Use of Economic Instruments for Environmental and Agricultural Resources Management in Pakistan


May 16 - 22, 2005



Resource depletion and environmental degradation have emerged as major problem facing agriculture. They are becoming severe enough to threaten the long-term viability of farming and food production. While new technologies are needed which are friendly to the environment, we also need well designed policies which are implemented effectively.

Agriculture is the backbone of Pakistan's economy and one of the key engines of economic growth. The sector contributes about 25 percent of GDP, employs nearly 50 percent of the rural labor force, and is responsible, directly or indirectly, for over 60 percent of exports. Around 80 percent of Pakistan's arable lands and 90 percent of agricultural output depends on irrigation.

Pakistan is endowed with an immense agricultural resources base and agro-ecological diversity, which makes crop production possible throughout the year. Pakistan is located in the semi-arid and sub-tropics but is lucky enough to have a proportionately better share of fresh water, yet it is a scarce and precious commodity. Water of the Indus river and its tributaries is of excellent quality, with total soluble salts (TSS) ranging between 60 to 375 ppm. Alluvial soils stretch over thousands of kilometers of the Indus Basin plain. We have a rural population which is seeped in the culture of farming since centuries. All these factors combine to make Pakistan as an agricultural producer with one of the lowest costs of production.

Pakistan has 11 distinct climate zones and 10 agro-ecological zones ranging from mountainous, dry land and mangroves comprising rich biodiversity.


Per capita water availability in Pakistan has been decreasing, at an alarming rate. In 1951, the per capita availability was 5300 cubic meter, which has now decreased to 1105 cubic meter just touching water scarcity level of 1000 cubic meter. The annual flow in the Indus Basin System on an average is 142 MAF. The irrigation network in Pakistan diverts 106 MAF. This system results in huge delivery losses both in canals and in water courses. The net water supply at farm gate on an average is 62 MAF. Water is a limiting factor and is used inefficiently as only 30 percent of the water diverted from river system actually reaches the crops. Pakistan exploits about 48 MAF from the sweet subsurface aquifer. This is at a huge cost in the shape of investments in energy, adding up to the cost of production. This increase in cost of production of crops is not generally compensated properly through increase in output returns; this makes the growing of crops under such irrigation scheme, a fragile and marginalized farming practice. Existing uses of available water include agriculture 93 percent, industry 3 percent and households 4 percent. The current situation is that Pakistan has suffered from a prolonged drought over past 45 years.

Almost all fresh water resources are severely polluted due to discharge of untreated industrial and municipal wastes. Pollution of coastal waters is due to waste discharge, oil spill. Marine resources of the coastal areas are under threat due to mangrove cutting and unplanned urban development.

Air pollution is on rise, especially in urban areas. Recent surveys conducted by Pakistan Environmental Protection Agency revealed presence of very high levels of suspended particle matter (about 6 times higher than World Health Organization's guidelines). In severely affected areas the vegetation has been totally wiped out from the growing areas. Energy sector accounting for 81 percent CO2 emissions, industrial processes account for 12 percent, 81 percent of oxides of nitrogen emission comes from agriculture sector. Climate change is expected to have significant impacts on agriculture. Smog also seriously affects almost entire Punjab. During December and January every year.

The geographic area of Pakistan is 79.61 million hectares. The cultivated area is 22.27 million hectares. Out of this 15.67 million is irrigated and the rest is depended upon rain. The area under forest is 3.8 million hectares, and under rangeland is about 52 million hectares.

As in the country, productive agricultural areas are showing a decline in productivity in many areas. Higher levels of inputs are needed to obtain the same yields. The major limitations are removal of nutrients, salinization, and alkalization, destruction of soil structure, accelerated wind and water erosion and loss of organic matter. A combination of these results in such degradation that the term "desertification" is popularly used. In Pakistan desertification affects over 43 million hectares of land annually.

