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There is a need to accelerate agricultural growth specially by having new markets, more water, and technology

From Shamim Ahmed Rizvi
Islamabad
May 06 -12, 2002

The World Bank has endorsed the policy of the present government to focus on the development of the Agriculture sector which is considered to be the backbone of Pakistan economy. In its survey report released recently the World Bank experts have emphasized the importance of agriculture in Pakistan economy. Stressing the need for its development on priority basis, it has also suggested ways and means to achieve this objective.

According to the World Bank report Pakistan's agricultural sector possesses the potential to be a lead sector in accelerating economic growth and reducing poverty, but it has received less attention from the governments than other issues.

According to "Pakistan Development Policy Review: A new Dawn" of the World Bank, there is a need to accelerate agricultural growth specially by having new markets, more water, and technology. Markets need to be complemented by strategic public investments in infrastructure, most critically in the irrigation and drainage sector.

A national drainage system that would complement the irrigation system is planned but stays behind schedule. Planned instructional reforms to enhance the efficiency and equity of water use and reduce government subsidies to O&M are lagging. Without renewed effort at the highest level, water and associated drainage issues threaten to become the binding constraint on faster agricultural growth. The slowest progress has been in reforming the technology system, despite the fact that technical change has to play an ever larger role in future growth of agriculture and is critical to sector competitiveness with liberalized markets. Research extension and education need both major institutional reforms and increased funding.

Talking about liberalizing trade and markets, the report said that historically, the government intervened heavily in the agricultural sector, subsidizing many inputs, but setting output prices below border-parity prices. This resulted in Pakistan having one of the highest rates of the agricultural sector in world. The public sector dominated markets for major inputs and products through public corporations. Beginning in the 1980s and accelerating in the 1990s, Pakistan has liberalized its external trade and exchange rate regimes, privatized input markets (notably for fertilizers and pesticides), opened output markets to the private sector, removed input subsidies, and phased out public corporations serving the sector. Although this transition is still incomplete, the private sector is now playing a much greater role in agricultural marketing for all commodities, including wheat. Public subsidies for both inputs and products have in most cases been eliminated including a large wheat subsidy that continued to 2001. The major remaining subsidy is for irrigation water, where O&M costs are only partially recovered.

The GOP is concerned about price instability for major commodities and continues to announce "indicator prices" which are backed up in the case of wheat, and to some extent cotton, though public procurement. Livestock prices are also often controlled at the local level. Such initiatives should avoid undermining the incentive to produce and market high-quality produce that is a principal advantage of liberalizing output markets. The stated intention of these interventions is to address deficiencies in still developing private markets, without incurring trading losses, but policy is still envolving. A good case can be made for stabilization of wheat and a variety of options should be evaluated to determine the most efficient approach, including operations in future markets, a government-operated fund, and a limited strategic reserve. Private-sector approaches to price risk management could also be developed for cash commodities, especially cotton, through commodity exchanges, improved market information systems, and facilitation of private investment in critical infrastructure.

About promoting private-sector investment, the report said that private investment has in the past been depressed by uncertainty resulting from adhoc government interventions in the output and input markets, and lack of appropriate and transparent rules and regulations with consistent and fair enforcement. However, private sector activities have expanded rapidly in the 1990s under liberalization, and now account for more than 80 per cent of total investment in the sector. There are some notable examples of the private sector creating new industries through contract farming with processors, such as modern milk processing, horticultural exports, and spring maize in the Punjab. While public sector corporations still dominate some input markets, notably seed, and continue to participate strongly in the fertilizer sector, the Sindh Seed Corporation is scheduled for privatization in 2002. There are also opportunities to private veterinary services and animal vaccine production.

In the irrigation sector, privatization of deep tube-well and private investment in shallow tube-wells has played an important role in checking waterlogging by lowering the water table (although in some fresh groundwater areas this has gone to excess, depleting aquifers), supplementing irrigation supplies, and freeing public resources for operation and maintenance.

However, the Ten Year Perspective Plan articulates a proposal to install new public sector tube-wells. "It is not obvious why the public sector should be reintroduced into an activity that the private sector has shown itself able to handle efficiently. Both growth and equity would be better served by promoting community operated or owned tube-wells instead though new exploitation should be allowed only in areas where there is remaining sustainable aquifer capacity", the report poses a question.

The regulatory environment for private investment is still lacking in significant areas. Pakistan has yet to implement plant varietal right to provide incentives to private investment in agricultural technology, and bio safety rules to regulate import and release of genetically modified organisms. The long delay in approval of bio-safety guidelines means that Pakistan is at least three years behind competing countries in the commercialisation of altransgenic insect-resistant cotton which has provided a cost advantage of 20-25 per cent in countries as diverse as Mexico, China and the USA, and will shortly be released in India.

In recent years the water allocations agreed in the Water Accord have not been delivered due to drought and loss of storage capacity due to sedimentation. The effects of these shortfalls have been exacerbated by the lack of transparent and effective water management in the major canal commands. The growing gap between supply and demand is a serious constraint on future agricultural growth. Important changes in water management and use policies are needed if future agricultural demands are to be met, and a new and transparent agreement about water allocation that includes due consideration of environmental needs, will be essential.

It is gratifying to note that the present government is fully aware of the importance of agriculture in our economy and the various impediments and constraints in its growth including the shortage of irrigation water. As a matter of fact President Gen. Musharraf has personally focused his attention specially on the shortage of irrigation water. A number of small dams and water reservoirs have already been planned for NWFP & Balochistan which will be completed within about 3 years. For long terms Bhasha or Kala Bagh Dam are being reactivated beside completing the Ghasi Brotha. In his latest referendum speech at Karachi Gen. Musharraf particularly warned that if immediate steps were not taken to start work on one of these big dams there will be an acute shortage of irrigation water in the country after about 10 years. To save the people of the country from starvation we have to move quick and with full speed, he declared.