The languishing agriculture sector in Pakistan

Post-budget impact analysis

Agriculture accounts for 21 percent of GDP and employs about 43 percent of the labour force. But even that depressing 21 percent figure isn’t real when you consider that livestock alone contributes about 11 percent to the agriculture sector

The industrial sector, favoured by the ruling Pakistan Muslim League-Nawazgovernment, is booming while the bellwether agriculture sector has languished.

While the service sector achieved its growth target of 5.7 percent, there are plenty of reasons to be worried about the 0.19 of a percent decline this year by agriculture against a target rate of 3.9 percent.

Yet the agriculture sector is so ripe with potential products.

According to the Food and Agriculture Organisation of The United Nations, Pakistan is one of the world’s largest producers and suppliers of the chickpeas (3rd), cotton (4th), rice (4th), mangoes (4th), milk (5th), date palms (5th), sugarcane (5th), apricots (6th), oranges (6th), onions (7th),), wheat (7th), and farm output (8th).

So what is the concern?

Agriculture accounts for 21 percent of GDP and employs about 43 percent of the labour force. But even that depressing 21 percent figure isn’t real when you consider that livestock alone contributes about 11 percent to the agriculture sector; fisheries, forestry and the most-important crops contribute the remainder. A crop sector that once proudly stood at 53 percent of our national GDP, actually has fallen below 10 percent of GDP in 2016.

This has been a year in which we have come to realise:

• Cotton, long considered the backbone of the national economy, is in themost-serious free-fall. It has posted a negative growth rate of 27 percent. Output stood at 10.1 million bales against the target of 13.96 million. Last year, its output stood at 13.9 million bales with 9.5 percent growth. As a result, cotton ginning has declined by 21 percent against the target of 5 percent. The output of important crops fell by 7.18 percent against a target of 3.2 percent, while other crops fell by 6.2 percent against the target of 4.5 percent.
• The livestock sector grew by 3.63 percent; short of the 4.1 percent target.
• Fisheries were just .03 of a percent above the 3 percent target.
• And forestry grew by 8.8 percent against a target of 4 percent.

The decision to import vegetables from India has affected our nation’s farmers. Those who can afford it have had to deal with the high prices of nitrogen fertilizer Urea and DAP, the world’s most widely used phosphorus fertiliser. These production costs have been steadily rising against the backdrop of a worldwide financial slump. So, naturally, these costs have been passed right along to consumers.

The current government’s stronghold is Punjab, where agriculture is one of the most integral sources of earnings. In advance of 2018 elections, the federal and provincial governments in Punjab and KP have wisely presented a federal budget that, if duly implemented, would prove beneficial to the depressed agriculture sector.

It was just a year ago when members of the National Assembly of Pakistan –hailing from rural areas and on both the sides — rose above the party affiliations to unanimously demand a subsidy of Rs200 billion for the agriculture sector. Out of 70 MPs who spoke on Budget 2015-16, it was a speech by Rana Muhammad Hayat Khan, a member from the ruling Pakistan Muslim League-Nawaz (PML-N), that energised slumbering members and the media.

Speaking in the tone of a member from opposition benches, Khan eloquently and forcefully asserted his demands for subsidisation of agriculture. He criticised the current and previous governments for ignoring the agriculture sector. Further, he demanded a levy import duty on dry milk and other dairy products. He garnered applause not only from the treasury but from opposition benches as well.

The positive reaction most likely happened because so many could not deny that Pakistan is absolutely an agricultural country and without safeguarding the interests and components of this vital sector, it would be impossible to ensure food security, which once was unimaginable but now looms as threat to survival.

For years we have been forced to accept lower quality farming tools — tractors, ploughs, thrashers and other necessary equipment. The farming community has rightful complaints about the substandard materials now being used to manufacture the tools of their trade.

Pesticides, fertilisers and other chemical essentials of farming are now at a price level far out of reach of our many farmers. The lack of usage of these essentials hampers agricultural growth. Affected farmers have decried the higher prices as well as the commercial Tube-well tariff. They are of the view that, as in India, fertiliser and pesticides should be tax free and command duty-free status. This would reduce their prices and to enable common farmer to once again use fertilisers and pesticides necessary to yield bumper crops.

We have immense potential when it comes to meeting national meat and dairy requirements. This potential exists in the form of billions derived from enhanced exports of agri-products. But, by and large, governments were mostly unresponsive to the demands of agriculture sector, until Prime Minister Nawaz Sharif announced the Kisan Relief Package in September 2015. It was intended to support the rural economy; including rice and cotton growers who faced losses because of high input costs.

The package offered cash support amounting to Rs32 billion to the benefit 1.6 million farmers. In Punjab, in close coordination with PDMA, 166 disbursement centers were established in 33 districts. Representatives of PITB, the Urban Unit, NADRA, the Bank of Punjab, and the National Bank of Pakistan conducted the One Window operation during which an average of 200 people were served daily at each centre. The dream of facilitating the poor became was becoming a reality.

Within the 2016-17 federal budget, the central government earmarked direct cash support to the tune of Rs40 billion. There is a subsidy of Rs20 billion for urea, which has reduced the prices of Urea by Rs650 per bag ie from Rs2050 to Rs1400. Another subsidy related to importing urea will help keep the prices low, and there is a concessional electricity tariff for agriculture tube wells.

Tax and duty concessions announced in Budget 2015-16 will continue in 2016-17.Together, they amount to Rs15 billion and are expected to stimulate theagriculture-sector economy.

Collectively, Rs46 billion will be spent for subsidised Urea and DAP fertiliser during this financial year. That’s because the government also has subsidised the DAP by Rs300 per bag; its new price as of July 1 will be Rs2500 per bag.

And during the past three years the volume of agriculture credit has increased from Rs336 billion to Rs600 billion. For 2016-17, the volume of agriculture credit target is being increased to Rs700 billion.

The government, through SBP, also has developed a framework to reduce mark-uprates of ZTBL, NBP, Bank of Punjab and Punjab Co-operative by two percent. FromJuly 1, the current rate of off-peak rate of Rs8.85 per unit for Agriculture tube wells is being reduced to Rs5.35 per unit. For this special concession, the government will bear annual expenses of around Rs27 billion.

The rate of five percent for the import of machinery for the dairy, livestock and poultry sectors has been reduced to two percent. Incubators, brooders and machinery for animal feedstuffs — presently subject to five percent customs duty –also has been reduced to two percent. Customs duties on the import of fish feed pellet machines and water-aerators are being reduced from five percent to two percent as well.

Fish feed was subjected to a 10 percent customs duty, whereas shrimp feed is at 20 percent. The duty on the import of fish and shrimp feed is now exempted, as is the customs duty on live baby fish that had been subject to 10 percent.

For processing of food, the customs duty on cool-chain storage and in related capital goods is now exempt. Pesticides and its ingredients on which a sales tax of seven percent was levied has been abolished.

Through these landmark fiscal decisions, the government has shown a commitment to improve conditions within the agriculture sector. We can only hope that these decisions will go to the implementation phase and give the sector significant boost necessary for a revival, but also for the important sector’s long-term survival.