PIDE’s Reform Agenda to Achieve Sustainable Growth in the Agriculture Sector

By Abedullah Anjum

The agriculture sector is one of the main contributors to not only our domestic economy, but exports as well. But sadly its growth is languishing. Put another way, agriculture sector accounts for 19.2% of GDP and employs 38.5% of our labor force. It contributes nearly one-fourth of industrial value-added and delivers nearly 80% of the total value of our exports.

Ninety percent of our cultivated land is under five major crops: wheat, rice, cotton, sugarcane, and maize, leaving only about 10% for horticulture and other high value crops. But historical data reveals that except for maize, crop yields have barely risen in decades. So, what is the way forward, and how do we increase our agricultural sector productivity and growth?

We know the causes behind our faltering agricultural growth. They primarily revolve around low farm-level productivity. This results in high unit production costs, lack of competitiveness; distorted efficient cropping patterns, interference in input-output markets; limited diversification into high value crops; and large herds of low yield animals.

PIDE’s Reform Agenda for Sustained Growth provides a groundbreaking layout to bolster the dwindling 2% growth of the sector. PIDE foresees 6% growth by reducing government footprint on the one hand, and letting markets work on the other hand.

Input-output markets need streamlining by reducing the government footprint and allowing the private sector to take center stage. That in no way means that the role of the government will be any less vital than before. The government will continue to be crucial in improving the regulatory framework and effectively implementing it to achieve market efficiency. Improving the regulatory framework in the markets for land, water and seed/bovine semen will result in significant increases in productivity.

Due to lack of authenticated land-record and lengthy land transaction processes, only a few land transaction happens. Thus, land does not move from less to more productive owners through marketing mechanism. We need to digitize land records to speed up the process of land transfer. This will allow more productive individuals access to land.

Fixed share-based water allocation (mainly determined by political rather than economic consideration) among provinces and regions is an inefficient mechanism. It impedes provinces/regions from bidding for water based on economic returns. Proper water pricing would lead to efficient cropping patterns with higher profitability and employment opportunity. Allocation of water, based on open auction, can lead to efficient utilization of water. Water can flow to where it has most economic benefit.

Seed is a vital input, but its market appears completely mismanaged. In the absence of financial incentives, breeders are reluctant to invest additional efforts to develop new varieties. In the absence of quality control, price competition has led to the market for seeds developing into as lemon market. Unregistered firms/groups (progressive farmers, breeders, general retailers, etc.) sell seed/semen without proper labeling. Even registered firms follow the similar practices – discourages the farmers to make investment in more productive seed/semen.

An unregulated seed market promotes lemons (low quality seed) in the market. The absence of intellectual property right and cumbersome process of approval of new varieties is discouraging international companies to invest in developing any new varieties. A similar phenomenon of free delivery but low quality of extension services by public sector exists – leading to lemon market of extension services.

The government heavily influences output markets by fixing of minimum support prices, providing input subsidies, restricting movements of agriculture commodities, and imposing tariff/subsidy on export and import. All these interventions affect consumer and producer welfare and puts fiscal burden. For instance, consumers pay up to 50% higher prices than the competitive international price of wheat and sugar. On the flip side, general perception is that producers also don’t get the announced minimum price for their products.

Government stores about 80% of marketable wheat and spends about PKR 50 billion every year excluding handling and wastage cost. Government interventions also end up discouraging the participation of the private sector in wheat marketing. These factors have created a circular debt of PKR 700 billion in wheat storage, strongly indicating that wheat storage by the government is not a sustainable activity.

A better alternative is to encourage future markets of agricultural commodities through appropriate fiscal measures and removal of constraints. We can announce a broad band of upper and lower prices in each essential food commodities to indicate the limits of government. Beyond this government will be bound to intervene in the market to ensure food security to consumers and minimum price to producers.

There are a number of signs in the economy that growth of the agriculture sector is being hampered by the footprint of the government. The government would be well advised to consider the areas highlighted above to reduce the size of its footprint in the agriculture sector. Focusing instead on providing a conducive regulatory framework for the private sector to take center stage and drive growth in the sector would be a far better alternative.


About the author:

  • Abedullah Anjum is Chief of Research, PIDE

4 comments

  1. An excellent article. Mr Anjum deserves a pat. There are quite a few workable suggestions. I hope the men who matter take a serious look at the points raised. I would suggest that the writer should write a separate detailed note on crops which have dried our rural economy and destroyed out limited water resources. Sugar cane cultivation must be banned and area under rice reduced to 50%. Sugarcane has assumed a lethal political economy syndrome white rice has become a traders heaven. The crop Choice should move to oilseed and vegetable crops. Well done Mr Anjum

    • Thanks Mr. Manzoor for appreciation and reading my blog. Banning of water intensive crop is not a market based solution and neither it is sustainable. If government properly price the irrigation water than water intensive crops will not be profitable anymore and these crops will lose its comparative advantage. Subsequently area under these crops will start to decline. Currently irrigation water is heavily subsidized which motivates farmers to grow water intensive crops. It is important to note that currently revenue collected from irrigation is not even sufficient for the maintenance of irrigation system.

      In one of my policy viewpoint I have estimated the water use efficiency in sugarcane and cotton production. You may like to read, “Abedullah and Uzma Zia. Unravelling Water Use Efficiency in Sugarcane and Cotton Production in Pakistan. PIDE Policy Viewpoint 19:2020” There I have concluded that one liter of water used in cotton production generates about 4 times higher monetary benefit both at the farm gate and at the processing stage (i.e. second stage of value chain). Further I added, Sugarcane alone consumes about 35% of total annual household water demand of Pakistan.

  2. Well done, Dr. Abedullah. Few suggestions here:

    1. As you have well elaborated the problems as well as solutions in the land and water markets, you have not described the solution of the mess in seed market. The solution is moving from government control seed quality monitoring system to truth-in-label system. All seed must be sold in packer with quality prescription on it. The government job is simply see what has been prescribed on the packet is true.
    2. Government role in developing new technologies has been under estimated. Clearly, the government spends far lower than other countries in the region on agriculture R&D. This hampers private sector participation in R&D. The dried pipe of agriculture innovation is the main reason of low crop snd animal yields in the country.
    3. Low value addition and processing in the agriculture sector has dramatically reduced the competitiveness of the sector in national snd international market. To promote the processing of agriculture commodities, the he skills snd capacity of the stakeholders along the whole value chain need to be improved for which a massive training programs needs to be started in the agriculture sector.

    • Dear Dr. Ali,
      Thanks for reading my blog and giving valuable suggestions. I fully agree with your suggestion that Government job is to monitor the markets by providing a level playing field to all stakeholders rather than becoming itself a major player in the marketing system.

      It is true that little have been spent on agriculture R&D which is mainly responsible for low crop and animal yield. When I estimated the growth of all crops in Pakistan over the last forty years then I find out that there is little growth in yield of cereal crops only and in case of all other crops including fruits and vegetable, pulses, oil and seed and ground nuts, have negligible or negative yield growth, indicating the poor performance of agriculture research. The contribution of research is mainly driven by the investment.

      Establishing agriculture vocational training institute (should be responsible to impart practical training of processing different products) could help to enhance the capacity of stakeholders which is expected to improve the value of agriculture produce.
      Once again thanks for your valuable suggestion/comments

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