TAPPING AGRICULTURE TO TAME FOOD INFLATION
SHAMIM AHMED RIZVI
June 02 - 08, 2008
Both Pakistani economists and international experts are of unanimous view that the country can effectively control food inflation and energise its economy by stimulating its agriculture production. There was a lot of potential in the agriculture sector which can be harnessed with little help and guidance to farmers.
They are of the view that Pakistan has one of the best endowed agriculture sectors in the world having one of the largest contiguous areas, rich soil and hard working farmers who have shown their ability to absorb new technologies when presented with the opportunities to do so. With little help by the authorities to the farming community, Pakistan can feed its population easily without import of any kind of food grain thereby saving million of dollars being spent presently on such imports. With a view to improving the ratio of output to input prices and thereby stimulation agriculture production, it is necessary that the general sales tax (GST) on fertilizers and pesticides should be withdrawn, economists suggested.
A report titled "State of the Economy: Challenges and Opportunities", prepared by a team of eminent economists, including Sartaj Aziz, Shahid Javed Burki, Dr Hafiz A Pasha, Dr. Parvez Hasan, Dr. Akmal Hussain and Dr. Aisha Ghaus-Pasha, says that the most important price signal the government provides is the wheat procurement price. Wheat is the country's most important crop. The anticipated income that farmers draw from cultivating wheat significantly affects what else they grow. In determining the procurement price of wheat (the subject should continue to be handled by the federal government) the government must keep in view the level and expected trends in international prices.
The authors of the report believe that the recent rise in world wheat prices represents a secular trend caused by the increase in demand for food grains in rapidly growing populous countries such as China and India and the increasing return given for bio-fuel production by such large consumers of energy as the United States. The rise in the price of wheat has affected the prices of other food grains-commodity prices normally move in tandem-and has changed the sectoral terms of trade in the favour of agriculture. The benefit of these should be passed on, to an extent possible, to agricultural producers. For that to happen, there should not be a large difference between the government's procurement price and the price in international markets. In the context of the need to make a fiscal adjustment, increase in the price of wheat will have to be mitigated by directly helping the poor through vehicles such as the Bait-ul-Mall and Food for Work programmes, the report adds.
The report says that Pakistan has lagged seriously behind in improving the technological base of the agriculture sector. The private sector carried out very little research and development work. The little research that gets done is by the public sector but that is too widely scattered among too many government departments and agencies to be effective and does not reach the farmers. The result is that Pakistan has developed gaps between average yields and yields obtained by the "best farmers"; between the best farmers and those obtained by research institutions and those obtained by farmers in the large agricultural systems in other parts of the world. Therefore, the government role is important in closing the technology gaps. This can be done in two ways: by focusing on the development of research in agricultural universities (an approach followed by the United States) and by setting up crop or product specific research institutions (as is being done by China). The authors of the report believe that incentives should be provided to the private sector to enter the field of research and development.
Another role for the state in promoting agriculture development is to provide the infrastructure the agriculture sector requires. Pakistan has a rich inheritance of elaborate irrigation infrastructures. Impressive improvements to this network have been made as a part of the agreement with India on the distribution of the waters of the Indus River systems. But these were replacement works; they did not result in bringing much additional land under cultivation. However, not enough attention was paid to maintaining this system and for improving it to preserve water. In recent year, the Punjab and Sindh governments, encouraged by the World Bank, have begun to devote sizable resources to maintenance, the report says.
Punjab, in particular, has gone further by developing a fairly elaborate system of information available on the internet to monitor the flow of water. This information is available to both users of water as well as those who manage the system. As the provinces strengthen their capacity to gent engaged in economic development, it is important that maintenance work on the system of irrigation and improving its efficiency receive a high government priority. The resources being committed to it by the public sector should be protected during the period of adjustment discussed above, the report adds.
