Major Issues in Pakistan Economy

Lecture 5: Agriculture Sector of Pakistan

Dr. Zeeshan Atiq

zatique@ uok.edu.pk

Institute of Business Administration, Karachi

Importance of Agriculture Sector

I Improving productivity in the agricultural sector is vital for

sustaining economic growth in most of the world’s major
developing economies.
I Rural development and solving low productivity bottlenecks
are therefore key facets of poverty reduction and economic
development.
I However, adoption of best practices for increasing household
income and farm productivity is often slow due to unsolved
gaps in human behavior and decision-making.
Importance of Agriculture Sector

I Gallup et al. (1997) reported that every 1% increase in per

capita agricultural output led to a 1.61% increase in the
incomes of the poorest 20% of the population.
I Thirtle et al. (2001) concluded from a major cross-country
analysis that, on average, every 1% increase in agricultural
yields reduced the number of people living on less than US$ 1
a day by 0.83%.
I Broad–based agricultural productivity growth raises incomes
of poor farm households as well as households of landless
labourers who primarily depend on agricultural wages.
Importance of Agriculture Sector

I Increased agricultural productivity also brings strong indirect

benefits for the poor.
I The most important pro-poor linkage is generated by the
effects of agricultural productivity growth on food prices
(Timmer, 1997).
I The poor typically spend a high share of their income on
staple foods, and therefore they benefit from a productivity
induced decline in the real prices of staple foods.
I Benefits are largest for the urban poor and landless labourers,
but even many poor farmers benefit, since they are net food
purchasers.
I Widely shared increases in incomes of farmers and farm
workers also reduce poverty by providing a market for
labour–intensive consumer goods.
Agriculture Sector in Pakistan

Source: Pakistan Economic Survey 2017-18

I Pakistan has two crop seasons, “Kharif” being the first sowing
season starting from April-June and is harvested during
October-December. Rice, sugarcane, cotton, maize, moong,
mash, bajra and jowar are “Kharif” crops.
I “Rabi”, the second sowing season, begins as on
October–December and is harvested in April-May. Wheat,
gram, lentil (masoor), tobacco, rapeseed, barley and mustard
are ”Rabi” crops.
Agriculture Sector in Pakistan

Source: Pakistan Economic Survey 2017-18

I Agriculture accounted for 18.9 percent of the Gross Domestic
Product (GDP) in 2017-18
I It is a source of livelihood of 42.3 percent of rural population.
I During 2017-18, performance of the agriculture sector
remained up to the mark and achieved growth of around 3.8
percent and surpassed its targeted growth of 3.5 percent.
I This was made possible through greater availability of
agriculture inputs like water, agriculture credit and fertilizers.
Agricultural Growth
Revival of Agricultural Sector in Pakistan: A True Story
Revival of Agricultural Sector in Pakistan: A True Story

Source: Business Recorder May 29, 2017

I As per the Economic Survey of Pakistan 2016-17, the growth
of the agriculture sector has been 3.46 percent – in line with
the target of 3.50 percent.
I The better performance has been due to “better harvesting of
major crops through greater availability of agriculture inputs
like water, agriculture credit and intensive fertilizer off-take.”
I This is all well and good, and overall the sector has indeed
seen an improvement over last year’s negative growth of 4.97
percent.
Revival of Agricultural Sector in Pakistan: A True Story

Source: Business Recorder May 29, 2017

I However, a look at the crop situation reveals some caveats in
the story.
I Firstly, the growth in cotton (7.6%) and rice (0.7%)
production in FY17 is not too impressive given last year’s
decline (-29% cotton, -2.8% rice).
I Wheat production, too, only grew by 0.4 percent over FY16. It
seems that sugarcane and maize have been driving the growth,
which saw phenomenal increases in production of 12.4 percent
and 16.3 percent, respectively.
Revival of Agricultural Sector in Pakistan: A True Story
Revival of Agricultural Sector in Pakistan: A True Story

Source: Business Recorder May 29, 2017

I Maize and sugarcane production have seen the most rapid
growth over all other crops, particularly in the most current
year.
I This has been due to the increase in their area, which has
been the highest this year in recent memory (sugarcane
7.60%, maize 12.0%).
I Meanwhile, the area under cotton declined by 14.2 percent
year-on-year – the lowest it’s been since 1986! The reasons for
this are “exceptional losses from previous year’s pest
infestation and low domestic prices at the sowing time that
pushed growers away from cotton to other competitive crops
(sugarcane and maize).”
Revival of Agricultural Sector in Pakistan: A True Story

Source: Business Recorder May 29, 2017

I Same is the case with rice, which saw 0.55 percent decline in
area in FY17, on top of the 5.23 percent decline last year.
I Again, the reasons cited are “decline in domestic prices of rice
which reduced the area under the crop and growers shifted to
sugarcane and maize crop.”
I With sugarcane and maize seeming to be the only major crops
driving growth in agriculture at the moment, and in fact
replacing other major crops of cotton and rice, one wonder
how long would this trend continue, and could it have
implications on the country’s exports?
Prime Minister’s Agriculture Package of Rs 341 billion of
2015

