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April 3, 2019

Looking at agriculture reforms

Opinion

April 3, 2019

Whether in cotton or wheat, or many other agricultural products, the yield per acre in Pakistan is lower than both China and India. Our lower agricultural productivity means that Pakistani farmers are unable to compete with their counterparts in other countries around the world. As a result, the government keeps the price of Pakistani cotton, wheat and other items above international prices; otherwise our farmers would be facing financial ruin from international competition.

The problem of low farm productivity in Pakistan is difficult to cure. Yet, the first and foremost job of any agricultural reform programme should be to improve farm productivity.

Agriculture employs about half of our workforce and uses around 90 percent of our water. (Industrial consumption and domestic usage of water take up less than five percent each). Yet, despite employing so many resources, agriculture only contributes around a fifth of our national income. This suggests that improving farm productivity is possibly the most important long-term economic measure we can take.

Even though we consider ours to be an agriculture-based economy, this year Pakistan is likely to import edible oil worth about $3 billion. This is mostly palm oil, coconut oil and soybean oil. We are also now importing a large quantity of soybeans to extract soybean oil. We will also import chickpeas and lentils worth about $700 million and import cotton to feed our textile industry.

Our agricultural policy needs improvement and I am glad that the PTI government is trying to fix this. Hopefully, the result will be better than the way PTI has tried to fix our economic growth and inflation.

As stated above the first goal of our agriculture policy should be to boost farm productivity. The three main reasons for our low productivity are inferior seed quality, less-than-optimal use of fertilisers and pesticides, and distortionary farm incentives.

During the PML-N government we tried to, but were not always fully successful, address all three problems. We approved a Plant Breeders Act that gives protection to seed growers so that they can invest in bringing and selling higher quality seeds in Pakistan, including genetically modified seeds. But here a lot more work needs to be done both by provinces and the federation. We must improve our seed quality on an urgent basis, especially our cotton seed.

The PML-N government also gave cheaper gas to fertilisers companies to make cheaper urea available to the farmers. I am not sure though that all the gas price subsidies given to the fertiliser companies are actually passed on to the farmer. So a better method can perhaps be evolved. Moreover, since the new government has come, the price of urea has been steadily climbing. So this area needs urgent attention. Finally, we tried to implement stricter control on counterfeit and fake pesticides that should be maintained.

But it is the area of price incentives that needs significant work. Thirty years ago, Pakistan and India both had the same production of cotton, about 12 million bales. As it turns out, our export of textiles were also about the same. This year however Pakistan is expecting to produce only 11 million bales of cotton and cotton textile exports of $13 billion. India, on the other hand, should grow about 38 million bales of cotton and will exceed $40 billion in exports of cotton textiles. This shows one area where we really have got things wrong for over three decades.

One reason we haven’t increased cotton production is that we have substituted sugarcane for cotton. Our government doesn’t have a support price for cotton (which is the right approach) but our provinces do announce a support price for sugarcane. Last year, for instance, the provinces announced a price of Rs180 per maund. But in reality the mills paid perhaps between Rs110 and Rs140 to the farmers. Interestingly, however we ended up giving subsidies for the export of sugar to mills based on a cane price of Rs180 per maund. This subsidy in many cases amounted to over 25 percent of the export price of sugar.

Given that we want more cotton to feed our textile industry, and less sugarcane, it makes no sense to give a support price for sugarcane and not for cotton. This is especially true when the two crops compete for harvest area and also given that sugarcane needs more water to grow than cotton. The best thing to do would be to stop giving support price for either crop.

However, the most significant policy reform we need is in the area of wheat farming. Pakistan has now fortunately achieved self sufficiency. In fact, last year against a consumption of 21.5 million tons we produced 25 million tons of wheat. The reason was the high support price for wheat of Rs1250 per maund. But the tragedy is that the support price of wheat is so high that our wheat cannot be exported. In order to make it competitive we had to give $159 per ton rebate. And the price fetched by our wheat was only $110 per ton. So the rebate given was more than the foreign currency earned.

In 2008, the PPP government increased the support price for wheat by a huge amount. Since then every year provincial and federal governments keep increasing the price to, more or less, match inflation. As a result in a country where 40 percent children have stunted growth, our wheat is priced 30 percent above the international market price.

What’s worse is that because wheat has taken a larger harvesting area, our output of smaller but more valuable crops has actually decreased. As a result, we import billions of dollars worth of edible oil, lentils and chickpeas because we don’t grow enough oil seeds, lentils or chickpeas to meet our requirements.

We need more cotton, soybean, chickpeas and lentils and less sugarcane and wheat. This means we should pay farmers money to grow cotton, soybeans, lentils and chickpeas but not have support prices. We should just give them money per acre of additional land devoted to these crops. This way farmers will switch away from cane and wheat, but not have support prices as they increase the price of crops and make life difficult for consumers.

However, there is one thing we should do that goes, at least in the short run, against the interest of consumers. Whenever there is a shortage of some vegetable or fruit, we import it from India duty-free. But India doesn’t reciprocate. Yet by opening our border to Indian produce we take away the only chance our farmers get to make some serious money. We should instead let our farmers make money so that they can invest in better equipment, seeds, etc.

Finally we should encourage farmers to move towards drip irrigation by making water more expensive but giving subsidies to farmers to switch to drip agriculture. By saving just five percent of the water used in our farming we can conserve more water than the capacity of the Diamer-Basha Dam.

The writer has served as federal minister for finance, revenue and economic affairs.

Twitter: @MiftahIsmail

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