Pakistan Agricultural Situation


Report Highlights:
The third WTO Trade Policy Review of Pakistan was held on January 16 and 18, 2008, providing an updated evaluation of Pakistan’s trade regime by sector. This GAIN report outlines highlights of the recently released WTO Secretariat’s report – focusing on Pakistan’s agricultural sector review.

SUMMARY
The third World Trade Organization (WTO) Trade Policy Review of Pakistan was held on January 16 and 18, 2008. According to the WTO Secretariat’s report, reforms in key sectors are being introduced but adjustment toward a more diversified and efficient production pattern has not yet occurred. Agriculture remains the economy’s mainstay, despite a fall in GDP share to 20.9%. Productivity is low and food security is a major government priority.

Member countries participating in the review recommended that the GOP continue to work on trade liberalization and other productivity-boosting structural reforms along with reduction in political uncertainty. While significant progress has been made to establish necessary preconditions for trade liberalization, sustained efforts are still needed to reduce downside risks to Pakistan’s growth.

PAKISTAN’S THIRD WTO TRADE POLICY REVIEW
WTO member countries are required to participate in periodic Trade Policy Reviews, whereby other members examine, evaluate and monitor trade and related policies to determine their impact on the global trading system. Pakistan’s third WTO Trade Policy Review was held on January 16 and 18, 2008. Previous reviews took place in January 2002 and February 1995.
The WTO Secretariat reported that Pakistan’s economic growth has been impressive since its previous trade policy review in 2002 as a result of its relatively open trade and investment regimes, sound macroeconomic policies and structural reforms that have also contributed to lower unemployment and reduced poverty. While the overall poverty rate has decreased, income inequality has widened and rural poverty remained high during the period under review. Customs procedures have been greatly improved, overall tariff protection considerably reduced, tariff bindings increased and intellectual property rights strengthened.

GENERAL TRADE ENVIRONMENT
The main change in merchandise trade patterns has been the rising share of mining and agricultural exports. The United States and the EU remained Pakistan’s main export markets. The cost of doing business has grown over the last five years on the back of structural weaknesses, including infrastructural bottlenecks, excessive regulatory controls and labor market rigidities, as well as problems concerning governance.

Trade liberalization has slowed as production and export support has increased. Pakistan has continued to lower its average level of tariff protection. Nonetheless, border protection and domestic support still varies by sector, thus constituting potential impediments to the efficient allocation of resources and its sustainable economic development. Pakistan still lags behind in export diversification depending heavily on textiles and clothing, which account for two-thirds of total exports. This sector now faces stronger competition in major markets.


AGRICULTURAL SECTOR REVIEW
The Secretariat’s report noted that agriculture remains the economy’s mainstay, despite its GCP share declining from 24.1% 2001/02 to 20.9% in 2006/07. It still accounts for more than 4 out of 10 jobs. The sector’s productivity is low by international and domestic standards undermined by inefficient resource use; skewed distribution of farm holdings, accentuated by a thin land market that reflects insecure tenure; inefficient non-price allocation of water and irrigation systems in a drought-prone country; as well as low-quality inputs and infrastructure.

Food security, based on self-sufficiency, is a potentially costly policy and a major Government of Pakistan (GOP) priority. Reforms since 2001/02 have been directed at a greater role for the private sector in marketing and supplying farm inputs. Domestic support measures (price and non-price) hinder diversification. In some cases, these support measures periodically penalize farmers (e.g. recently for wheat and rice) and are biased towards relatively low-value, water-intensive crops such as sugar cane. Sugar seems to be particularly inefficient with domestic prices at times exceeding world levels up to 50-60 percent.

The edible oil manufacturing industry is protected by relatively high specific tariffs. Certain agricultural exports are covered by various controls, restrictions, and support measures, including direct and indirect subsidies, such as on freight, and income tax concessions. The state-owned Trading Corporation of Pakistan still engages in significant trade of several essential commodities, including wheat, sugar, and cotton, as a means of providing subsidized foodstuffs to poor households and to cover emergency situations.

MEMBER COUNTRIES’ RECOMMENDATIONS
Member countries participating in the review recommended that the GOP continue to work on trade liberalization and other productivity-boosting structural reforms along with reduction in political uncertainty. Sustained government efforts in these areas will help to improve Pakistan’s international competitiveness, especially for sensitive sectors like textiles and clothing, and thus improve the prospects for sustained economic growth.

While significant progress has been made to establish necessary pre-conditions for trade liberalization, sustained efforts are still needed to reduce downside risks to Pakistan’s growth. Pakistan stands to gain from international economic performance provided it improves domestic efficiency, and thus its international competitiveness. Improved efficiency depends on domestic policy reforms as well as on Pakistan’s capacity to benefit from market openings and other opportunities abroad.

Approved by:
Margaret E. Thursland
Agricultural Counselor
U.S. Embassy Islamabad
Prepared by:
Asmat Raza
Agricultural Specialist