AGRICULTURE SECTOR OF PAKISTAN

AROOJ ASGHAR (arooj.asghar@hotmail.com)
Mar 10 - 16, 2008

After 60 years of independence, agriculture continues to be the single largest sector which is the main source of livelihood for over 66% of the Pakistan's population. Agriculture accounts for 20.9% of Pakistan's GDP and employs approximately 43.4% of its workforce, according to the 2006-07 Economic Survey of Pakistan issued by the State Bank of Pakistan. Country's agricultural growth has experienced mixed trends over the last few years. At one time, country witnessed unprecedented drought from 2000-02, recovery started in 2002-03 whereas 2006-07 was one of the best agri years in the history of the country with growth of around 5%. It is expected that the growth will remain in the same range in 2007-08 as well. Pakistan has one of the world's largest irrigation systems to support its production.

Pakistan's main agricultural products are cotton, wheat, rice, sugarcane, fruits, and vegetables, in addition to milk, beef, mutton, and eggs.

Cotton: Pakistan is one of the world's largest producers of raw cotton. The size of the annual cotton crop is a crucial barometer of the health of the overall economy, as it determines the availability and cost of the main raw material for the yarn-spinning industry. A major problem is that the cotton crop is highly susceptible to adverse weather and pest damage. According to government sources, under the WTO post quota scenario, Pakistan will have the potential of becoming a leading force in the worldwide cotton and textile market place. It is also realized that future gains in value added from cotton can only be possible through qualitative improvement in the raw cotton. Cotton accounts for 8.6% of the value added in agriculture and about 1.9% in GDP in 2006-07 whereas in 2007-08 this contribution will decrease marginally due to various factors and events happening in the country. Country's production target of cotton for the year 2007-08 is estimated as 14.14 million bales which many believe will not be achieved.

Wheat: Pakistan is also the 10th biggest wheat producer in the world, but the 60th in terms of yield per acre. Wheat consumption is a bit over 20 million tons per year. The provincial food departments and PASSCO procure less than 10 million tons, but since they don't have enough storage capacity (which hasn't changed much during the past two decades) a large part of this wheat is lost and spoiled as it is stored in the open. Demand for wheat is increasing in Pakistan due to rapidly growing population as well as mounting cross-border trade with Afghanistan. One of the issues which Pakistan is facing in agriculture sector is accurate forecast of the crop and in most cases these estimates prove wrong. For example, initially it was estimated that the wheat crop during 2006-07 (to be largely consumed in 2007-08) was exceptionally good and would be more than sufficient for domestic consumption. On this basis wheat was exported but later the estimates were proved wrong thus country faced one of worst wheat crisis of its history. Due to shortage of wheat in 2007-08, Pakistan has to import one million tons of wheat from Russia at an estimated cost of US $510 million in order to meet the domestic demand. Wheat contributes 14.4% to the value added in agriculture and 3.0% to the GDP. Area and production target of wheat for the year 2007-08 are set at above 9000 thousand hectares and 23 million tons, respectively. Pakistan has an area of nearly 9000 thousand hectares of land for cultivation of wheat, which is increasing at an average rate of 1% over the last years.

Rice: Pakistan is a major rice exporter with annual export of about 2 million tons, or approximately 10% of world trade, whereas about 25% of exports are of famous Basmati rice. Rice is Pakistan's second leading source of export earnings and is of high valued cash crop. Private traders handle all exports. Pakistan's main competitors in rice trade are Thailand, Vietnam, and India. Rice accounts for 5.7% of the total value added in agriculture and 1.2% to GDP. It is estimated that size of the crop will be lesser than last year due to heavy rains in lower part of Sindh and in Punjab at the time of maturity logging phenomenon, which affected the production of rice, especially Basmati varieties and shifting of area to sugarcane crop because of better prices offered by the millers for sugarcane crop last year. Both rice and sugarcane crop are highly water-intensive crops and farmers quite frequently shift between these two crops based on the price being offered to them. Sometimes, farmers stop cultivating rice and prefer sugarcane as they get much better price.