The deforestation rate has been estimated at 0.2-0.5 percent per annum. Forest cover, which was 4.8 percent of total land area in 1992, could hardly be increased substantially despite all efforts. Degradation and encroachment of natural forests, rangelands and fresh water and marine ecosystems are resulting in loss of biodiversity. At least four mammal species, including tiger, swamp deer, lion and Indian one-horned rhinoceros, are known to have become extinct from Pakistan. While at least 10 ecosystems of particular value for the species richness and uniqueness of their floral and faunal communities are considered to be critically threatened.

Cotton is the lifeline of Pakistan's economy. The most important is devastating attack of cotton leaf curl virus in early nineties that at one time appeared to threaten the future of textile sector in Pakistan. Our scientist through untiring efforts discovered resistant genes that helped to save the agricultural economy. During the middle of nineties decade, very heavy insect pressure was encountered in cotton especially the American Boll Worm and Army worm inflicted heavy losses in the economy. Broad genetic base is very important from the point of view of resistance against virus and disease and adaptability in various agro-environments. In majority of cotton varieties NIAB-78 or its derivatives and/or S-12 (highly susceptible variety to cotton Leaf Curl Virus). Recently cotton leaf curl virus has again emerged as a key disease in Punjab in general and Burewala area in particular. This is dangerous version and could develop into a serious problem.

Pesticides were introduced in 1954 in Pakistan. The dependency on pesticide is evident from increasing trend in its consumption from 665 tonnes in 1980 to 47,592 tonnes in 2001. In Pakistan, among various crops, cotton is recognized as sink of agro-chemicals. For example 63 percent pesticides are only used to control pests in the country, followed by 19 percent on rice, sugarcane, fruits and vegetables. This high dependence on pesticides has disturbed agro-ecosystems, increased health hazards and polluted environment. In the country nearly 50 percent of pesticides used are either extremely hazardous or highly hazardous. Studies show that more than 2 million women get sick annually from exposure to pesticides during cotton picking.

In fertilizers, nitrogen use showed the increasing trend from 1, 471.63 thousand N tonnes in 1990-91 to 2,349.11 N tonnes in 2002-03. Phosphorous also showed the increasing trend, from 388.50 thousand N tonnes in 1990-91 to 650.17 thousand N tonnes in 2002-03. However potassium showed decreasing trend from 32.75 thousand N tonnes in 1990-91 to 20.49 thousand N tonnes in 2002-03.




Taxation in Agriculture: Pakistan has a long history of taxing agriculture. All taxes in agriculture are provincial taxes and are collected through the provincial system.

Water Rate: The water rates in provinces vary from crop to crop and are collected on six monthly bases. For instance in Punjab for Rabi Rs50 per acre and for Kharif Rs85 per acre and for garden Rs250 per acre.

Agricultural Income Tax: In Pakistan agricultural income tax has been imposed from 2002. Income tax is applicable to holdings above 12.5 acre.

General Sales Taxes (GST): GST is imposed at the rate of 15 percent on inputs like fertilizers and pesticides.

Agricultural Subsidies: Agricultural subsidies have a long history of its evolution in Pakistan.

Fertilizers: Subsidies on fertilizers were with drawn gradually- nitrogen fertilizers in 1984-85 and phosphate and potash in 1989-90. However, due to high cost of fertilizers the Government has given relief of Rs30 to 40 per bag of DAP. This is also applicable to other phosphatic fertilizers.

Tube Wells, Plant protection and Seeds: Agricultural subsidies given on such items were explicit subsidies and eliminated totally by 1994-95.

Irrigation Water: Irrigation water witnessed almost all implicit subsidies by the Government and shared about 60 percent of the total implicit subsidy in various years.

Agricultural Credit: Institutional credit is mainly distributed by Zari Taraqiati Bank and stood second by its volume in the total amount of implicit subsidies extended by the Government over time. For agriculture credit mark up is 9 percent for production loan and 11 percent for development loans.

Electricity: Electricity occupies an important place in the implicit subsidies and ranked almost third in the total volume of subsidies, that comes under this category. At national level subsidy on electricity was provided up to 1994-95 and in subsequent years it was withdrawn at country level. However, it was continued in Balochistan for agricultural tube wells at flat rate. However, due to severe water shortage, it has increased pressure on exploitation of sub surface water resulting in increasing the cost of production. Government is conscious of the situation and has provided a relief of 33 percent for Kharif crops.

