Shahid Khalil

Now, even the industrialists realize that the way to go forward in Pakistan is to exploit the agriculture potential of the country. While they are setting up big corporate farms and dairy enterprises, the real improvement will come when poor farmers' incomes are increased.

Farmers' incomes in Pakistan are low because of low per acre yield. An increase is absolutely necessary, because after manufacturing goods, the world trade in agriculture is also opening up. We should devise strategies immediately to ensure that our farm products stay competitive globally. The farmers are already feeling the heat of vegetable and fruit imports from India through the Wagah border. The rates of these commodities are lower on the Indian side.

While one might argue that the Indian farmer gets higher subsidies from their government that keeps the cost of production low, then in that case, our government should invoke WTO countervailing rules to stop unfair pressure on our farmers. Another reason for lower Indian agricultural prices could be higher
yields.

There are two ways of helping farmers, of which one is that of subsidy. The subsidies always distort the market and promote inefficiencies. Moreover the subsidies in Pakistan are not distributed fairly. Most of the fertilizer subsidies are simply not passed over to the farmers by vested interests that create artificial shortages to raise the prices very high and sell this important input in the black market.

The other way to help the farmers is to facilitate them in increasing their yields. If we look on our production averages of various agricultural commodities they are much lower than the global benchmarks. However, there are numerous instances when a farmer obtains yields higher than global averages while his real brother, having the adjacent farmland of the same quality, gets half the yield. This shows that the fault does not lie in the soil or the weather but with the way the crop is looked after and nurtured by the farmers.

It is a matter of record that the yields of all major crops in Pakistan are lower
than world averages. Sugarcane yield is 40 per cent lower, wheat 20 per cent lower, non-basmati rice 40 per cent lower, cotton 20 per cent lower, milk per animal 90 per cent lower.

It is interesting to note that the farmers obtain from 20 maunds to 70 maunds per acre in Pakistan. The national average is only 30 maunds per acre. The farmers that obtain above 50 maunds per acre from their land are well off, while the farmer obtaining the national average yield hardly covers his cost of production.

Similarly, in cotton per acre, yield varies from 500 kg per acre to 1,350 kg per acre. It is obvious that farmers obtaining low yield remain poor and under debt while those with very high yield prosper.

Apart from per acre yield, there are many other flaws in the agricultural management system that adversely affects the income of the farmers. Post harvest losses in Pakistan range from 40-80 per cent. The global benchmark for tractors per square meter is 20-25. In Pakistan, it is 10 times lower. Water losses are as high as 40 per cent even before the water reaches the farm. Then there is another 20 per cent loss due to flood irrigation that could be eliminated by using water conservation technologies like drip irrigation.

The most pressing problem of the farmers is the availability of agricultural credit. Most of the farmers are forced to obtain credit from the informal sector at very high mark up. Agricultural credit disbursed to farmers declined from $3.4 billion in 2007-08 to $3.1 billion in 2010-11. During the same period the agriculture credit disbursement in India increased from $63.3 billion to $103.4 billion.

Agriculture credit availability from the formal sector is the key to higher productivity. It enables the farmers to buy the inputs of their choice on cash at market prices. In case they go to the informal sector, the credit first is provided at very high mark up and the inputs are arranged by the financer at higher than market price. The quality of inputs is also doubtful.

The commercial banks have valid reason to deny credit to the farmers. Since the amount of credit is low, they cannot take the risk of going to remote villages for recoveries if the farmers default. Instead of disbursing agriculture credit as per direction of the central bank, they prefer the penalty imposed on them for violating the directive.

Experts point out an inherent flaw in our agriculture is the absence of cooperatives. The banks would readily lend to the cooperatives as the size of the loan would be high and the collateral would be sufficient to cover the risk. Experts say that cooperatives were never tested in Pakistan. They point out that people have bad memories of the cooperatives in the 90's which, in fact, were financial institutions and had nothing to do with agriculture. Farm cooperatives were never formed in Pakistan.

India, our next door neighbour, is a shining example of farm cooperatives. The largest dairy supplier in India is a cooperative. Indian cooperatives contribute around 50 per cent of the total agricultural credit disbursement. More than 60 per cent of the sugarcane procurement is done by the cooperatives.
In France, 75 per cent of all agricultural producers are members of at least one cooperative and cooperatives handle 40 per cent of the food and agricultural production of that country.

Existing legislation in Pakistan allows formation of farmer cooperative bodies which can buy inputs, sell produce and obtain credit for member farmers. What is required is the commercial banks lending to the cooperatives and crop insurance for the cooperative sector.

Funding is also needed to develop physical infrastructure for the cooperatives; to pull farmers out of poverty, the government should encourage a network of standard warehouses across the country for agricultural produce. These warehouses should be linked to the commodity exchanges such as Pakistan Mercantile Exchange Limited.

There is a need to establish an authorized quality grading system for produce brought to the warehouses. Warehouse receipts given to the farmers and traders can then be used to get loans from the banks as commodity, as accessible collateral at warehouses, would be acceptable to the banks. These receipts could also be used to trade on commodity exchanges.

-Cuttingedge