PAKISTAN has been in a flux mode so far as trade is concerned, for quite a long time But before we go into that, it might be worthwhile to look at the agrarian structure of the sector.
Pakistan has 93 per cent [with 60 per cent of this having less than three acres] of its farms in the small sector [defined as less than 12.5 acres-though this will be different in different areas when we look at the agricultural potential based on productive capacities] and its large sector the remaining. So far as land mass is concerned, bigger farmers [7 per cent] possess 63 per cent while small farmers only 37 per cent. There are 13 ecological zones and the social structures can be very diversified from tribal to caste systems.
What does free market mean to farmers. To the small farmer it has a different and a sinister meaning. He is interested in keeping body and soul together. His subsistence farming has yet to undergo the kind of changes that one assumes, come automatically. They come at different paces to different areas. So when one talks of globalization one takes these people into consideration. It is they who will determine the strength of the productive system. There numbers are such.
The benefits of trade- both internal and external cannot be discounted. The Pakistan scene needs to be analyzed before action can be taken. The point at issue is how to go about it in a manner that it liberalizes the local situation and enables the farmers to play their rightful role and obtain equitable and just returns through a trading system. The peculiarity of the production system is such that five crops take way 93 per cent of the investments.
If free markets are to emerge, then they will not only for the outputs but also for the inputs also. Basically, Pakistan has to find the answers in this area. And unless a culture is developed along these lines, the matter will be continue to agitate. The factor markets for inputs are not operating on the basis of equity and fair-trading practices.
What are some of the issues, generically, speaking that have to be taken care off:
1: The availability of foreign exchange as an economic activity. This is mostly earned by farmers and used by others. This year the allocation of foreign exchange for critical activities has to be announced. But it is normally 33 per cent of the requirement. All kinds of limitations are imposed that increase the cost to farmers.
2: The protection of locally manufactured capital goods. The absolute nature of this protection has managed to create a mafia and a vested interest. One of the manufacturers this year has provided 140 per cent dividends because of this monopoly.
3: The cost of productive inputs enabling the cost to be linked to exchange rate. The constant devaluation of the rupee has added a double jeopardy for farmers.
4: The strong-arm tactics of the early entrants not to allow the competitors to come in.
5: The destruction of competitive and comparative cost advantage by the inefficiency and monopoly practices of the corporate sector.
6: The sharp practices of over invoicing [by importers of machinery] and under invoicing [for exports].
7: The conspicuous consumption patterns of the local corporate sector. Farmers feel, they have been fleeced by a local trader or local manufacturer, due sharp practices. The balance of returns to the farmer vis a vis the returns to the corporate sector has been mentioned by the farmers associations. They are pretty well aware of what has happened in the sector.
8: The trading of products that are traded as substitutes for the local produce of the farmers. [veg, ghee].
Finally, the best results that farmers have received for their produce is 27 per cent of the end price, the middleman takes away 42%, and the end retailer and the transaction costs are 31 per cent. This is the best-case scenario. All in all what this means is that internal trade is not vigorous and buoyant.
Now about the external trade that Pakistan must be involved in. About 85 per cent of all exports are based on Agriculture products, with textile taking the major cut. Pakistani markets are accessed by the international traders through formal and informal sources. The other major export is in rice. What are the problems with Pakistan finding the particular niche for its exports?
How does the powerful lobby see this? How do the manufacturers association see this. For nearly 50 years, manufacturers have had the agricultural products export stopped for one reason or the other. The only exception was for three years when raw cotton was allowed to be exported. The administrative hitches were put in place so that only the very courageous could export. He was made to go through an administrative jungle.
The volatility of international prices is acceptable to the farmer provided it does not in any way stop his receiving the price that the market will give him when the prices are increasing. It is at that stage that the vested take a larger cut and do not allow the local farmer to get advantage of inflationary trends. The intangibles are the ones that hit the farmers. Statistics are meaningless for him. Statistics are for people like you and me. A farmer’s perception is important for the policy makers. The credibility in times of affluence is affected by all kinds of sharp practices. It is the current and previous history that will determine trust. The tragedy is that it is the sum of all policies that will be seen by the farmer as an indication of benefits from trade. Infrastructure of many kinds will have to be developed [physical is rather easy. It is the social and cultural factors that assume importance].
