June 02 - 08, 2008

Despite the fact that disbursement of credit to agriculture sector by commercial and specialized banks has shown an impressive growth of 34.88 percent, to Rs 157 billion during 10 months (July-April) of the current fiscal year (2007-08), the country's agriculture sector had to face hard time during the current fiscal year with more financial burden on end consumers of agriculture products.

During the year, the country had to face not only shortage of wheat flour which caused serious consequences for the previous PML-Q led Government but rise in prices of rice also irritated the consumers.

On one hand, Rice Exporters Association of Pakistan (REAP) is demanding uninterrupted export of rice while on the other hand, demands are pouring in to ban rice export to check soaring prices of the commodity.

Pakistan is predominantly an agricultural country and despite favorable conditions of soils, irrigation water and climate, agriculture in the country suffers from under-production both in terms of yield per hectare and production per farm worker. The country is heavily dependent on agriculture for food and fibre requirements of the ever-increasing population, analysts told Pakistan and Gulf Economists (PAGE).

According to figures of the State Bank of Pakistan (SBP), overall the banks have disbursed total Rs 157.566 billion to the agriculture sector during July-April period against Rs 116.816 billion in the same period of last year, showing an increase of Rs 40.75 billion. Disbursement by five major commercial banks--Allied Bank (ABL), Habib Bank (HBL), MCB Bank, National Bank (NBP) and United Bank (UBL)--totaled Rs 74.327 billion during the period under review, compared with Rs 54.597 billion during the corresponding period of last year, depicting an increase of Rs 19.73 billion, or 36.14 percent. Zarai Taraqiati Bank (ZTBL) disbursed Rs 45.773 billion against Rs 38.843 billion of last year, and Punjab Provincial Co-operative Bank (PPCBL) disbursed Rs 3.983 billion against Rs 5.464 billion of last year. Besides, 14 domestic private banks lent Rs 33.482 billion, up 87 percent as compared with Rs 17.912 billion of last year.

It may be mentioned that the State Bank of Pakistan set a disbursement target of Rs 200 billion for the current fiscal year, up from Rs 160 billion of last fiscal year, showing an increase of Rs 40 billion. During last fiscal year, commercial and specialized banks had disbursed Rs 168.83 billion to the agriculture sector.

Analysts say agriculture sector witnessed a strong growth of five percent in 2007 financial year as against the target of 4.5 percent. "The recovery in the agricultural growth during 2007 financial year was principally driven by a remarkable growth of 7.6 percent by major crop sub-sector. However, in 2008 financial year, this growth target would be difficult to achieve.

The Pakistani agriculture is going through a mechanical revolution with manifold challenges. The revolutionary nature of the change can be gauged from the fact that during last seven years, the number of tractors manufactured in Pakistan has tripled. To improve supply of tractors, they are being declared exempt from customs duty so that the early supply of tractors can be ensured and our hard working farmers get an important relief.

The ""ON"' is still being charged on tractors while it has almost finished on four wheelers. However, the livestock sector is witnessing tremendous growth.

With a view to improving the ratio of output to input prices and thereby stimulating agriculture production, Economists suggest withdrawal of the general sales tax (GST) on fertilizer and pesticides in the budget 2008-09.

They said that Pakistan has one of the best-endowed agricultural sectors in the world having one of the world's largest contiguous areas, rich soil created by deposits and hard working farmers who have shown their ability to absorb new technologies when presented with the opportunities to do so. They said 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 favor of agriculture.

Moreover, a report titled "state of the economy: challenges and opportunities" prepared by a team of eminent economists-Sartaj Aziz, Shahid Javed Burki, Dr. Hafiz A. Pasha, Dr. Parvez Hasan, Dr. Akmal Hussain and Dr. Aisha Ghaus-Pasha, says the most important price signal the government provides is the wheat procurement price. Wheat is the country's most important crop. The anticipated income the farmers draw from cultivating wheat significantly effects 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 favor of agriculture. The benefit of these should be passed on, to the 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-Maal and Food for Work programmes, the report adds.

The report further 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 between 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 years, the Punjab and Sindh governments, encouraged by the World Bank, have begun to devote sizeable 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 get 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 countryside, 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 per cent. The proportion needs to be raised to reflect more closely the contribution to value added, the report adds.