Pakistan’s economy during July 03 to June 04 (FY 04) grew at a very healthy rate of 6.4 per cent. Whereas, large-scale manufacturing grew by 18 per cent but agricultural output grew by 2.5 per cent only.
As the livelihood of two-third Pakistanis is directly or indirectly linked with agricultural output and population growing at 2 per cent, there was almost no comfort for rural population from this commendable GDP growth rate.
The low rate of increase in agricultural output cannot be attributed to weather alone an agricultural output in India with similar weather conditions grew by 8 per cent. The primary reason for this tardy agricultural growth is bad policies and management. The yields per acre in Indian Punjab are about 60 per cent higher than in Pakistani Punjab. India is pursuing a better set of policies leading to higher output and greater prosperity for its rural population.
The President of the Farmer’s Association has stated that there is an agricultural crisis in the country created by the ill-conceived policies dictated by multilateral institutions like the IMF, the World Bank and the Asian Development Bank. The case in point is the wheat crisis. In the FY 99-00, wheat output, after four years is only 19.5 million tons and we may have to import 1.2 million tons. The government has totally mishandled the wheat policy.
Wheat is a staple food for almost all Pakistanis with a high weightage in the Sensitive and Consumer Price Indices. The demand for wheat is price inelastic. Even if the price goes up by 20 per cent, the demand will decrease marginally as the consumers will cut other items in order to satisfy their dietary needs for this staple commodity.
The price of wheat is also the bellwether for the general price line. If the price of wheat goes up, the price of other commodities like tomatoes and potatoes also goes up almost in sympathy. Students of Pakistan’s economy have always emphasized the role of wheat in price fluctuations. If the price of wheat is stabilized, the general price level is not likely to increase much.
Wheat like many other agricultural commodities is harvested only once in April-May but is consumed at a uniform rate throughout the year, as people do not consume more wheat after harvest and less towards the beginning of the next. There is a storage and financial cost for procurement and retention of wheat stocks throughout the year. The government of Pakistan was bearing this cost historically.
However, two years ago the government was persuaded by multilateral institutions to privatize procurement and storage with disastrous consequences The IMF also prevailed upon the government to extend 15 per cent GST on fertilizers and pesticides whereas there is no country in the world, which charges GST on agricultural inputs.
Agriculture in India and more so in the EU and the US is heavily subsidized. Although it is correct that Pakistan cannot bear the burden of large agricultural subsidy but there is no merit in discouraging the use of fertilizer and pesticides by charging a high rate of the GST.
The price of wheat has increased by almost 30 per cent from July 03 per cent from July 03 to October 04 and the price of wheat flour by almost 27 per cent. This has obviously resulted in the CPI increase of more than 9 per cent and the SPI increase of more than 14 per cent. The havoc with such high rate of inflation plays with fixed income group needs no elaboration.
The government might be insensitive to the price of wheat but it has to bear the cost of wheat import. The government has contracted to import one million tons so far and the import could go as high as two million tons. The average C&F cost of one million tons is $208 per ton or about Rs12,500. With incidental cost of Rs500 the imported wheat will cost about Rs13,000 per ton. The government is at present supplying to the flour mills at the rate of Rs.9500 per ton. Therefore, the government will have to bear a subsidy of Rs3.5 billion for distributing one million tons of imported wheat.
The government has also increased procurement price of wheat for Rabi 05 by Rs50 from Rs350 per 40kg. Last year it had also increased the procurement price by Rs50. Hence, during last two years the procurement price of wheat has increase more. The interesting thing to note is that whereas last year the procurement price was increased by 16 per cent, the wheat output increased by only two per cent from 19.2 to 19.5 million tons, much less than the output of 21 million tons in FY 99-00.
Moreover, despite marginal increase in area under wheat cultivation the yield per hectare remained the same at 2.39 tons.
The fault with the government’s agricultural policy in general and wheat policy in particular is that there is no emphasis on increasing yield per acre by increasing the cheap availability of inputs like fertilizer, pesticides, certified seeds, tractors, water and diesel and electricity for tube wells.
The government needs to revamp its agricultural policy by facilitating the greater use of yield increase inputs and remove serious policy blunders like imposing GST on agricultural inputs and playing with the time-old policy of procurement and storage by the government. This year the government had the target of procuring 5.7 million tons and could only procure 4.5 million tons despite undesirable heavy-handed methods of raiding private stores.
The private sector, which had made a killing last year, could not be sidelined although the State Bank raised the margin to 50 cent. Probably raising it to 80 or more would have made the difference allowing the government to meet its procurement target.
It also needs to be noted that about 50 per cent of wheat output is marketed mostly by bigger landlords. The small farmers mostly produce for their own consumption and seed for the next crop. Higher procurement price mostly benefits the big farmers.
This year when the rate of inflation in almost double-digits, is highest since 1995-96, it was extremely inadvisable to raise the procurement price by Rs50 especially when a higher percentage raised last year did not lead to any significant rise in output.
The strategy of facilitating agricultural inputs and further subsidizing when necessary leads to increase of output by small and big farmers, and the resultant widespread spike in production also leads to stable prices for urban consumers. The overall target should be to increase the yield per acre. This will benefit consumers as well as the producers.
Courtesy: The DAWN