A mega relief package of Rs 341 billion has been announced by

Prime Minister of Pakistan for small farmers including direct cash
support and provision of soft agriculture loans.
I Direct benefit and agricultural loans.
I Cash support for cultivation of rice and cotton.
I Fund to reduce prices of fertilizers.
I Availability of Liquefied Natural Gas (LNG).
I Agricultural insurance.
I Loans for solar tubewells.
Prime Minister’s Agriculture Package of Rs 341 billion of
2015

I Reduction of the custom duty, sales tax and withholding tax

on the agriculture machinery.
I The rice millers has been given full exemption on the
turn-over tax for year 2015-16.
I Exemptions on income tax.
Agriculture Sector: Important Crops

I The important crops (wheat, rice, sugarcane maize and

cotton) account for 23.60 percent of the value added in
overall agriculture and 4.45 percent of GDP.
I The other crops account for 10.8 percent of the value added
in overall agriculture and 2.04 percent of GDP.
I The production performance of important crops is given in
Table 2.1
Agricultural Growth
Share of Agro-based Products in Export Earnings

Fruit, Rice Others

Fish and 13.90%
Livestock
27.50%

Cotton and
Cotton
Based
Products
58.60%
 Export Patterns
2001-02
Other Other Leather
Engg
Manuf. Sectors 7%
1%
11% 3%

Food
10%

Textile
68%

Source: Pakistan Bureau of Statistics

Export Patterns

2014-15
Other
Sectors Leather
7% 5%

Engg.
Other 1%
Manuf.
12%
Textile &
Food
Garments
19%
56%
Agriculture Sector in Pakistan: Problems

I Agricultural performance in Pakistan remained subdued.

I Major factors underlying this slow performance include:
I Slow rate of technological innovation,
I Limited adoption of progressive farming techniques,
I Problems with quality, quantity and timeliness of input supply,
I Limited investment in construction and maintenance of
infrastructure;
I Marketing and trade restrictions,
I Pest and livestock disease problems,
I Limited amounts of credit for agricultural production,
I Processing and the lack of agriculture-specific financing.
Green Revolution: An Introduction

I The Green Revolution is a movement which refers to a series

of research, development, and technology transfer initiatives.
This happened between the 1960s and 1980s.
I The term “Green Revolution” was first used in 1968 by former
USAID director William Gaud.
I The necessity of this revolution was the constant population
growth. Population was increasing exponentially so the food
production was insufficient. For this reason new techniques
were introduced in agriculture.
I This was in order to defeat the consequence of the different
famines. The greatest was the Chinese famine (1959-61) with
between 15 to 43 million dead people (estimated).
Green Revolution in Pakistan

Source: THE GREEN REVOLUTION By Akmal Hussain

I The term ‘Green Revolution’ refers to the adoption in the mid
1960s of the new high yielding varieties (HYV) of food grains.
I The Green Revolution technology enabled a three-fold
increase in the output of food grains between 1967 to 1992,
thereby accelerating economic growth during the period.
I The most important feature of the new technology was that it
required the timely application of a combination of HYV
seeds, chemical fertilizers and irrigation water.
I This meant that rich farmers who had the financial capability
to ensure the right quantities of the input package and its
timely application could achieve greater cropping intensity and
higher yields per acre compared to poorer farmers.
Green Revolution in Pakistan

Source: THE GREEN REVOLUTION By Akmal Hussain

I In the context of Pakistan’s agrarian structure, this was to
have profound economic, social and ecological consequences.
I The Green Revolution technology increased economic and
social inequality because it was adopted within an agrarian
structure characterized by a highly unequal distribution of
land ownership and wide spread prevalence of tenancy.
I The large land owners attracted by the high profitability made
possible by the HYV technology, tended to resume their
formerly rented out land for cultivation themselves on large
farms with tractors
Water, Energy and Food Security: Vision 2025

I Pillar IV of “Pakistan Vision 2025” is titled as “Water, Energy

and Food Security”.
I Pakistan Vision 2025 recognizes that sufficient, reliable, clean
and cost-effective availability of energy, water and food – is
indispensable in ensuring sustainable economic growth and
development.
Food Security: Vision 2025

Top 5 objectives for achieving food security are to:

1. Protect the most food-insecure segments of the population
through effective relief measures, including long-term
arrangements and adaptation mechanisms.
2. Create a modern, efficient and diversified agricultural sector..
3. Ensure that the entire supply-chain related to food security is
geared towards provision of stable and affordable access to
adequate, nutritious and safe food for a healthy life.
4. Use the resource base in an efficient and sustainable manner –
with outcome based benchmarks agreed in line with regional
and global standards.
Agriculture: Critical Issues