Export Subsidies: Pakistan has limited choice to provide, because in the base year 1986-90, Pakistan neither provided nor notified any export subsidy. However, by using a provision of export subsidy in AOA, the Government has announced Rs350/tonne export subsidy on export of wheat.

Subsidy on Freight: The Government has allowed 25 percent freight subsidy on export of fruits and vegetables.

Support Prices: Initially eight crops were included in the support price net. However, due to donor pressure Pakistan had to cut its support price to four main crops wheat, cotton, rice and sugar cane. In future the support prices will be renamed as rescue prices. Pakistan current total Aggregate Measure Support is negative which is $-218 million. It means Pakistan has a big cushion to provide domestic support of $ 218 million first to reach a positive sign then it can go up to 2.6 percent GDP.

Trade Policy: The private sector has given a lead role primarily based on market economy. The role of public sector has been confined to minimal only for wheat crop, which is the basis of Pakistan's food security or to address some of the distressing situation. Measures have been taken allowing free export and import of all commodities in agriculture sector. The only exception to this is the import of cotton seed. Pakistan has already suffered a loss of $ 1.1 billion through cotton virus. These policies are in consistent with WTO regime.


Ministry of Environment, Government of Pakistan has prepared a draft of national environment policy 2005-15 and has integrated agricultural resources and environment. The policy has identified the following issues for intervention.

Agriculture and Livestock: To achieve sustainable agricultural and livestock development the government shall:

* Promote organic farming.

* Launch programs and projects to prevent soil degradation and to restore and improve degraded lands.

* Promote integrated pest management and safe use of insecticide, pesticides, weedicide, fungicide and herbicide.

* Develop strategies and programs to tackle desertification in line with the National Action Program to Combat Desertification and Drought.

* Establish National Desertification Control Fund.

* Encourage ecologically compatible cropping systems.

* Enhance existing livestock production through development of new technologies, scientific methods of farming and improved management interventions.

* Promote recycling of agricultural products associated with livestock production, and use of livestock sector as an outlet for recycling of appropriate urban wastes.

* Encourage high productivity of livestock breeds.

Forestry and Plantations: To ensure sustainable management of natural forests of Pakistan and increased tree cover for safeguarding economic growth and food security in the country, the government shall:

* Finalize the national Forestry Policy.

* Carryout intensive institutional and legal reforms both at the federal and provincial levels to promote good forest governance.

* Promote social forestry and integrated watershed management.

* Promote farm forestry and irrigated plantations.

* Eliminate all sorts of import duties on timber products while taking into account the environmental sensitivities of the neighboring Afghanistan.

* Develop and sustainably manage the riverine forests along with irrigated plantation and tree plantation on farm lands.

* Develop and implement a strategy and an action plan for protection and rehabilitation of mangrove forests with participation of communities.

* Preserve unique forests eco-systems and the cultural heritage of people of Pakistan.

* Provide alternative sources of energy, like piped natural gas, LPG, solar energy and micro-hydel power stations, to the local inhabitants to reduce the pressure on natural forests, and to substitute firewood in the upland ecosystems.

* Strengthen the existing forestry research and training institutions with adequate infrastructure and technical manpower development.

* Promote sustainable management of rangelands and pastures through preparation and implementation of integrated range management plans.

Biodiversity and Protected Areas:

* Ensure effective implementation of Biodiversity Action Plan.

* Revise and update the Biodiversity Action Plan in line with developments taking place at the national and international levels.

* Develop and implement protected areas system plan for in-situ conservation of biodiversity with community involvement.

* Encourage involvement of local communities in conservation and sustainable use of biodiversity through provision of incentives and responsibilities.

* Prepare a national strategy and action plan for combating spread of invasive species.

* Finalize biosafety rules and guidelines and adopt necessary bisafety related legal framework.

