Throwing Candies to the Farmers
Iqbal Mustafa
Printed in NEWS 13 June, 2004

On the eve of the Budget 2004-05, the government has announced an agricultural package of nominal 66 billion Rupees. The banal approach of the planners to keep doing more of what they have been doing in the past on ad hoc basis has become extremely tedious for an enlightened review of the package. I have to inflict repetition, as knowledgeable readers have to suffer it. Writing a refreshing review has never been more difficult.

First, let us discover the motivation behind the fanfare of announcing a special package that has nothing special in it except the suspension of the powers of the banks, ZTBL to be precise, to arrest defaulters of agricultural loans through special provisions in the Revenue Laws for recovery of loans as arrears of land revenue. This was a draconian mechanism that utilised the efficiency of Raja Todar Mal's system of land revenue collection to cover up the inefficiency of ZTBL.

The economic survey 2003-04 indicates that agriculture sector is becoming the Achilles heel of the economy - stagnation has set in since early nineties. The over all economic growth indicators are marred by sluggish agricultural sector and so something had to done to stimulate growth. The large numbers of politicians with agricultural roots have been creating political pressure for relief to their own profession. Hence the economic planners, agricultural technocrats and farmer-politicians have put their heads together to create a package that can yield some political mileage and provide a makeshift joist to the crumbling roof. The package is totally divorced from global agrarian economic trends. In the absence of subject matter experts, old myths about agriculture abound at all levels; solutions are sought within these confines of vision. Let me reproduce from one of my previous columns as it can help assess the relevance of the current package.

Myth Number 1: That we can learn from history of our agriculture, which maintained a healthy growth of between 4 and 6 percent in the four decades prior to nineties despite poor markets, lack of infrastructure, credit limitations, successive land reforms and low technology. This has provided a false sense of security that we must have done something right in the past; and doing more of the same will turn agriculture around. Hence the government keeps going back to the beaten track of old policies (and farmers demanding the same too) - supply side assistance, subsidies, support prices etc. It doesn't work anymore. The drivers of growth from the sixties to the nineties were not policies but a set of unique factors.

First, the expansion of physical resources. Development of water resources under the Indus Basin Treaty with India opened up new lands with irrigation facilities. This had a direct impact on crop acreages as statistics would bear out. Second, genetic breakthroughs in three out of the four major crop - wheat, Rice and Cotton - provided quantum leap in yield potential of major crops. The green revolution of the sixties in grain crops was followed by a cotton revolution in the late seventies and eighties. Land reforms had compelled large farmers to adopt mechanisation which spread to small farmers subsequently. High yielding varieties, with mechanisation and inputs from multinationals like Esso (fertilizers) and Ciba-Geigy (pesticides) provided the impetus that provided growth in yields per acre. Third factor was the good basic farming sense of the people who were not new to agriculture and had farmed lands for two thousand years. Expansion of land and water resources combined with varieties, machines and inputs produced growth levels that sustained momentum for three decades.

the mid-nineties all these factors had disappeared. Land and water resources had expanded to the limits. If anything environmental degradation in the form of water logging and salinity has begun to reduce availability for agriculture. Genetic breakthroughs are no where in sight. If anything, new varieties are being bred for resistance to pest, viral and fungus infections, not high yields. New varieties in Pakistan have lower yield potentials than those of yesteryears. Mechanisation has not gone beyond replacement of bullocks, it is in fact tractorisation. Even that is stagnating as sales of tractors have stagnated for the past ten years. Crop inputs have deteriorated as brand names were knocked out by cheap generics without an effective regulatory system, and huge profit motives started adulteration on a grand scale in fertilizers and agro-chemicals. Finally the good sense of the farmers has gone out of the window as under economic pressures they have taken a whip to the tired soils. Today most farmers are mining soils with no consideration for soil conservation. The progressive degradation in form of secondary salinity and sodicity from tubewell waters, and nutrient deficiencies due to incorrect and insufficient application of fertilizers has begun a process of what can be termed as, 'the desertification of Punjab and Sind'. Yield barriers are a direct manifestation of soil impoverishment today.

Myth Number 2: That land and water are a matter of social equity rather than precious resources of production. This myth is a legacy of the Agrarian Age, institutionalised by the British Raj where land and water were thinly distributed amongst rural masses for subsistence farming. Agriculture has evolved through three stages, viz. subsistence farming, commercial farming and applied science. Subsistence farming has no place in modern economies. And yet many intellectuals and social scientists keep harping on land reforms to distribute land amongst rural poor; not realising that they are advocating perpetuation of inefficient and destitute subsistence farmers.

Farm classification on the basis of acreage is absolutely irrelevant today since land productivity is not a constant; it is a function of the nature of activity and the capital involved in the production process. One acre of hydroponics under greenhouse structures can yield more productivity than 100 acres of grazing land. A 20 acre horticulture farm in California is valued more than a 50,000 ranch in Nevada or Arizona. USDA classifies farms on gross turnover rather than acres. The classification of Produce Index Units (PIUs) from the thirties is too primitive to capture ground realities today in Pakistan. We must differentiate political motives from economic objectives. Instead of quantitative land reforms we should be looking to create open land and water markets so that these primary inputs can translocate into the hands of those who can utilise them better. This would naturally take care of the political dimension of land ownership.

Myth Number 3: Agricultural productivity can be promoted by keeping the value chain segregated into hermetically sealed segments and formulating policies for each segment separately. Agriculture production is an economic value chain from primary inputs through intermediary stages to final consumer products and has to be organised as such, whether by market forces or public sector planning. Then there are horizontal linkages that need to be taken into account. For example, oilseed production and livestock sector have a symbiotic relationship - the product of the former (oilseed cake) is a raw material for the former (animal feed) and eventually part of milk production ends up as source of fat and oil. Agriculture forms a far larger part of national GDP than the nominal figure of 25 percent. Textiles, leather and Rice that contribute over 80 percent of exports are agro-based industries. And a part of the service sector caters to agriculture and agriculture-related businesses. The integration of agriculture into value chains of end-products should be the top priority. Each commodity and its end-products have their own economic and logistic dynamics. Planning should be focussed on creating synchronisation between components of the value chain - input supplies, land and water utilisation, crop technology, post harvesting processes, storage, marketing and value addition processing. In that synchronisation and vertical integration, each agricultural process will find its own economy of scale - small farmers can specialise in labour-intensive-high margin activities while medium and large farmers can go for high-volumes-low-margin activities.

It is too much to expect the government to plan and execute such a paradigm shift in agriculture but at least it should be moving towards global integration where expertise and investors are attracted towards Pakistan's inherent comparative advantage for turning it into a competitive advantage.

The announced package falls abysmally short in this perspective. It is akin to throwing a few candies to the farmers in the hope of appeasing their hunger pangs. It will not even stem their tears; probably stop the hiccups for a while. P.S Even as a random shot, the package ignores the immediate pain of the farmers - GST on fertilizer, pesticides and energy costs.

Iqbal Mustafa

1400 words

12 June 2004