With the inception of World Trade Organisation (WTO) on January 1, 1995 Pakistan along with other member countries endorsed an Agreement on Agriculture (AoA), bringing agriculture into the purview of the global trading system. Member countries committed to adopt a market-oriented agricultural trading system through market access, reduction of domestic support and export subsidies. The AoA will have important implications for Pakistan’s economy in the agricultural sector in terms of output as well as employment. Its implications on agriculture, undoubtedly, surpass all other threats confronted by other sectors of economy. The agreement stipulates that member countries must undertake specific commitments in the area of market access, domestic support and export subsidies. Some issues related to the AoA have been dealt nicely in the last two rounds of negotiations by developing countries and have also achieved success in influencing them on trade distorting production and export subsidies. It is generally believed that these subsidies are aggravating poverty and hunger in the developing nations.
In the area of domestic support, Pakistan is not providing any substantial subsidy to agriculture. There were no export subsidies in the base period either. AoA, therefore, is not affecting internally the agriculture sector in Pakistan. However, there is need to analyse the situation in a multilateral trading system where domestic economics are highly integrated with global economies. It seems that such global markets are becoming major determinants of patterns of agricultural production and its trade in future. It is important to recognise that besides rich agricultural resources and diverse ecological zones, Pakistan is endowed with abundant manpower and an extensive irrigation system that allows for competitiveness to our farmers in the international markets.
Driven by a demand for liberalising Pakistan’s agriculture under the WTO regime, Social Sciences Institute, NARC conducted a research study based on published data for the period 1990-91 through 1999-2000. The study aims at analysing the potential impact of globalisation on economic incentives for growers and economic efficiency in production of rice-wheat crops in Pakistan by using levels of protection, domestic resource cost and producer subsidy equivalents as indicators.
The issue of agricultural subsidies was analysed to see where rice-wheat cultivation would stand, if subsidies in production for export of rice and wheat crop in major producing and consuming countries in the world were reduced/eliminated and international trade in rice and wheat were freed of barriers.
Wheat and rice are the major food staples for about 150 million people in Pakistan. The rice-wheat production system of Pakistan is one of the most dominating cropping systems covering an area of 2.1 million hectares. A major portion (57 per cent) falls in the Punjab followed by Sindh. Pakistan imports wheat while it produces surpluses in rice for foreign exchange earning. Wheat always occupies a central position in agricultural policies. At present, it contributes 13.8 per cent to value added agriculture and 3.2 per cent to GDP. Pakistan harvested a record wheat crop of about 21 million tonnes in 1999-2000, which exceeded domestic requirement and hence was available as exportable surplus. To sustain this position, state policies are required to focus on measures to control/minimise the cost of production to its sustainable level besides maintaining quality to enable crops to survive and compete in the international market under the WTO regime.
Rice is a high value cash crop and is also a major export item. Rice grown in Pakistan comprises of two major groups: Basmati (high quality aromatic rice) and IRRI (coarse rice).
It was observed that producers of wheat and basmati rice are dis-protected or implicitly taxed via depressed prices instead of their respective international prices. The rate of dis-protection during 1990-91 to 1999-2000 was 40 per cent for basmati and 27 per cent for wheat. An important conclusion is that farmers should receive price inline with international prices for their commodities to induce expansion of these crops.
Analysis of resource-use efficiency indicates that the cost of domestically producing basmati rice was 0.53 dollar to earn one dollar on an average during 1990-91 to 1999-2000 implying overwhelming comparative advantage in basmati rice production as an export crop. In wheat production the cost of domestic resources was 0.86 dollar to save one dollar in terms of wheat imports, which also implies comparative advantage in wheat production as an import substitute. The result suggests that these commodities are likely to have a great production growth once distortion in output and input markets are removed and domestic prices catch up with international market prices.
Results of economic incentive revealed that growers of IRRI rice received marginal dis-protection for some years and then protection later on in Punjab during 1990-91 to 1999-2000. The average rate of dis-protection was 7 per cent in Punjab and 18 per cent in Sindh. This indicates that the use of domestic resources in IRRI production in Punjab was not economically efficiency. Results also indicate that the cost of domestic resources to produce IRRI rice was 1.46 dollars to earn one dollar on an average during 1990-91 to 1999-2000 implying that Punjab suffers from a comparative disadvantage. However, Sindh appears economically efficient for the same period. Although IRRI rice has been a traditional export item, results indicate low prospects as an export crop. To attain and sustain crop competitiveness in the international market, there is an urgent need to improve economic efficiency in the use of domestic resources through increasing crop productivity and minimising costs of production, decreasing incidental and processing costs incurred from the farm gate to export destination.
Overall, estimates of economic incentives and economic efficiency imply that with true globalisation, growers of wheat and basmati rice can gain significantly by increasing production. The policy implications of these results are also very clear: encouraging wheat and basmati production in the country will earn foreign exchange.
Analysis of domestic support through Producer Subsidy Equivalents (PSEs) indicates that wheat and rice crops have been under implicit taxation. The results are quite consistent with our findings of economic incentives and efficiency in Pakistan. Comparing the scenario with selected countries, the Uruguay Round Agreement (URA) suggested that a reduction in domestic support and export subsidies for wheat and rice would see a decline in the artificially inflated production by developed countries.
A decline in the supply of agricultural goods from developed countries and improved market access for developing countries will very likely cause the production of these commodities in Pakistan to become more profitable. This scenario leads to conclude that Pakistan would benefit, if world prices rise as a result of reduction of domestic support in other countries. This will not only increase Pakistan’s share in World markets but also strengthen its incentive structure at home for increasing production of rice-wheat crops.
Economic efficiency and incentive structures prevailing in the rice-wheat crop production in Pakistan is showing ability to take advantage of market access. It is very likely that reduction of distortions in world markets as a result of the URA may boost production of wheat and basmati rice in Pakistan and farmers are likely to gain significantly. An important prerequisite, however, is that farmers should be given the opportunity to respond to market signals and AoA should be adamant to reduce excessive levels of domestic support and export subsidy in developed countries. This seriously undermines trading prospects for developing countries by dumping cheap food in the world market, thereby artificially reducing world prices. However, the ability of the country to maintain or expand its world market share depends on its ability to meet the demand of the world trading system, not only in terms of competitive prices but also in the quality of exportable products and their safety standards. In order to transform the challenges of globalisation into opportunity, Pakistan should adopt sustainable agricultural policies by making judicious use of available resources and following an appropriate combination of government policies and market sources. Increasing productivity and profitability at the farm level for sustaining this vital production system of Pakistan is imperative.