* Establish a National Institute of Biodiversity and Ecosystem Sciences at federal level with the objective of enhancing training and research capabilities to the fields of biodiversity conservation and ecosystem management.

* Promote ex-situ conservation of biodiversity through establishment of botanical gardens, gene banks, zoos and captive breeding of animals and plants.

* Develop policy and regulatory framework for conservation, cultivation and marketing of wild herbal resources.

* Promote eco-tourism concept and practices.


Implementation Instruments

The following key instruments shall be employed for implementation of the policy:

(I) Integration of environment into development planning;
(II) Legislation and regulatory framework;
(III) Capacity development;
(IV) Economic and market based instruments;
(V) Public awareness and education; and
(VI) Public-private partnership

Economic and Market Based Instruments

* Environmental fiscal reforms shall be promoted

* Trade barriers for the import of clean technologies, fuels, and pollution control equipment shall be removed.

* Incentives including reduced tariffs, tax reduction and other incentives (such as environment and energy award) shall be offered to private and public sector for compliance with environmental laws and standards.

* Sustainable development funds shall be operationalized at the federal and provincial levels.

* Industries shall be encouraged to introduce environmental accounting systems in their financial management systems.

* Special credits/low interest loans/subsidies shall be offered for establishment of waste management system, introduction of clean technology and relocation of polluting industries.

* Green labeling shall be introduced through launching Pakistan Green Seal program.

* Opportunities for green business such as environmental engineering manufacturing and installations, environmentally-certified products and businesses, energy service and conservation companies, and ecotourism shall be promoted.


Resource depletion and environmental degradation have emerged as major problems facing agriculture. They are becoming severe enough to threaten the log-term viability of farming and food production. While new technologies are needed which are friendly to the environment, we also need well-designed policies which are implemented effectively. The research and development can produce technologies to enhance environmental quality and resource conservation, but may not be enough to ensure that they are actually used. To change these situation farmers must be given new kinds of incentives The incentives which are available include taxes on farm inputs, price supports for goods produced by selected agricultural techniques and income supports paid to farmers who carry out conversation practices. Another possibility is that farmers should be made to pay for any environmental damage they cause, such as pollution or depletion of ground water. Most governments tend to prefer direct controls. However, monitoring and enforcement are difficult and costly.

In Pakistan subsidies on nitrogenous fertilizers were with drawn in 1984-85 and phosphate and potash in 1989-90. GST was also imposed at the rate of 15 percent. This policy does not help in reducing the use of nitrogenous or phosphatic fertilizer except potash. Similarly a subsidy given on plant protection was removed in 1994-95 and GST was also imposed, but the use of pesticide is on rise.

In Pakistan there are wide variations in productivity of crops at the farm of progressive growers and subsistent growers. The subsistent farmers cannot purchase costly inputs and they are organic by default. These farmers need support in organic certification, marketing, biofertilizers, biopesticides to practice organic farming.

The water resources development agenda may be that one-half of the increase in the demand for water by 2025 should be met by increasing in effectiveness of irrigation, while the remaining water needs should be met by dams and conjunctive use of aquifers. For effectiveness of irrigation lining of canals, water courses and construction of storage dams at farm level is needed. For introduction of efficient irrigation like sprinkler, drip, trickle systems farmers need financial support.

The use of information technology for agricultural resources management is gaining interest. It makes agriculture management less tedious and costly, by collecting a wide spectrum of data on a much shorter span of time. Precision agriculture, GIS-based mapping and modeling of soil erosion-using satellites to monitor change in land use. The use of Internet has made agriculture as knowledge based industry. Farmers need assistance to use information technology.

For development of eco-tourism, program is needed to provide low interest loans to farmers, to help them improve their accommodation facilities for tourists.

For introduction of genetically modified crops, farmers need assistance for purchasing the costly seed.

The Asian Development Bank has estimated that one third of the agricultural land become degraded over the past 30 years. It has also pointed out that low income rather than population growth is the major underlying cause of land degradation.

The author is from Agronomy Department University of Agriculture Faisalabad: E-mail: