HIGH COST OF INPUTS, POOR CREDIT AVAILABILITY, AND IMPROPER CROP MANAGEMENT ARE KEEPING PRODUCTIVITY STAGNANT.
SHABBIR H. KAZMI
Dec 13 - 19, 2010
Achieving food security is considered the most crucial in defending sovereignty of the country. Achieving this objective also helps in accelerating GDP growth rate and alleviating poverty. It is often said that Pakistan is an agrarian country but all the indicators show rather disappointing state of affairs. Agriculture contributes around one-fifth to Pakistan's economy but the country continues to spend billions of dollars on the import of food products. Two of its key agro-based industries suffer due to an acute shortage of raw materials. Small farmers, though the backbone of agriculture, continues to live below the poverty line. The situation prevails only because more than 90 percent of cultivable land is held by less than 2 percent of the country's total population.
Major crops of the country are wheat, rice, sugarcane, cotton, and edible oil seeds. Rice exports constitute substantial share of total exports. Only recently, self-sufficiency in wheat production has been achieved. Pakistan remains a net importer of cotton, sugar, and edible oil. Indigenous production of edible oil meets only 20 percent of the country's demand. The latest policy of the government focusing canola and sunflower cultivation through concessional financing by the central bank is aimed at boosting indigenous production of edible oil. However, no such scheme has been offered for corn growers.
Pakistan has along history of agro based industries. Foundation stone of first ever textile unit was laid down by Qauid-e-Azam soon after independence. Sugar mills have been operating in this part of the world before independence. These two industries have thrived mainly because of protection and availability of raw materials at subsidized rates. These industries are the biggest beneficiaries of the credit extension policies of the government as well as have the largest share in total non-performing loans.
Though, Pakistan is termed a 'cotton country' and also ranked among the top five largest producer of silver fiber, local production has remained far from satisfactory and much below the local demand. It is mainly because of poor yield; nearly half of the yield achieved in India enjoying almost similar soil and weather conditions. Bad government policies add to the woes of value-adding sector because of unchecked export of raw cotton, yarn, and unprocessed cloth. The result is many countries buying intermediate products from Pakistan ultimately become its competitors in made ups market.
Similarly, capacity utilization of sugar industry is disappointing low. The country has an installed capacity to produce 9 million tonnes refined sugar but actual production hovers around 3.5 million tonnes mainly because of an actuate shortage of sugarcane.
Pakistan can double the present sugarcane production without increasing area under sugarcane cultivation. The added advantage of enhanced sugarcane production will be production of E-10 (motor gasoline blended with ethyl alcohol) and generation of additional 3,000MW electricity by burning baggase in power plants.
Agriculture growth has remained subdued mainly because of inadequate disbursement of loans to the farmers. This is evident from the fact that agriculture contributes nearly 20 percent to Pakistan's GDP but loans extended to farmers constitute less than 5 percent of the total lending of the financial institutions. Historically, commercial banks have remained reluctant in extending credit to the farmers, mainly because of focus on the manufacturing sector. It is on record that in the past many banks preferred to pay penalty for not meeting the agriculture loan target rather than extending loans to the farmers. It is because lending to industrial units is collateral based and minimally exposed to natural calamities.
Working capital loans to the manufacturing sector are extended through hypothecation of stock as well as creating lien on other assets, whereas production loans to farmers are extended keeping in view the ultimate size of crop. In case a natural calamity hits, the standing crop is destroyed and no other recourse is available.
Lately, an effort has been made to hedge production loans through credit insurance. However, precarious situation has emerged after the recent devastating floods. According to the State Bank of Pakistan, recent floods have turned Rs32 billion loans delinquent out of total advances of Rs53 billion extended to the farmers of the deluge affected areas.
At any point in time exposure of financial institution to agriculture sector is 200-250 billion rupees but credit cover is acquired on less than one-third of the total lending. For the calendar year 2010 claims against crop credit insurance will be around Rs2.5 billion and the worst hit will be the small farmers and the government. There will be no other alternative except that government pays the farmers, who in turn return the money to the financial institutions after getting the loans rescheduled. Therefore, the need of the time is introduction of comprehensive crop insurance scheme. This will bode well for the farmers as well as the government.
The worst problem faced by the agriculture sector is disappointingly low yield of different crops in Pakistan. The key factors affecting production as well as yield are inadequate availability of water, fertilizers, and certified seed. Adulteration of pesticides and insecticides is common. On top of all, supply of irrigation water is inconsistent. All these problems can be overcome.
A little determination and supporting policies have helped in making the country self sufficient in wheat. Persistent hike in sugarcane support price has not helped at all in increasing its production and it would be better if market forces are allowed to determine its price. However, one point must be made very clear that woes of sugarcane growers cannot be resolved by enhancing the support price. The ultimate solution is in doubling the yield through using better quality seeds, applying proper dosage of nutrients and ample water. Let one point be very clear that Sindh enjoys edge over other provinces and the provincial government must try to resolve the problems faced by sugarcane growers and the millers. Sugar production in the province can be doubled by increasing sugarcane output as mills have ample crushing capacity.