AGRICULTURAL PROBLEMS & ECONOMY
Sep 17 - 23, 2007
In past, there were many theories on inequality that linked it with the economic growth. Economist viewed inequality as a driving force for the economic upturn as it could lead to the prosperity of the nations. Subsequent theories about trickle down also supported this idea. However, in later part of the twentieth century, economist had developed a consensus that inequality is the main impediment to economic growth which was later proved by the economic achievements of the western countries where inequality is a rare phenomenon. In developing countries like china and India where inequality was higher, prudent policies ensured participation of lower class in the work force through training and proper education programs.
Pakistan is an agrarian economy where 65% population lives in rural areas and 70% of it is dependent on agriculture as their primary source of income.
It is a global phenomenon that incidence of poverty is more in rural areas as compared to urban areas. This disparity is much higher in Pakistan as compared to many other agrarian economies. It clearly shows that benefits of economic growth could not be passed to the rural poor. The reason for this is the lack of government focus on the most important sector of the economy that is agriculture.
Greater economic growth and value do not only come from the sectors that create exportable surplus. Agriculture should not be taken as a product which can help economy survive in terms of earning surplus dollars through exports. The price volatility of the agri commodities makes future of agrarian economies vulnerable if their exports largely depend on it. The attack of viruses and climatic conditions add more to the volatility. Australia is famous in the world as an economy which is highly dependent on agriculture. However, it is not true anymore as its product mix is well diversified between agriculture and other value added products and hence its economy is less vulnerable to any shocks in commodity prices. It becomes more evident when one looks at the rice exports of Pakistan. After crossing $1bn mark in basmati rice exports, Government started portraying a very rosy picture about the future of this commodity. However, regional competition and problems in different categories of rice have not let the positive expectations of the Government officials to materialize.
The agriculture on the other side can save a small amount of dollars by avoiding import of certain crops that have not been able to meet the growing demand of an ever increasing population. It is an era where economies can excel and capture a lion's share in world exports by upgrading their exports in the value added category rather than exporting low value agriculture products.
The favorite subject of the opposition political parties and the leading economist of the country is inflation which has been higher averaging at 9% in last many years. The most dominant factor for this rise in CPI inflation is food which has a share of 40% in the CPI basket. Central bank has tightened its monetary policy to an extent that it has badly effected the private sector credit off take and can result in a possible economic slow down in the future. However, central bank can not control food inflation and hence has been able to control only non food non energy inflation. Food inflation has a direct impact on the real income of all economic classes but its incidence is more on the poor people. It is very disappointing to discuss of uncontrollable food inflation in an agrarian economy where higher food prices give birth to more inequality.
The purpose of this article is not to criticize the fact that food prices have increased in last few years. The rise in prices is beneficial for the rural poor whose income increases if he is able to get a better price for his produce and hence he is encouraged to increase his investment in the next season. However, the purpose is to understand the negative impact that economy has to suffer due to the speculation and hoarding in these commodities that does not let the grower to benefit from these prices. Middle man who represents negligible fraction of the population is benefited from these activities. The economy as a whole is loser because these benefits go to the hoarders and middlemen at the expense of consumers and producers who are the main economic drivers. To elaborate further, how can economy survive and grow if factors that drive demand and supply in the economy can not determine and benefit the market prices.
Government is also responsible for this price volatility in the prices. There was a disagreement in the estimated wheat output between government and flour millers. Millers did not agree with Government's target of 23mn tons record output. The current situation where prices have mounted to the record levels of Rs.1500 per 100 kg and where millers have advised the Government to import 1mn tones wheat is a clear evidence of false projections made by the government. The aggressive Government's forecasts almost crashed the prices as farmers due to expected bumper output sold wheat to the middle man and hoarders much below the support price. These people are now enjoying the current wave of record prices increasing the regrets of the poor farmers.
