Foods saw a 400 per cent rise in profit over CY10, according to a research report of Topline Securities.

Increased production and aggressive domestic marketing (along with exports) of various new brands of packed milk, juices, potato chips, breads, rusk and cakes, wheat, maize and corn flakes also reinforce the view that the contribution of the agriculture sector in industrial activity has been on the rise.