BANKS NEED TO DEVELOP AGRI-FINANCE POLICY

KANWAL SALEEM
(feedback@pgeconomist.com)
Dec 13 - 19, 20
10

In the aftermath of floods, national economy is facing immense pressure due to low growth while the agriculture sector is facing challenges due to damages caused by the floods. The situation for agriculture credit deteriorated due to huge losses to infrastructure, standing crops, and other earning assets of rural households.

The floods have hit economy hard, with losses estimated at $4 billion (2 percent of GDP). As per the estimates, loss to the agriculture economy is around Rs300-320 billion.

Floods have damaged 10 million tons of standing sugarcane crop on 0.195 million hectares valued at over Rs26 billion. Sugarcane output is now estimated at 44.5 million tons against its projected target of 54.83 million tons. The floods washed away standing paddy crop on 0.876 million hectares and as a consequence Pakistan will face a shortfall of 2.40 million tons of paddy.

Farmers have suffered over Rs61 billions losses due to paddy crop damage especially in Southern Punjab and Sindh. Cotton crop was sown on 3.199 million hectares, of which 0.6 million hectares have been destroyed. Cotton production will be around 11.411 million bales against the production target of 14 million bales this year. Losses to the other crops inclusive of pulses, maize, fodder, and sesame stand at Rs115 billion.

In this situation, policy makers need to focus on stabilising the agriculture sector particularly in flood hit areas by ensuring fertilizer as well as credit to the farmers. Banks need to develop a comprehensive agricultural finance policy, dedicated human resource, simplified procedures, and other prerequisites for building lending portfolios and timely provision of credit to farmers. Agriculture sector was not only the largest sector of the country's economy it was also the source of livelihood for at least 45 percent of the total employed labour force in the country.

Therefore, adequate availability and access to institutional credit was essential for accelerating the pace of agriculture development with a view to ensuring food security and poverty alleviation in the country.

Despite 21 percent contribution in the GDP, sadly the share of the agriculture sector in banks' credit portfolio was a mere 4.9 percent, which was somewhat disappointing given the importance and potential of the sector.

In FY10, banks were able to achieve more than 95 percent of agriculture credit disbursement target of Rs260 billion. In absolute terms, banks disbursed Rs248 billion, an increase of 6.5 percent over the disbursement of Rs233 billion in FY09.

Experts believe that the federal and provincial governments, revenue departments, farmers' associations and other stakeholders also need to contribute to value addition of the agriculture sector through automation of land records, marketing and storage channels, introduction of latest farming techniques, efficient extension services, water management etc., to facilitate the banks in their endeavour to expand agriculture finance as a viable business line.

With a view to formulating a holistic strategy for the development of agricultural credit with the consensus of all the major stakeholders, State Bank of Pakistan (SBP), has constituted a special committee headed by Executive Director, Development Finance Group of SBP, Muhammad Ashraf Khan. Director SME Finance Department of SBP Mansoor Hassan Siddiqui, Senior Executive Vice President, Agriculture Group, National Bank of Pakistan Ziaullah Khan, Head Retail and Consumer Group, Habib Bank Limited, Abid Sattar, Executive Vice-President and Country Head, Agriculture, Askari Commercial Bank, Farooq Abid Tung, CEO Icepak Ltd., Mansoor Arifeen, Chief Executive Specialists Group Inc. farmers Sultan Barq and Dr Syed Nadeem Qamar of Sindh Agriculture Chamber are members of the committee. The committee will devise a strategy in consultation with federal and provincial governments and other stakeholders for growth of agricultural credit in the country.

It may be noted that the SBP has taken various initiatives during 2009-10 to improve agriculture credit disbursement which include pilot projects and one window operation facility in underserved districts; relief package and credit guarantee scheme for Khyber Pakhtunkhwa and federally administered tribal areas; refinancing facility for modernisation of rice husking and cotton ginning mills, silos, warehouses and cold storages; training and awareness programs for the officials of banks; simplification of agriculture lending procedures and turnaround time for timely availability of credit to farmers; awareness and internship program for agriculture graduates, farmers, etc.

Agriculture analysts are of the view that the floods have caused widespread damage to the standing crop, the backbone of the economy, with nearly 30 percent of cultivable land destroyed by the flooding.

According to them, "the country's main cash crops including cotton, sugar and rice have been badly damaged. This could turn into significant losses for value-added manufacturing and more bad assets for banks."

They were of the view that the turning point for turnaround of the national economy is agriculture, livestock and dairy farming etc. Livestock has a cycle of 90 days. We could build most modern meat plants, processing plants. It is difficult but not impossible, they said.

Livestock trade is globally 2.3 trillion US dollars. Pakistan is naturally made for this and we can earn our share from it. Pakistan has great potential to earn from livestock. The need is to pay attention to exploit potential that exists in this sector for fetching precious forex.

On the other hand, Kissan Board Pakistan (KBP) has launched its protest movement to press the government to restore subsidies on all the agricultural inputs, making payments of all the agricultural produces through cheques, fixing the sugarcane minimum price at Rs280 per maund and printing price of fertilisers on bags.

Kissan Board leaders announced to hold countrywide protest demonstrations on December 13, if their demands are not accepted. According to the KBP leaders, they have become bankrupt due to increase in the prices of electricity, oil, and pesticides. They also claimed that their dues against sugar mills of last crushing are still pending and wheat might not be sown on one-fourth-target area due to late start of the crushing season.