AgricultureInstructor: Prof.Dr.Qaisar Abbas

Course code: ECO 400

Lecture 30

Lecture Outline

1. Agriculture sector

2. Agricultural policies

Agriculture Sector

• Agriculture is not confined to cultivation of the land, growing and harvesting seasonal crops.

• Agriculture includes:

– Livestock breeding 49.1% of value added in agriculture and 11. 4% of GDP. 30-35 million rural population engaged in livestock raising.

– Fish farming. Although small contribution in GDP, still earns foreign exchange through export. Good nutritional value of fish with protein content of 15 to 20 percent. Important source of livelihood for coastal inhabitants. In 2003-04, 90,225 million of fish and fishery products were exported, earning Rs. 7.6 billion

– Poultry farming has emerged as good substitute of beef and mutton with 356 million chicks production, 4850 million eggs and 303 ‘000’ tons of poultry meat in 2003-04

– Forestry. 4.8 of total land is under forest, recommended level is 20-25%, bad environmental conditions

Two Leading Successes of Pakistani Agriculture

• Green Revolution in the late 1960s

What is Green Revolution: • “The Green Revolution means introduction of new technology in agriculture sector,

in order to increase its production through different measures .” Many of the world’s countries made diversified efforts through following measures:

• i . Introduction of new high yield varieties of wheat, rice, and maize

• ii. Improvement in per acre yield through quality fertilizers to compensate for land deficiencies in many less developed countries.

• iii. Pesticides and insecticides have expanded the acreage a single farmer can tend by reducing the time required to disinfect the crop.

iv. Irrigation has made double cropping feasible in many countries where formerly one harvest a year was standard.

v. New methods of rotating crops were developed which increased land productivity.

vi. New shorter plants have been discovered that are more responsive to fertilizer. Similarly, some sturdier types are more disease-resistant.

vii. Botanists have been able to breed the photosensitive genes out of plants . Making planting possible at any time of the year.

Impact of Green Revolution:

Impact of Green Revolution Green Revolution had impact on Production, Consumption Overall Societal Development, leading to a tangible increase in production of agri produce, and its easy and cheaper supply to the consumer.

Impact on Agricultural Production:

Impact on Agricultural Production Growth Plan Growth Rate of Agri. Sector First 1.8% Second 3.8% Third 6.0% Which indicates that due to green revolution the average annual growth rate has doubled. Wheat Production Year Million Tons 1959-60 3.7 1968-69 6.8 Sources: Pakistan Economic Survey, Ministry of Finance, (Various Issues)

Impact on Agricultural Production:

Impact on Agricultural Production Per Acre Yield Year Million Tons 1963-64 11.1 1968-69 17.0 Agricultural Income Year Income (In current prices)Rs. billion 1959-60 7.7 1969-70 15.5

Benefits of Green Revolution: Benefits of Green Revolution General Factors High yield varieties were introduced, which gave more production. Progress in fertilizer manufacturing was observed. Better quality pesticides and insecticides increased acreage of land. Better management of human resource was made through optimal utilization of already available farm labor and induction of newly trained laborers. An effective utilization of non-human resources was made. Water availability was ensured, keeping in view its quantity required.

Impact on Employment:

Impact on Employment The introduction of the new high yielding wheat and rice technology has resulted in an increase in the demand for labor. The net effect of the increase in demand for labor lead to a significant rise in real wages. The increase in labor use has been due to greater labor utilization per unit of cropped area, and in some cases to high cropping intensity. Even mechanized forms typically were utilizing increased labor inputs per hectare although simulation results conducted by some researchers indicate that labor inputs per hectare might be expected to decline substantially under fully mechanized techniques combined with adoptions of the HYV technology

•Tripling in cotton production over the 1980s due to the use of quality seed and proper incentives to the sector

Agriculture Sector

• 1947- Agriculture accounted for 53% of GDP. 2005- 23% of GDP, 21% of GDP in 2011.

• Pakistan ranks 5th in Muslim World & 20th worldwide in farm output.

• Pakistan is world’s 5th largest milk producer.

• In 2005 Wheat production was 21.591 million metric tons- more than all of Africa and nearly as much as all of South America. (FAO)

• Livestock sector contributes half of the value added in agriculture sector amounting to nearly 11% of GDP- more than the crop sector.