The government is criticized on its policies that facilitate trader over investor. An investor who pays 35% corporate tax and pays WWF and WPPF is at disadvantage over a trader who enjoys higher margins by just trading in the commodities without contributing much to the exchequer. The investor here can be compared with the grower, who invests in terms of time, money and hard work throughout the season and at a time when he can reap the fruits of his investment; the trader takes all the advantage. These traders buy from local market at lower prices and sell in the international market at higher prices which are not in the reach of poor farmer. Furthermore, due to their holding capacity, they buy and store when the prices are low and sell the same when prices escalate.
Water availability is a critical issue where government despite so many promises has completely failed. Dam construction is still a dream and vision 2014 in this regards seems a myth now. All the Dams do not have political pressure so Government should not hide its failure with these lame excuses. Allocations have been higher in last many budgets for up gradation and lining of canals. However no practical work has been done in this regard and almost all the irrigation system is still suffering with the problem of silting. The cost of electricity for tube wells is much higher in Pakistan as compared to India. As a result, the yield per acre in Pakistan is even less than half of the yield per acre in India and china. Isn't it very depressing for the textile industry that being in the 4th largest cotton producer of the world, one of the major reasons for their non competitiveness is the price of cotton and they have to import it in order to meet the local requirement.
The government has taken some steps by subsidizing the fertilizer prices that pushes the farmers to use the proper combination of different product mix. It will be very helpful to increase the per acre yield. There is a need to educate farmers about the right methods of sowing the crop. Use of quality seeds is another problem where Government's focus and farmer's awareness is at minimum. The availability of highly productive seeds should be ensured in abundance at economical costs so that output can be maximized. Storage capacity should also be provided that can save a great portion of food from rotting and can also avoid forced selling at lower prices.
This if implemented properly can benefit economy in many ways. If crop output is higher and storage capacity is there, then there is no reason why farmers will have to sell their produce below support prices. Furthermore, if farmers are educated about the trends in prices in the international markets then they will be in a better position to judge the true worth of their crop without becoming fool by the middleman. This will support the economy a great deal as food inflation will be curtailed resulting in lesser impact on the real per capita income of the poor. Furthermore, it will reduce inequality in different classes thus removing the major impediment in the way of economic growth. It will also increase the per capita income of farmers who represent a larger portion of the population as mentioned above.
Yield per acre substantially decreases if the crops are not sown and cultivated at the right time. It has become a routine in Pakistan that sugar cane growers are forced by the millers to not cut their grown up crop as they are not given healthy prices by the millers. It delays the sowing of wheat for the next season and it follows in a cycle which negatively affects the productivity of the soil.
It is believed that Pakistan can easily double the yield per acre of cotton, wheat, sugarcane and other major and minor crops by merely adopting the modern techniques. If the yields are doubled then it can greatly contribute to the economic development not only through controlled inflation but also in the value added category.
BRAZILó AN EXAMPLE FOR PAKISTAN
Pakistan can follow on the footsteps of Brazil where ethanol has cut the oil bill by a significant amount. Brazil no more relies on their sugar mills for the production of ethanol but has developed more advanced methods to make ethanol directly from sugarcane. It has now achieved the full attention of farmers who get reasonable pricing for their produce. Government was also showing very positive attitude towards the use of ethanol as it could cut oil import bill by 10%. After initially making some aggressive projections no practical measures were taken by the Government as evident by the current status, where petrol pumps do not have this facility. Private sector has not also been invited by the government as no facilities have been given in form of taxes or investment friendly policies. As a result sugarcane growers are suffering and also burden of oil imports is increasing due to rising international oil prices. If yield per acre is doubled for the cotton crop then textile sector will not have to bear the problems due to volatile prices that recently fluctuated to an extent of Rs.500/maund in a single trading session.
This is the high time when Government should act in a responsible manner and should practically look into the importance of agriculture, if government does not do it now the extent of impact on the economy will worsen in future resulting in increase in the sufferings of the common man.