Money Matters

Depressing productivity

Money Matters
By Mansoor Ahmad
Mon, 06, 22

Farmers do not realise that they are paying a heavy price on exemption from income tax. While the manufacturers pay low or no government levies on inputs, all the inputs of farm producers are heavily taxed.

Depressing productivity

Farmers do not realise that they are paying a heavy price on exemption from income tax. While the manufacturers pay low or no government levies on inputs, all the inputs of farm producers are heavily taxed.

This is the reason that despite being an agricultural country, we are constrained to import commodities that we were exporting two decades back. We not only import wheat, our staple food, we also import raw cotton that is our largest industrial input. We periodically import sugar whenever we allow its export on subsidy.

One major reason that farm yields are going down is the lack of locally produced high yielding seed varieties. Our productivity is suffering because we depend on poor seed varieties that have low yield and low germination as well as poor survival on account of climate change. This stems from lopsided seed regulatory framework that leads to supply of low-yielding varieties in the fields.

Our import of edible oil has increased because we have lost a large chunk of cotton oil after cotton production gradually declined from 14 million bales to only 7 million bales a year. Despite textile being our largest exporting sector, we have not taken enough measures to improve cotton production across the country.

On top of that water stress as well as disturbances caused by climate change, such as heat waves and untimely rains, have wreaked havoc on the agriculture sector. Farmers are already under stress because these issues have disturbed the cropping pattern.

Supplies of fertilisers and pesticides also remain erratic. Reports of substandard chemical inputs is a matter often raised by farmers in Sindh. Fake and spurious chemicals, insecticides and pesticides also harm crops. These low quality farm inputs are also held responsible for reducing soil fertility in the southern part of the country.

Urea price hikes along with shortages have also been hitting farmers for the last few years. The most recent crisis of urea price hike and its shortage was recorded in the first week of May when manufacturing plants were closed due to diversion of natural gas for power generation.

Gas management was later streamlined, but disruption and other factors like swelling transportation cost etc led to increasing cost of manufacturers, prompting producers to increase price.

Such erratic supply disturbs farmers. Moreover, these inputs are subject to high sales tax.

The federal government is earning more revenues from taxes on agricultural inputs than it would have collected had agricultural income been taxed.

Indirect taxes on agriculture are unbearable for small farmers. Despite smallholder farmers being the backbone of the agriculture sector in Pakistan, with huge contributions to national food security and export earnings, they continue to suffer at the hand of poor policies. Almost 88 percent of the farmers or around 7.4 million as per some estimates have landholding of 12.5 acres (5 hectares) or less.

Depressing productivity

With depleting productivity due to low quality domestic seeds these farmers remain under severe stress. Dominance of middlemen in the agricultural market is another issue that deprives the small farmers of higher prices when production is low.

Middlemen buy the crop from farmers at low rates and dispose it of through a dedicated chain at more than double the purchase price.

Under these circumstances, the only salvation for the farmers lies in high productivity. Coarse rice farmers and maize growers have been able to break the shackles of poverty by moving from conventional seeds to hybrid varieties. High-yield, climate smart and disease resistant varieties could help change the agricultural landscape of Pakistan.

Yield potential of the approved varieties is three percent to 24 percent higher than the existing commercial hybrids.

These varieties have been developed by local companies in collaboration with foreign firms. Still the local production of hybrid seeds is not enough, and bulk must be imported till local production rises. These hybrid seeds are costlier than the conventional seeds, but their yield is three to four times higher. Only 30 to 40 percent farmers use hybrid seed varieties; however, the numbers are increasing after astonishing transformation was noticed in the quality of life of hybrid seed farmers. Today hybrid rice and maize are the only two crops that are exported from Pakistan in bulk.

It is unfortunate that the government slapped 17 percent sales tax on both local and imported seeds through the Finance (Supplementary) Act, 2022.

Pakistan Hi-tech Hybrid Seed Association Chairman Shahzad Malik said that it would jack up the rates of hybrid seeds and the farmers would be forced to use their own home-grown low yielding seeds to save the high upfront cost of hybrid varieties.

This he added would result in lower production and lower exports. He said Pakistan has already lost the Basmati long grain variety market to India because we did not develop its high yielding hi-tech varieties. The coarse rice that is the mainstay of our rice exports would also suffer badly.

Pakistan certainly needs to generate high revenue to survive. The economic managers are afraid to withdraw unjust taxes fearing fall in revenues.

They should consider the fallout of unjust taxes in the medium and long-term. Moreover, the loss of revenues could be compensated by levying even higher duties on luxury items and rich segments of the society.


The writer is a staff member