May 2 - 15, 2011

The experts are never tired of saying that Pakistan has an agrarian economy but have failed in exploiting the real potential. It has remained a leading exporter of rice but till recently was a net importer of wheat, cotton, sugar and huge quantity of edible oil.

The situation has improved a bit over the last two years as the country became self sufficient in wheat production. This year sugar production seems a little surplus and its price is also hovering around Rs62/kilogram. However, no one knows at what price sugar will be sold during Ramadan. This year cotton output has remained short of target. There seems no reduction in edible oil import bill, which continues to hover around US$2 billion.

Lately, two objectives have been defined 1) Pakistan must achieve food security and 2) the country should focus on agriculture for accelerating GDP growth rate. Both these objectives are not new but focusing on credit to farmers in general and growers of oilseeds in particular shows that the central bank is actively pursuing the objectives of the ministry of food and agriculture. However, the quantum of loans for the agriculture sector remains only a small percentage of loans extended to the manufacturing sector. The credit must go to the central bank, commercial banks, and insurance companies for the quantum jump in agriculture loans.

Since the natural calamities are becoming too frequent, there is an urgent need to come up with comprehensive crop insurance schemes, especially for wheat, rice, cotton, sugarcane, corn, canola, and sunflower. Introduction of comprehensive crop insurance scheme will help in mitigating the risk of farmers but also the financial institutions and above all the government. After every calamity i.e. flood or drought, the government has to distribute billions of rupees among the farmers because of loss of standing crops.

This year cotton prices hover around record levels and the government has announced its plan to enhance area under cotton cultivation. However, lately cotton prices in the international as well as the domestic markets have come down substantially and it is feared that farmers may not be very keen in switching over to cotton from other crops. Keeping in view the installed spinning capacity in the country, though grossly understated by the spinners, the country must try to produce up to 15 million bales. According to the experts, this much production can be achieved without increasing area under cotton cultivation. The farmers have to be told to cultivate better yielding and higher resistant varieties and through better crop management.

Pakistan also needs to increase sugarcane outputs as present production level does not allow the mills to operate at optimum capacity utilization. The country has an installed capacity to produce up to nine million tons sugar annually, but actual production mostly remains below 3.5 million tones. Year after year, the government has been increasing sugarcane support price but there has been no increase in output. While one can attribute lower yield to many factors that include cultivation of low yielding varieties, growing sugarcane in cotton belt and shortage of irrigation water, the real issue is failure in changing mindset of the farmers. They believe that maintaining short supply allows them to earn more but do not understand that lower yield means higher cost of production.

According to the experts, sugarcane output can also be doubled without increasing area under cultivation. Cultivation of sugarcane in cotton belt is bad for the farmers as well as the millers. Farmers lose because dried sugarcane has less weight and millers get lower recovery. This is evident from the huge difference of recovery among various areas. The recovery hovers between less than eight to nearly 12 percent. Therefore, it becomes the responsibility of the government to discourage cultivation of sugarcane in areas where the climate is not suitable. This problem has emerged mainly because the feudal lords turned politicians have established sugar mills in cotton growing areas. They also force the poor farmers to cultivate sugarcane to feed their mills.

The yields and production of wheat, rice, cotton, and sugarcane are certainly low but the real issue is failure of government in increasing output of oilseeds, particularly corn, canola and sunflower. Ironically, none of these crops need high fertile soil, huge quantity of water or large input of fertilizers. It seems there are some groups, which do not want the country to become self sufficient in edible oil production. This year the central bank had allocated special funds for the growers of canola and sunflower but the response from farmers has been not been very encouraging. The blame partly goes to the government, which failed in undertaking timely awareness schemes for the farmers.

Keeping in view high crude oil prices it has become imperative that Pakistan focus on enhancing sugarcane production for producing alcohol for adding in motor gasoline and canola and corn for producing bio-diesel. Pakistan must try to benefit from the experience of Canada, which has become the largest producer and exporter of canola oil. It is pertinent to mention that in Canada, canola oil is added diesel to produce bio-diesel only because it is of lower cost. As against this in Pakistan, canola oil is sold at almost double the price of diesel.

One of the factors likely to further plunge the crop yield is rising prices of urea and DAP. Pakistan has the capacity to produce surplus urea to finance import of DAP but curtailing gas supply of fertilizer plants is forcing the country to import urea. It seems that certain groups are spreading disinformation that fertilizer manufacturers are making huge profit because they don't understand the reality that the real beneficiaries of fertilizers have been the farmers, getting urea at almost half of its international price. Burning gas in power plants is a waste of highly precious input. Power plants can be run on furnace oil but reduction is supply of gas to fertilizer plants is too high a cost to bear.