The tendency to find our generic and universal polices are difficult to implement. They would be worthwhile if the majority of the farmers and the country were to gain from it. Loud claims do not seem to be translated in actual fact. If trade is beneficial who is going to benefit? Farmers, consumers, the nation and the country or the few that will actually be involved in all these transactions.
The current institutional arrangement is poor and lacking in the abilities to take effective action. The nature of the requirements will change. Independence and ethics have to play their role in policy. Recently an MEP has again been fixed on the export of mangoes. MEP was a discarded instrument and it had been considered as a regressive one. Why do traders do this? Simply to siphon off foreign exchange and to have a neat package outside the country. How does it affect farmers’ attitude towards productivity? The farmers are obviously producing under uncertain price conditions and that means that they would be investing less in the coming year. Volatility in commodity prices denies the system from operating in a systematic manner.
So inconsistency in policy matters would be fatal to the continuation of any thinking towards free markets. For competition and comparative advantage to be adequately reflected it maybe necessary to ensure that the system operates in a well-oiled manner. Laws, regulations and or conventions are fairly and evenly applied across the sector. Once the trading circle is reorganized and the number of traders increase the conditions of working a free market are enhanced. That there should be no preconditions to the number of people entering this market needs to be ensured. The enabling conditions ought to be provided.
Basically the free market system gains when a delicate balance is maintained between various paradoxes. Assumptions versus opinions, actions versus ideas and the involvement of and encouragement of trade perceptions, public and private connections matter. Examples are available where the traders have been exporting and doing so successfully. The export of textiles from Multan, the informal export of animal vaccines of various kinds, the export of even powdered milk this year. Much more is possible if the sports and leisure industry were to gear themselves to the current requirement of the players. Technology in the leisure industry is important. Can the hockey stick remain a stick or will it undergo a change? These are the areas of research that the private sector would be wanting in. these are the areas where a research package would be helpful to the manufacturer and the trader.
It so often happens that the lack of specialization hits the sector. Thus institutional arrangements need to be in place so as to augment macro-micro linkages and internal versus external trade. It is in the area of new products that one finds the difficulties. If the free market promises much and delivers next to nothing the tirade against it will increase. Views from the south are already negative and there have been growing opposition to the next round for developing a free market.
Understanding the capacities have never been taken in hand. Not just a general training course but also one that is specialized for and geared towards a particular market. Commodity markets have their own compulsion and it is necessary to identify one from the other. Technology will determine the comparative cost advantage. In the years to come I can see the changes that maybe required in the basmati market. With less time on hand the housewifes compulsion may change. So what is to be done in this market that earns so much of critical foreign exchange. The recipes need drastic revision. Time is of the essence.
So what can be done and how will this affect the Pakistani market. Let me sate from the outset that it will not be an easy route and the difficulties en route will have to be surmounted. But the positive side can be evaluated in terms of efficiency, efficacy and equity. Efficiency will mean improvement all round and Pakistan’s agriculture coming out of peasant agriculture. The commodities will have to be tackled one by one and the need is to understand the critical factors that need to be addressed. Every thing basically will be upgraded. But that will take time. How much? That is any ones guess. The farmers are operating at different levels of technology and at different management levels.
So far as efficacy is concerned that is an ongoing measure of the effectiveness of deploying resources. These resources are to be used in an effective manner and require that rules of diminishing returns be reversed.
Equity is going to be the most difficult area to be attacked. For it has a regional and geographical linkage. These have to be addressed for there is a continuous linkage between development and political, social and economic strain and stress. Who will take the responsibility for the difficulties that may arise as a result of partisan development? That is the fall out that one worries about most. Pakistan is about all the areas of this country. The micro-macro linkages that have to be established require a thought process that understands and sensitively the requirements of the country, not just about the requirements of Islamabad. There in lies the crunch.