Source: Akbar Zaidi’s Chapter 5

I In Pakistan rabi (winter) and Kharif (summer) seasons divide
the agricultural calendar.
I In rabi, the main food crop grown is wheat, with tobacco the
largest crop.
I In kharif, cotton and sugar cane with rice, which is the main
crop.
Agriculture: Critical Issues

Source: Akbar Zaidi’s Chapter 5

I In 1949/50, agriculture was by far the largest sector,
contributing more than 53% to GDP; in 1995/96, this share
was down to only 24.8%, i.e. less than even one-quarter.
I In current period it is hovering around 20%.
I The share of agricultural sector in total employment also fell
from 65% in 1950/51 to 47.5% in 1995/96.
Cultivable Land in Pakistan

Source: Akbar Zaidi’s Chapter 5

I Agricultural land refers to the share of land area that is arable,
under permanent crops, and under permanent pastures.
I In Pakistan in 1995/96 almost 42% of the area in Pakistan
was not available for cultivation.
I In 1948 this area was 48%, while in 1980/81 only 37% of the
area was cultivable.
I This trend is like U-shaped curve. The area not available for
cultivation in 1948 was almost 50% of reported area, which
fell and then again rose in 1990s.
I The rise in cultivable land came due to green revolution and
the fall followed due to urbanisation and other reasons.
Agricultural Pricing Policy

I Government’s intervention in agricultural sector comes to

safeguard interests of both producers and consumers for
example in terms of support prices.
I Agricultural price policy: “a policy of the government
whereby it acts to influence or determine the prices of
agricultural outputs and inputs.”
I The pricing policy determines the direction of activity in
agricultural sector.
I They can also have a noticeable effect on industrial
productivity, exports, and the cost of living.
Agricultural Pricing Policy: Importance

I To remove uncertainty
I To increase agricultural production
I Lag between agricultural prices and other prices
I Lack of storage facilities
I Stabilize the tempo of economic growth
I Income disparities
I To increase the standard of living
Agricultural Finance: Sources

I Availability of funds to the agricultural sector is crucial for the

continuous supply of agricultural output.
I There have been a number of initiatives government and
private sector in Pakistan, which however seem insufficient in
view of the demand of credit from the agricultural sector.
I Historically majority of the people have borrowed from
non-institutional sources rather than formal sources.
I In 1972-73 90% borrowing was being available through
non-institutional sources.
I The survey of 1985 showed that this declined to 68%.
Informal Finance Markets

Source: A study of Informal Finance Markets in Pakistan by Adnan

Qadir
I Informal finance markets (IFMs) have a long history
pre-dating formal markets and a strong presence in most of
rural and urban Pakistan.
I The informal financial sector is that part of the economy in
which financial contracts and agreements are conducted
without official regulation or monitoring.
I Informal markets exists not because of the limited supply of
credit from the formal finance markets rather they also have
comparative advantage in some market segments.
Characteristics of Informal Finance Markets

Source: A study of Informal Finance Markets in Pakistan by Adnan

Qadir
I Informal markets are generally characterised by high interest
rates and a sizeable gap between lending and deposit rates.
I Informal credit markets are marked by widespread rationing;
that is, there are upper limits on how much a borrower
receives from a lender.
I Segmentation is another feature of informal credit markets.
Typically, a moneylender serves a fixed clientele, whose
members he lends to on a repeated basis, and is extremely
reluctant to lend outside this circle
Size of informal finance sector
Source: A study of Informal Finance Markets in Pakistan by Adnan
Qadir
I The following figure shows the distribution of credit.
Agricultural Income Tax

Source: AZ Chapter 5
I Whether agricultural income should be taxed?
I People demand imposition of tax on agricultural income as
the share of income from agriculture has risen considerably
during recent times.
I Proponents of agricultural income tax argue that although
agriculture sector contributes 25% in GDP but tax revenues
hovers around 1%.
I Every attempt of bringing direct taxation to the agriculture
sector has proven to be unsuccessful yet, partially due to lack
of political will, institutional capacity and data limitations.
Agricultural Income Tax: Arguments against Income Tax
on Agriculture

Source: AZ Chapter 5
I Since proper accounting mechanisms are not in place due to
the informal way of farming and less education, it is highly
difficult to collect taxes from these farmers.
I Farmers are scattered all over the country that requires huge
cost to access them.
I Agricultural income varies depending upon the weather and
other conditions, which are not in control of any one.
Agricultural Income Tax: Arguments in favor of Income
Tax on Agriculture

Source: AZ Chapter 5
I Already the tax to GDP ratio in Pakistan is very low and this
sector has great potential, therefore, the tax from agricultural
sector can provide good source of revenues.
I A progressive tax structure can bring more revenues without
affecting the small farmers.