his week the prime minister of Pakistan has announced an investment and incentives package for the farming sector. The stagnation of agriculture in the country has been aggravated by the recent floods and other climate related challenges. The impetus provided by the PM’s package is timely and appropriate. The expectation of achieving some results in a six month period is reasonable.

According to reports in the press, there are nine elements in the package addressing some of the most urgent needs of the farmers. These include bank credit/loans, energy and fertiliser relief, solarisation, import of used tractors, provision of free inputs in flood affected zones and import of wheat. However, there are important missing links. These may have been ignored by the press or not included in the press releases issued by the government. On the other hand, these may not have been included in the package at all. The reports, for example, do not mention plans to repair the irrigation and drainage infrastructure in the flood zone.

The agriculture sector in Pakistan has been long starved of investment. Public investment in infrastructure, acquisition of technology and the logistics of delivery covers only minor costs compared to the share of private investments in this sector. On the other hand, public investment indicates a policy environment and serves as a catalyst to promote private sector investments.

The highlight of the package is a Rs 1,800 billion credit facility. Compared to the recent past, it seems to be a major step forward. In the year 2015, the State Bank of Pakistan data showed a disbursement of Rs 389 billion which was 39 percent of the demand. The corresponding allocation figure for the year 2020 was Rs 1,350 billion (with 73 percent disbursed). Now up to Rs 1,800 billion has been allocated. The value of the Produce Index Unit (PIU) has also been increased allowing for a higher borrowing ceiling against given acreage. At the present rate, the collateral value of an irrigated acre stands at Rs 80,000; it commands a market value of at least Rs 2 million. The upward revision thus falls short compared to inflation and the recent devaluation of the rupee.

Considering the GDP share of the agriculture sector and its catalytic value, Rs 1,800 billion is a small amount. Historically, policy lending for agriculture has remained around 8 percent of the bank loans - and at high interest rates. Formal agriculture credit has remained less than percent of the demand. There are studies indicating that ‘bookkeeping’ including repeat disbursements, debt restructuring and rescheduling are used as a proof of lending instead of real investment. The problem is further compounded by complicated paperwork required to secure a loan.

Consequently, the farmers end up meeting their credit needs by borrowing from the informal sector dominated by the aarhti and his agents, usually at exorbitant rates. The PM made a special mention of making sure that banks are compliant with the announced policy. Key performance indicators and monitoring mechanisms could have been defined to achieve this and other targets. Innovative measures are required to partner with the informal lenders for bringing down the cost of lending. Government-subsidised interest free loans are not enough to meet the demand. Regularisation of the informal sector in some form is required.

A satellite imagery-derived rapid assessment report released by Food and Agriculture Organisation this week indicates that 90 percent of the flood affected areas are ready for cultivation. It is the farmer, as usual, who lacks the means to return to business. The PM’s package has made a special arrangement to provide seeds and supplies in flood affected areas. This is a good idea, but the seed supply should not be limited to wheat. Fodder and vegetables are equally important crops for revival. There should also be a plan for fruit plant nurseries and aquaculture. It is high time for a discussion around debt riddance (write offs) in the flood zone, both for the farmer and the informal lender, to revive alternative streams of investment.

A satellite imagery-derived rapid assessment report released by the Food and Agriculture Organisation this week indicates that 90 percent of the flood affected areas are ready for cultivation. As usual, it is the farmer who lacks the means to return to business.  

A revamp of the Zarai Tarqiati Bank Limited (ZTBL) from a lender of production loans to a real development bank is desirable. Why not create a credit stream for service providers and irrigation or land development work as corporate loans instead of repeatedly trying the same old model of lending for a bag of urea or a bag of animal feed? The stagnation that we face needs to be broken by making bigger and bolder investments. The province of Balochistan has still to see large-scale agricultural development.

The Small and Medium Enterprises (SME) youth loans are bound to invigorate the rural economy. There are many emerging technology applications, value addition and mechanisation avenues for entrepreneurship. Take the example of drones for seeding, spraying and monitoring. Machinery depots and cooperatives could emerge as youth employment centres. One can hope that the loan products are designed to meet the missing facilities at the farmers’ doorstep.

Migration from rural to urban centres is a continuing process that has been exacerbated by the climate calamity. The youth loans should be linked to formal education and skill development. Revival of land allocation to the agriculture graduates as “start up” companies could be a strategy for enterprise lending.

We are way short of the minimum required ‘horsepower’ (HP) to till our lands. Two local assemblers of tractors provide a maximum of 85 HP. The cost of locally assembled tractors is relatively high and the technology obsolete by global standards. Nevertheless, it is admirable that tractors are produced in such a weak market to begin with. Allowing the import of used tractors will introduce machines with higher HP to allow for mechanisation operations not covered by the available HP, but there is a danger that allowing the import of used tractors with lower HP will hurt the local industry. A better option would have been incentivising local assembly of higher HP engines. Furthermore, manufacturers of new machinery shy away from markets littered with scrap and used machines.

The PM’s package is quiet about the shortage of machinery that tractors are supposed to run, and self-propelled machines like rice planters and wheat and rice harvesters. In the case of wheat, it is known that the harvesters used in Pakistan result in 15-20 percent losses. The maintenance and replacement parts manufactured locally are substandard and high quality repairs are usually not available for very old machines.

While solar tube wells have become popular, there also exists the possibility of investing in solar chillers and pasteurisers. On the other hand, there is a danger of excessive water pumping with solar tube wells. Solarisation of 300,000 electrified tube wells will only serve the already privileged. The solar facility should be prioritised for the diesel engine-run tube wells.

The PM’s package has not touched the market and value addition. There is also no mention of investment in research. The investment in subsidies can be infinite while quality research and its delivery can provide measurable returns on investment. The minimum support price (MSP) for wheat is also a tricky issue. The province of Sindh has announced a Rs 4,000 per 40 kg price while the Punjab and the federal government are still considering a figure closer to Rs 3,000. Public procurement of wheat has also become a controversial matter.

If one looks to lessons from success stories of the near past, then the maize crop is a good example. There is no MSP and nearly the maximum possible application of technology is practised. Market forces have settled the rules of business. The wheat crop needs a policy environment for technology absorption, which can only happen if the market is allowed to arrive at fair prices, both for the inputs and the output.

The writer is the Vice-Chancellor of University of Agriculture Faisalabad