• Pakistan is Asia’s largest camel market, Second largest apricot and ghee market, third largest Cotton, Onion and Oil market.

• Fisheries provide direct employment to 400,000 and indirect employment to 500,000 people. It contributes approx $ 120 million to exports

Agriculture Sector

• Agricultural crops such as cotton and sugar cane provide raw material for two of the

most imp industries in Pak i.e textile and sugar.

• Pak’s unsatisfactory agri performance is mainly due to traditional methods of cultivation,

illiterate ad uninformed rural population.

• Total supply of Agri credit has increased from Rs. 87 million in 1959-60 to Rs 47.93

billion in 2004.

• Supply for other inputs has been increased i.e tractors imported and locally manufactured, fertilizers, seeds, irrigation

• Despite of this increased input, the output has not been increased accordingly.

• There is a decreasing returns to scale in agri sector.

Recent Performance

• The agriculture has lost significant growth momentum as its growth slowed down to 2.7 % in 2000s as against 4.4& in 1990s and 5.4% in 1980s.

• The structural problem and lack of mechanization remained main impediment to growth.

• Major crops remained the victim of natural calamities during the last few years and three out of last four years witnessed negative growth in the major crop sector. It causes declining trend of agriculture sector contribution in GDP.

Agriculture Growth

Year Agriculture Major Crops

Minor Crops

Livestock Fishery Forestry

2004-05 6.5 17.7 1.5 2.3 0.6 -32.4

2005-06 6.3 -3.9 0.4 2.8 20.8 -1.1

2006-07 4.1 7.7 -1.0 15.8 15.4 -5.1

2007-08 1.0 -6.4 10.9 4.2 9.2 -13.0

2008-09 4.0 7.8 -1.2 3.1 2.3 -3.0

2009-10 0.6 -2.4 -7.8 4.3 1.3 2.2

2010-11(P)

1.2 -4.0 4.8 3.7 1.9 -0.4

Salient Features

• Agriculture employs 44% of the work force in the country.

• 93% of those engaged in agriculture are small farmers.

• Total geographical area 79.6 million hectares. 27% of this area under cultivation.

• 80% of this area irrigated, but approx. 20% of area in Irrigation Canal. Most of the area is affected by water logging and salinity. An additional area of 2.8 million ha. affected by solidity.

• no subsidies, high cost of inputs, crop and livestock insurance, lack of veterinary services, lack of mechanization, primitive management and use of modern techniques, lack of education and training, seed quality, research and dissemination of knowledge

Salient Features

• undocumented economy

• lack of investment

• lack of delivery mechanism

• No Corporaization (as considered attempt to create big business)

• Lack of land reforms

• Lack of organized markets hence fair value assessment

• Lack of reliable statistics

• Institutional Arrangements

Major & Minor Crops

• Cotton: 8.2% of value added in agri and about 2% to GDP.

• Rice: it earns substantial amount of foreign exchange. 5.4% of value added in agri and 1.3% to GDP.

• Sugar cane: 4.2% of value added in agri and about 1% to GDP.

• Wheat: 13.4% of value added in agri and about 3.4 to GDP.

• Other major crops are tobacco, mustard and rapeseed, maize and barley.

• Minor crops are major oil seed crops i.e cottonseed, rapeseed/mustard, sunflower, canola.

• Most of these crops are imported which is about 70.85 % of total availability and remaining 29.15% is made available through farming.

• Most of the pulses, tomato, potato, onion are other minor crops

Series of Major Problems

• Firstly, despite the policy makers stress on crop diversification, the economy is dependent on cotton for more than half of its export earnings. This strong dependence is dangerous given the climatic and viral-induced setbacks that cotton production has historically experienced throughout Pakistan’s history.

• Secondly, the avowed objective of food security, which should have been possible given the favorable resource endowment of the country __ one of the largest irrigation systems in the world__ has not been achieved so far.

• Thirdly, the rapid increase in population, with the growth rate estimated at 3 percent has substantially reduced the per capita agricultural production rate.

• Fourthly, growth in the most recent decade has come from more extensive, and not intensive, agriculture.

• Fifthly, productivity growth in agriculture has been small according to a number of indicators___ output per hectare, output per unit of a single factor, yield gaps between average and best farmer yields, and total factor productivity.

• Sixthly, the government price system has been criticized for inducing a number of distortions and incorrectly trying to remedy the situation through a series of input subsidies.

• Finally, erratic and inconsistent policies and poor planning and management, for example of the irrigation system, deficiency in providing fertilizer, lack of quality control on pesticides, inadequate investment in rural infrastructure, and improper research and extension services, have all played havoc with Pakistan’s agriculture.

Series of Major Problems

Agriculture Credit

• ZTBL, Commercial Banks, Cooperatives and other private domestic banks are the main providers of credit to the farmers.

• In 2003-04, loans extended to the farming community was in the form of:

• Production and Development Loans. Rs.47.9 billion were disbursed in 2003-04 through ZTBL as compared to Rs. 37.6 billion in 2002.

• Purpose-wise disbursement of loans. Short term/seasonal loans.

• Credit to Women Program.

• Microcredit Scheme. Rs. 25,000 can be advanced to both men and women against security. Loans are recoverable within 18 months.

Major Issues in Agri. Credit

• High cost of borrowing - Cost of borrowing vis-a-vis rate of interest?

• Perceived high risk associated with agriculture lending

• Hassles in credit delivery

• complex documentation, collateral requirement, delays, under financing

• Limited access to credit to tenant farmers/ oral lessees/share croppers

• Provision of adequate & timely credit

Phases of agricultural growth.

• Phase 1 lasted upto 1960, period of agricultural neglect, resulting in low annual growth of1.5%.

• Phase 2.Between 1960-65 trend was reversed, growth rate was 3.9%

• Phase 3. 7.78% between1965-70, period of Green Revolution

• Phase 4 i.e between 1970-77 growth rate declined to 1.67% due to number of exogenous and policy related features.

• In terms of dependent population. 82% in 1951, 77.5% in 1961, 74.3% in 1972, 71.72% in 1981 and 79% in 1991.

Agri Pricing Policy

• The pricing policy of agri input and output determine direction of agri productivity and also income distribution of small farmers.

• A good agri pricing policy can be defined as the one where prices act as an incentive to produce certain goods in required quantities.

Agri Pricing Policy

• National Commission of Agri (NCA) analyzed the issues in the pricing policy of the first two decades.

• Govt fixed the consumer retail prices of agri goods at low levels which depressed the market prices for producers.

• Heavy export duties were imposed on cotton to facilitate local industry.

• Inter district and inter province restrictions on movement were imposed.

• For a decade after independence, no systematic attempt was taken to develop agri sector.

• Industrial sector was highly protected at the cost of agri sector

• Barter trade was a common feature where agri products were exchanged for industrial machinery and input.

Agri Pricing Policy

• Due to these policies agri sector was taken as a medium to protect industrial sector. NCA argued that the main objective of the pricing policy of 1960-65 was to provide low cost food to urban population, to provide cheap raw material for agri production, to keep the wages of agri workers low.

• First step govt took to encourage agri output was to subsidize agri inputs which cover seeds, fertilizers, tube wells, plant protection and agri machinery.

• But this policy was biased towards large farmers.

• Argument was raised to look beyond the input subsidizing policy.

• Concept of min price support program was introduced to protect farmers from fluctuations in international prices

Agri Income Tax

• There are arguments on whether agri income should be taxed or not.

• NCA is against this argument and says that agri holdings are too small to generate taxable income.

• Agri is a risky business and heavily depends on natural factors which creates uncertainty in final output.

• No proper insurance of agri output.

• Agri sector pays the largest percentage of indirect taxes i.e 42% of all indirect taxes, so it should not be taxed more.

Agri Income Tax

• On the other hand National Taxation Reforms Commission (NTRC) has evaluated policies of imposing a tax on agriculture.

• There is a group of landowners who reside in urban areas and made investment in real estate with income from their agri business.

• Since they pay no tax, so they are questioned by traders and salaried class to pay tax.

• Many traders have purchased agri land with an intent to escape from income tax.

• Many large farmers are earning handsome amount of money from agri.

Recommended Books

• Ishrat Husain, “Pakistan: The economy of an elitist state”, Oxford University Press.

• Zaidi, S. Akbar,(1999),“Issues in Pakistan Economy”, Oxford University Press.

• Saeed, K. Amjad,(2007)“Economy of Pakistan, Institute of Business Management, Lahore.

• Economics Survey of Pakistan (Latest Issues), Economic Advisor’s Wing, Ministry of Finance, Government of Pakistan