Within the sector of agriculture, the report says livestock has acquired a more prominent place and modernization of livestock markets need to be promoted. The sector contributes almost half to agriculture's gross output which translates into a contribution of over 10-percent to GDP. It engages 35 million people in the rural economy and provides almost 40 percent of total income of the farming community. The sector is dominated by small operators; those owning less than two animals account for slightly more than two-fifths of the total population of cattle and buffaloes. As in the case with the crop sector, yields are low. The government estimates the yield gap-outputs of the current livestock population compared with the output obtained in more developed systems-at between 60 to 80 percent. The reason for low productivity has been identified as inadequate and poor quality feed and fodder; limited animal health coverage; widespread breeding of genetically inferior livestock; poor marketing infrastructure; shortage of trained manpower; inadequate incentives for small producers; and lack of extension services. Improving yields in the livestock sector would make a significant contribution to increasing value added in agriculture. It would also have a profound impact on reducing the incidence of poverty in the country side, the report says.
A strategy aimed at achieving this objective should provide better education and training to the people engaged in livestock and better health coverage for animals. The quality of food and fodder needs to be improved. Flow of credit to livestock owners also needs to increase. At this time 90 percent of bank lending to agriculture goes to the crop sector with the livestock sector receiving 10 percent. The proportion needs to be raised to reflect more closely the contribution to value added, the report says.
The World Bank, while launching its report "World Development Report agriculture for Development", in Islamabad last week, stressed the need for greater in vestment in agriculture sector in Pakistan, a country where wheat and rice prices are hitting the pockets of poorest citizens and high energy prices and increased water scarcity are squeezing the farmers.
Drawing from the some of its leading agriculture experts, WB has asked for increased investment in the agriculture of Asian countries including Pakistan, a region that houses over 600 million rural poor. The report says over the past 20 years, agriculture in these developing countries has suffered a lot. Now, it warns, that the Millennium Development Goal (MDG) of halving extreme poverty by 2015 will not be met unless the governments in developing countries and the international community reverse the trend of under investment in agriculture and rural sector.
In emerging countries such as Pakistan, India, China and Morocco, agriculture contributed an average 7 percent to the Gross Domestic Product (GDP) between 1995 and 2005, though the sector accounts for 13 percent of the economy and employs just over half the labour force. The WB report says in many countries, slow growth in agriculture sector coupled with a rapidly growing non-agriculture sector has widened rural-urban income gaps creating social and economic tensions.
On the other hand, rapid growth of urban incomes and demand for higher-value products also provide significant opportunities for faster agriculture growth and poverty reduction in these countries.
Yusupha Crooks, WB's country Director for Pakistan has stressed the relevance of the report for Pakistan. He said during the last one year, Pakistan had witnessed unprecedented increase in prices of key food commodities, which have profound effects on poor and vulnerable people. "There is an urgent need for increased agriculture productivity and effective safety net programmes to overcome these problems," Mr. Crooks said. He said the WB was committed to increasing its support for Pakistan's agriculture and rural development following decline in lending in 1980s and 1990s.
The report says the growth originating in agriculture is four times more effective in reducing poverty than the growth coming from non-agriculture sectors. It recommends that in the emerging countries. The agricultural agenda should focus on reducing disparity between rural and urban incomes and raising the income of the rural poor:
"A dynamic "agriculture for development agenda" can benefit the estimated 900 million rural people in the developing world who lives on less than a $1 a day, most of whom are engaged in agriculture," B.Zoellick, WB Group President said. He asked countries to cut distorting subsidies and open their markets. He said the civil society and farmers" organizations should have more say in the "agriculture for development agenda".
Derek Byerlee, the principal coauthor of the report, has pointed out that low agriculture productivity, unequal distribution of land and access to water, inadequate infrastructure and poor public services delivery are among the key constraints hampering more rapid growth of agriculture sector in Pakistan. Increasing water scarcity, which is expected to worsen with climate change in the face of increasing demand for water, was another major concern.