Planning for agriculture
Short-term fiscal agriculture packages cannot be an answer to structural problems faced by the agriculture sector
the figures are harrowing. The average annual growth of agriculture sector in Pakistan dropped from 5.4 per cent during 1980-90 to 2.2 per cent during 2011-16. The growth during the past fiscal year (2015-16) plummeted to -0.2 per cent mainly contributed by -6.3 per cent decline in the crop sector.
While this is happening, public sector’s capacity to invest in agriculture has been on the decline. Due to lack of modernisation in agriculture, average growth in yields (kg/hec) for cotton and wheat declined from 9 and 2.6 per cent respectively between 1980-90 to -2.2 and 1.4 per cent respectively between 2011-16.
This has implications for food security and rural employment. During 2000-10, average annual growth of employed labour force in agriculture sector was 3.1 per cent. The same number declined to 0.01 per cent during 2011-2016. The women’s employment share in agriculture also dropped from 75 per cent in 2009-10 to 73 per cent in 2014-15.
To address the disappointing performance of agriculture sector, the government’s knee-jerk response was to announce Prime Minister’s Agriculture Package of Rs341 billion and also to extend some fiscal incentives in the federal budget 2016-17.
Without going into the details of these incentives, it is important to inform the stakeholders that such short-term fiscal packages cannot be an answer to structural problems faced by agriculture.
These problems include: a) rising input costs faced by the farmers; b) indirect taxes on inputs and farm operations; c) subsidies and support price benefits not reaching the poorest of the poor in the farming sector; d) lack of innovation in seed varieties; e) missing technology to modernise the crop harvesting, cultivation, storage an marketing; f) weak access to agriculture credit; g) and water shortages threatening the irrigated lands.
In order to reverse this dismal situation, it is important to put in place a carefully formulated long-term plan for the revival of this sector. The Planning Commission, Ministry of National Food Security and Research (MNFSR), provincial agriculture and agriculture extension departments, and provincial planning and development departments are best placed to collaborate and put forward a comprehensive national plan for the approval of Council of Common Interests and the Parliament.
The plan should then be backed by protected budgetary allocations at federal and provincial levels. These departments should seek inputs from the academia and think tanks having current research in various aspects of agriculture sector.
The effectiveness of current subsidies in the agriculture sector is marred by fragmented governance and weak monitoring in this sector. The recently announced budgetary measures (by federal and provincial governments) for farmers have overlaps which clearly indicate that the budget formulation at the federal and provincial level is not congruent.
The MNFSR should compile an inventory of all production and export incentives allowed to the agriculture sector and carefully evaluate the duplications. It should also update information on leakages due to which various subsidies (and even support price facility) are not reaching the most deserving in this sector.
Not all subsidies are good for agriculture. The untargeted, hidden and cross subsidies in the agriculture sector only benefit the rich and should be gradually phased out as they are leading to undesirable cartels at several places in the supply chain.
The financing of agricultural subsidies through domestic borrowing from banking and non-banking sectors leads to increase in domestic debt which, in turn, swells fiscal deficit and brings about inflation. There should be a threshold for subsidy creation and this should have parliamentary approval.
All subsidies should be time bound and strictly targeted towards the poorest of the poor farmers. This can easily happen if District Coordination Officers (DCOs) start maintaining a computerised list of farmers and their production. A census of the poorest farming units is already available with Benazir Income Support Programme (BISP) and can help in better targeting the potential beneficiaries.
The government needs to reduce the burden of indirect taxes on farmers. A key example is how the benefit of lower international oil prices was not fully passed on to the agricultural community. The high effective general sales tax rate (GST) on diesel (also used for tube wells and tractors) and kerosene still remains on the higher side. This is preventing the costs to come down. Apart from GST, there is high incidence of customs duty and regulatory duty in the agriculture sector.
The public sector, as a whole, also needs to review its interventionist role in agriculture markets. For example, the government continues to have a heavy footprint in the wheat market. Its involvement in price setting, procurement, import, support to inputs and inter-provincial transfers of wheat, is distorting the farmers’ incentives and is a classic example of conflict of interest. The relevant standing committee in the parliament is best placed to look into such distortions.
Research efforts that can help reduce operational costs in crops sector should be stepped up. Pakistan’s low yield is attributed to traditional approach in harvesting and cultivation. Biotechnology can help ensure food security and revival of growth in cotton, wheat and rice.
Modern technology for commercial farming can increase the economies of scale. However, decent research will not reach the potential beneficiaries unless our agriculture universities, centres of excellence, agriculture extension departments do not synchronise their efforts. A study by Sustainable Development Policy Institute (SDPI) reveals that these entities continue to remain in silos due to which there is low socio-economic impact of their academic endeavour.
Research has to be translated into capacity-building initiatives and outreach programmes for farmers. This is where agriculture universities and research centres will need to work with relevant federal level ministry and provincial departments, as well as associations representing the farming community.
Climate change is now threatening the efforts and incentives of our farmers. The effects of climate change can be seen in reduced or increased water flows, in turn resulting in droughts and floods. There remains low allocation in the budget for sustainable water management. Climate change has also rendered the existing seed obsolete. Greater research and commercialisation efforts need to be focused on producing the heat and water stress resistant seed. Private sector enterprises can be incentivised through timely implementation of Plants Breeders Rights Act.
Timely and formal credit to farmers remains a challenge. The government will need to review the mark-up rates faced by farmers on a regular basis. Private commercial banking sector also needs to be encouraged through interventions from Ministry of Finance and State Bank of Pakistan, to increase micro credit in agriculture extension. Innovations in banking system are also required to attract farmers towards formal credit regime and away from informal money lenders.
There are weak incentives for small and medium farmers to increase yield. This is attributed to lack of storage and warehousing. Even during the bumper output it has become difficult to safeguard against the harvested crops from moist. An enabling warehousing infrastructure at the local level should be facilitated by the public sector. However, infrastructure investments are not affordable at the level of most provincial governments. This, therefore, should be supported under the federal public sector development programme or through public private partnerships.
Finally, rising population will continue to fuel the demand for food. In order to service this basic right of all citizens the state will need to make appropriate and sufficient public expenditures. The budgetary allocation for food security, particularly in poorest districts, should be enhanced. This will also give a boost to the smaller farming entities in these districts.
A revision of Fiscal Responsibility and Debt Limitation Act should protect food security allocation and direct these protected expenditures towards poorest districts in the country. One additional criterion for selection of these districts should be malnutrition.
The government should also revisit the zero-hunger programme which was halted due to budgetary constrained. Under this programme, the MNFSR had envisaged to reach a total of 61 million food insecure people across the country. The plan included support to food-insecure households, food support in the disaster hit areas, expansion of farm outputs and market access, improved nutritious quality of food intake (fortified food), diversification of food, food processing industry at the community level, and food security surveillance.
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The opinions expressed in this article are the author's own and do not necessarily reflect the viewpoint or stance of SDPI.