Moreover, area under rice and sugarcane crops is increasing in most of the districts of mixed wheat and cotton-wheat zones. The reason of this trend could be the high instability in cotton output growth as compared to rice and sugarcane. Other reasons include high volatility in year-to-year prices; greater vulnerability of this crop to diseases and insect attack; consistently rising production cost due to soaring prices particularly of insecticides and pesticides, along with a serious concern of their quality; incapacity of the farming communities to deal with the dynamism of technology in cotton production; and increasing water logging and salinity problem, etc.

This rising trend in rice and sugarcane cultivation in the cotton-wheat system would aggravate the land degradation problem i.e. ultimately driving the cotton crop out of the system as it happened in the now rice-wheat and mixed-wheat zones. Consequently, the expansion of the rice and sugarcane area in the cotton-growing system is not justifiable and is not in the interest of the country in the long run. To save the cotton economy from this substitution, instability in cotton output price needs to be reduced with active participation of the Trading Corporation of Pakistan, and the farmers have to be protected from exploitation by the chemical dealers and seed companies which are selling sub-standard products and uncertified seed.

Tobacco: Tobacco is grown mainly in the North-West Frontier Province and Punjab and is an important cash crop. Yields in Pakistan are about twice those for neighboring countries largely due to the extension services provided by the industry. Quality is improving slowly due to problems related to climate and soil. Farmers have started inter-cropping tobacco with vegetables and sugarcane to increase returns. About half of the total production is used for cigarette manufacturing and the remainder is used in traditional ways for smoking. The share of imported tobacco is increasing gradually in response to an increased demand for high-quality cigarettes.

Minor crops: Minor crops account for only 5% of total cultivated area; these include oilseeds (sunflower, soybean), chilies, potatoes, and onions. Domestic oilseed production accounts only for about 25% of Pakistan total edible oil needs. As a result, Pakistan spends more than US$1 billion annually in scarce foreign exchange to import edible oils, while its oilseed processing industry operates at less than 25% of capacity due to an inadequate supply of oilseeds.

Fishing and Livestock: Pakistan's fishing industry is relatively modest, but has shown strong growth in recent years and accounts for 49.6% of the agriculture sector. The domestic market is quite small, with per capita annual consumption of approximately 2 kilograms. About 80% of production comes from marine fisheries from 2 main areas, the Sindh coast east from Karachi to the Indian border, and the Makran coast of Balochistan. According to a recent estimate, total fish production in 2007-08 is expected to be above 800,000 tons, out of which around 500,000 tons consisted of sea fish and the remainder would be fresh-water species. Principal products of livestock are milk, beef, mutton, poultry, and wool. In an effort to enhance milk and meat production, the government has recently launched a comprehensive livestock development project with Asian Development Bank assistance.

ISSUES & CHALLENGES

Like in any other sector, agriculture in Pakistan is also facing number of challenges; few of those are as follows;

More than 60% of the farmers are poor rural households with no access to land or water. Around 38% of small landowning farmers are also poor. Incomes from non-farm activities, including agricultural products processing, trade, construction, and transport services already account for 63% of total rural incomes. As these people are short of funds there are numerous hurdles for the cultivation of valuable products.

Land and water in the agriculture sector is highly disproportionate and imbalanced. According to a World Bank's report; about merely 2% control more than 45% of the land area in Pakistan. It is widely believed that large land owners" still control most of the water distribution system though previous Punjab government introduced new water distribution system but certain issues emerged while implementing that system which needs further concentration. Moreover, large land owners not only capture the subsidies in water and agriculture, but also the benefits of agricultural growth. Government's agriculture credit schemes mostly benefit large farmers who use cheap labor onward to multiply their profit margins.

Over the period, the tendency in R&D has declined which is off course not a healthy sign. A lot of emphasis needs to be given on this aspect as well. It is difficult to get new products or even sustain existing products without having proper, formal and effective R&D.

Underground water level is continuously increasing due to percolated irrigation water which consequently causing water logging and degradation of land. Excessive salinity of the underground water affects the soil and damages its fertility. This is mainly happening because of low quality drainage system and inconsistent practice. Due to water logging, according to an estimate, one acre of fertile land is damaging in every ten minute.

