Policy Impacts on Comparative Advantage and Production Protection to Cotton and Its Competing Crops in Pakistan (Article)

Agriculture, particularly cotton cultivation, holds paramount significance for the economy of Pakistan. The cotton crop shares 0.6 percent of the gross domestic product and contributes 70 percent to the country’s export earnings. Nonetheless, during the last two decades, cotton area and production in the country have declined. Therefore, this study aims to evaluate the economic benefits and competitiveness of cotton and its competitive crops under the current set of relevant policies. We have employed a Policy Analysis Matrix to assess the impact of agricultural policies on cotton and its competing crops. The results show that cotton producers across Pakistan are implicitly taxed, while sugarcane and rice producers are protected under the current policy measures. It has also become evident that large cotton growers are more likely to get a comparative advantage of prevailing policy incentives than medium and small growers. Thus, crop-specific and scale-specific policy interventions are suggested to enhance cotton production. Similarly, exploring and converging on new potential areas for cotton production, especially in Balochistan, can improve the country’s overall cotton production.

1. INTRODUCTION

State institutions worldwide protect and support the agricultural sector through various policy measures. This support keeps the agriculture sector productive and competitive to ensure food security for the masses, livelihoods for farming entities, and to meet the requirements of agro-based industries (GOP, 2019). These policies broadly deal with farm inputs and outputs, trade facilitation/restrictions, mechanisation of cropping systems, and investment in rural and agricultural infrastructure, including R&D and irrigation. Government interventions have resulted in various advantages for specific crops while creating social and economic externalities for others. Pakistan has also adopted several policy measures to cater to the needs of farming communities in the changing global scenario. These policies are sometimes crop-specific but, most of the time, are designed to increase total crop productivity (MPDS, 2013).

Agriculture contributes around 22.9 percent of the GDP and almost 34.7 percent of employment in Pakistan (GOP, 2023a). The share of major crops in GDP is nearly 4.32 percent, of which cotton accounts for 0.6 percent of GDP and 3.1 percent of total value addition in agriculture. In the case of cotton, Pakistan is the fifth largest producer globally. Its share is around 0.6 percent of GDP and contributes 2.4 percent of the value added in agriculture (GOP, 2023a). Similarly, cotton has the longest value chain among all crops, contributing significantly to Pakistan’s foreign exchange earnings. Pakistan exports $836 million (4.7 percent) of raw cotton and yarn, while cotton-based exports account for $9.5 billion, comprising more than half of the country’s total exports (GOP, 2021b). Though cotton is considered the main cash crop in the country with its strong backward and forward linkages, the past couple of decades have observed a dismal cotton performance in many instances. At the same time, the last five years can be considered devastating in terms of cotton area, production, and profitability. Table 1 below reflects the reduction in the cotton area in Punjab (which contributes around 70 percent of the total cotton acreage) and the decline in cotton production and yield. It has been observed that since 2000, cotton has lost 12 percent of its area, while its competing crops have gained the area under cultivation, mainly sugarcane, which followed a 17 percent increase in its area.

The area replacement of cotton crop with its competitive Kharif crops, i.e., sugarcane, maize, and rice, has many interesting insights from a policy perspective. There are diverging opinions at the policy level, whether the downfall of the cotton crop is due to adverse climatic conditions, the development of pest pressure in cotton growing areas, or the frequent distortions in output and input markets. It has been observed that output prices, among all other factors, remain the primary cause of reducing the profitability of the cotton crop.