Rethinking agriculture for economic revival

In the last many weeks, I have written in these pages to share ideas for addressing the dire challenges faced by our economy.

The government of Pakistan has a choice: it could use this difficult moment to rethink and reform its approach to the economy or it could use the shot in the arm from new IMF loans to continue with business as usual. In the latter case, Pakistan risks going deeper into debt and dependency at the expense of citizen welfare and business progress.

This series of columns aims to offer a fresh approach to economic policy. Each week I focus on a key sector of the economy. A shift in policy is crucial.

Some facts about agriculture are well known. On the one hand, it has about a quarter share in the economy and employs 37 per cent of workers. On the other, despite the large subsidy of about 7.0 per cent of GDP, the sector suffers from low productivity and many inefficiencies.

Over the last decade, the government’s approach to economic management has been ad hoc, reacting to issues as they arise. Whether in agriculture, manufacturing, or IT, the focus has been on the short term instead of on long-term development. Thus, despite talk of a national policy on agriculture, we have yet to see a meaningful initiative.

Despite fiscal constraints, direct and indirect subsidy for agriculture is not meagre. World Bank estimates it to be about $2.5 billion per year. Yet, the amount has done little to make the sector competitive. Clearly, the government must reform its subsidy spending.

From its status as a ‘water stressed’ country, Pakistan has steadily moved to become water scarce – having less than 1,000 cubic metres of water per capita. In 2021, the IMF estimated that per capita supply of water in Pakistan was 1017 cubic metres. It was 1,500 in 2010 and is now estimated to be about 900 cubic metres per capita. Increase in storage is not possible in the near term. Pakistan must improve water productivity.

The World Bank estimates that Pakistan produces only 130 grams of crop per cubic meter of water. This contrasts with 300 grams for India and 800 for China. Outdated irrigation methods and government apathy waste precious water, and leaves farmers at the tail-end of canals dependent on tubewells. In turn, the use of tubewells has depleted groundwater. The old problems of water logging and salinity have worsened. The Abiana water charges is not enough for the upkeep of the irrigation system, leave alone upgrade it. Its modest rate does not encourage conservation.

As per the University of Agriculture, two main crops of wheat and rice use “76.27 MAF of water out of the 110 MAF available for irrigation”. A shift to ‘bed planting’, where crops grow on the ridges with water applied to furrows, could save fifty percent water. That is enough to cultivate millions of acres lying barren now. Low-cost credit should be available to fund the Rs50 billion needed to equip all tractors with bed planters.

The government should also promote high-efficiency irrigation systems and provide subsidies or financing to meet initial capital costs. It is possible to do so by reallocating subsidy. The government of Pakistan may shift its focus from help to farmers at the growing stage to such sustainable solutions. Once conservation begins, farmers may no longer need power subsidy for tubewells.

There is also good reason to begin discussion with large farmers on cost sharing for irrigation O&M. The government must build political consensus on reforms before launching the initiative. It is in the interest of all farmers, as the rapid fall in per capita water availability, coupled with growing urban demand, would soon affect all growers.

Climate change poses major risks to agriculture. As rain and melting seasons shift, farmers must learn to adapt to new conditions. The above recommendations for sustainable water management are one part of the solution. Higher investment in research is equally critical. Developing heat-tolerant crop varieties and adjusting planting seasons will help farmers manage changing conditions. Pakistan must also promote safe varieties of GMO and hybrid seeds. This needs strict quality control in seed distribution. Research institutes and PSQCA must develop and enforce protocols for seed quality enforcement.

There are many more research inputs that farmers need. They need updated climate data and soil assessments for better use of land and inputs. They must also have new tools to improve productivity. With advancements in drones, farmers can now apply seeds, fertilizer and pesticides more precisely, improving yield and reducing waste. Farmers also need help in optimal and balanced use of fertilizer and pesticide. Under present practices plants do not get the ideal mix of nutrients. Sharing knowledge about which fertilizer to use when could help with productivity. To export, they also need help with compliance with foreign SPS standards.

Estimates are that return on research spending can be as high as 100 per cent. In the present context of weak existing policies and many challenges to agriculture, research is especially critical. It is equally important for research to reach the farmers. Provinces have a wide network of extension services. They must ensure smooth coordination between research and extension for updated help to farmers.

Farm productivity would grow with more use of machinery. While tractor use is widespread, farmers do not have the right implements. They need them at all stages of the production cycle, from ploughing, sowing to grading. Better and targeted farm credit would increase use of machinery. With preferred credit and institutional support, the government may help set up service firms from whom farmers can rent modern machinery. Small farmers especially need this service. Once these firms are in the formal economy, banks would be ready to lend.

Credit to farmers from formal providers has grown but it is well below their needs. Agriculture has a 24 per cent share in GDP. Yet in FY23, it received 7.2 per cent of total disbursements and had 6.5 per cent of total credit outstanding. Of this amount, over 90 per cent loan was for production, to buy seeds or fertilizer, for example. About 9.0 per cent of the loans are for fixed investment, say in tractors or land development. Public investment in agriculture, along with all else, has been in decline for many years. The sector needs a major boost in public and private investment. It needs policy reforms so that investments go to areas that raise productivity the most.

In FY24, Pakistan imported $8.5 billion worth of farm goods. It imported 3.0 million tons of oil for $2.9 billion and 3.5 million tons of wheat for over $1 billion. Palm oil, which is high in saturated fat, was more than 95 per cent of imported oil. At the same time, we exported goods worth $7.4 billion, of which rice was $4 billion. Export of fruits, vegetables and meat have grown, though their total amount is small.

Experts are of the view that the government may review its excessive subsidy for wheat. Price support and public purchase of wheat discourages production of high value crops. However, food security is a critical priority for the country and the government must weigh pros and cons before revisiting the wheat subsidy.

Pakistan’s struggle with oilseed production is now forty years old. There is still no progress. Nor is there a serious plan to convert into action the research conducted at the University of Agriculture and the Ayub Institute. Export of meat, fruits and vegetables could grow with cold chain logistics and SPS compliance.

Pakistan has many natural advantages for it to become a major food exporter. Reforms in water sector, focus on research, more public investment and credit for farmers would generate higher growth and more jobs. As with all sectors of the economy, I urge the government to be proactive and innovative in its approach.

The writer is chair and CEO,

Institute for Policy Reforms. He has a long record of public service.