Irrigation is the single most critical component of water management in the country. There are various inefficiencies and malfunctioning in the system. Due to poor maintenance, Pakistan's irrigation system has to bear considerable loss of water every year. Previous Punjab government introduced new computerized system of water distribution but didn't address the core issue i.e. how small farmers can complaint against farm lords, it is easy to say and claim but quite difficult to implement. Illegal pumping from canals and inaccessibility to water by the tail-enders cause unequal water distribution. Almost all the dames in Pakistan have been constructed with the aim to build water reservoirs and used for irrigation purposes while generation of electricity from those dams are their secondary function. One of the reasons many give against the construction of Kala Bag dam is that Punjab will get extra water quota and other provinces will not get their due share. This perception emerged because of wrong distribution of water in past and there was no transparent method of distribution which consequently affected the agricultural land.

It is mostly believed that corporate governance and management is something related to corporate sector only and has no relevance in the agriculture sector. In fact Pakistan's agri sector lacks both of these basic ingredients of business management. Due to inefficient water management system, Pakistan is continuously reducing the per hectares crop. There is almost no accountability of people who are involved in this mismanagement.

However, there is no denying the fact that despite having a centre place in the country's economy, agriculture sector could not become a vibrant sector like those of other developed and developing countries in terms of producing enough wheat, rice, cotton, pulses and dairy products. The worst part in Pakistan's agri sector is that there is no tax on agricultural income. There has always been a strong agriculture lobby in every government during the last 60 years which dictated its terms. The poor farmer, however, continued to suffer as he does not get adequate return of its products. The late internationally renowned economist, Dr Mehboob-ul-Haque used to say that Pakistan's agriculture sector earns about Rs600 billion annually but does not pay even Rs10 billion as part of tax on its income.

SUGGESTIONS

Agriculture is an important engine for growth, especially for low-income developing countries in their journey of economic and broad-based development. As Pakistan has an agrarian economy and economists believe that agriculture is the backbone of the national economy therefore they force the government to pay attention on agriculture sector by providing subsidy and loans to growers with a sustainable system. Moreover, Pakistan should bring institutional reforms so as to get advantage from the new opportunities being offered by the WTO agreement. It is vital to focus on diversification into high value products, agro-processing, and better integration in supply chains. In order to benefit poor, it is equally important to increase the productivity so as to decrease food prices, generate new employment and stabilize rural wages. Long term solutions are needed for inter-provincial drainage problems. At the same time, the safety of infrastructure (especially barrages) needs to be guaranteed. A better integration between irrigation and agriculture would help the whole system to become more demand driven. It is important to improve land administration system, including computerization of land records and reduction of transaction costs though this has been done in recent past but require more transparency. Since independence, agricultural income is exempted from tax despite the fact that all the big land owners are in election politics, have their own political parties which need heavy funds and have expensive cars and bungalows in almost all the main cities of Pakistan. Therefore tax on agricultural income will not only help the sector but will also contribute positively in the national progress. It would be better if SBP further cut its interest rates for farmers and improve terms and conditions of debt. The degradation of land, water, forests and natural ecosystems is pervasive and mostly affects the poor. The situation in Sindh with respect to land use, salinity, degradation of the wetlands, and floods needs special attention. Policies and public programs need to address the incentive structure for sustainable use and mitigation measures.

Summing up, as such the agriculture sector is at the centre of the national economic policies and has been designated by all the governments as the engine of national economic growth and poverty alleviation. There is a need to encourage investment through corporate involvement in the sector which will definitely increase the crop level both in terms of quality and quantity. There is also an enormous scope to expand output, and also productivity, by increasing the productive efficiency of the relatively inefficient districts. This can only be done by encouraging investment in rural physical infrastructure, providing efficient and effective institutional support, including agricultural extension, soil survey and testing, inputs quality control service, etc. In short, agriculture continues to grow as a supplier of raw materials to industry as well as market for industrial products. It is contributing substantially to Pakistan's exports earnings. Therefore, any improvement in agriculture will not only help Pakistan's economic growth to raise a faster rate but also benefit a large segment of the country's population.