Critical Issues in Agri-Sector

Pakistan Economy
BS (BA) 5TH
ALAMGIR KHAN
Chapter 5
Critical Issues of Agriculture in Pakistan
 Major Trends in agriculture (process and nature of change)
 Agricultural Pricing Policy
 Rural Financial Market and Agricultural Credit (Formal & Informal Sources of credit)
 Mechanization
 Agricultural Income Tax
 Water Crisis
 Land Ownership, Power and Land Reforms
Major Trends
Major Trends (process and nature of change)
Yield of Major Agricultural Crops
Area Irrigation (1950-2012)
Per Capita Food Availability
Agricultural Pricing Policy
 Agriculture pricing policy play a critical role in determining what and how much to
produce since 2008.
 A good agricultural pricing policy can be defined as one where, ceteris peribus, price
acts as an incentive to produce certain goods in required quantities.
 Along with the right types of seeds, water, fertilizers and other inputs as well as a
package of technology and credit, the pricing policy of inputs and outputs can determine
the direction of agri-productivity.
 Significant impact on income distribution (incomes of small farmers)
 Positive impact on rural economy, industrial productivity, urban wage, goods, exports,
cost of living and Terms of Trade (ToT) between the sectors.
 This policy compromises Subsidized industrial production and urban consumers.
Agricultural Pricing Policy
 Government sets price above the equilibrium level to subsidize the farmers by
paying the difference.
 Minimum Support Price in 2019-20 was Rs 1400 but the market price of wheat rose to
Rs 2256 per 40kg .
Price
3000
2495 E
24Mt 28Mt
Quantity
Rural Financial Markets & Agricultural Credit
 A survey of 1985 found that 68% of the credit to agricultural was provided by
non-institutional sources, a decline from 90% in 1972-73.
 Another study found that 85% of small farmers have obtained credit from non-
institutional sources compared to 40% in large farmers category.
 A significant number of credit loas (30%)are disbursed in institutional sources are
either proxy loans or roll-over funds.
 Both Sources (Institutional & Non-institutional) tend to be short term but serve
different needs. 94% of institutional sources is meant for production & investment
while most (47%) is used for consumption purposes only obtained from non-
institutional sources.
 The access by poorer households to institutional sources is constrained by
complex procedure and informal sources are much simpler and more flexible
often requiring little collateral.
Rural Financial Market
 Only 14% of all Pakistanis have urban and rural use a financial product or service
(saving, credit, insurance & Remittance) which is very low compared to 32% in
Bangladesh, 48% in India and 57% in Sri Lanka.
 Low percentage of total bank deposits (10%) in rural areas.
Rural Financial Market
 Why large no of farmers prefer Informal Source of credit?

 The reasons given for this include easier access, absence of cumbersome
procedure, availability as and when required the availability of credit even for
consumption purposes of emergency loans. Unlike official sources which have
rather restricted uses of credit, the possibility of a deferred repayment of debt if
crop fails and often the availability of credit without collateral.
 High transaction costs in order to acquire loan through formal source.
Mechanization
 Initially, the Government restricted mechanization based on the comprehension

that it would displace farm labor and cause the problem of unemployment.
 Mechanization has resulted in increase farm income and man power productivity
and the employment.
 Although, total employment in agriculture increase from 9.8 millions in 1965 to
14.6 millions in 1986
 Despite its huge costs, small farmers have financed it through remittances from
the middle east.
 With the passage of time, tractors been diversely used for stationery threshers,
chaff cutters, cane crushers, haulage of goods from villages to markets and
agricultural inputs by small and medium farmers.
Agricultural Income Tax
 Taxation is an economic (budget deficit) as well as political issue (political lobbies).

 Vast majority of people in agriculture engaged are living below subsistence level.
 Agriculture sector bear the heaviest burden of indirect taxes (42%).
 Extremely dependence on natural factors.
 Highly Uncertain crop production.
 Number of persons in this sector are enjoying better incomes, as large landowners managed to save
their lands from the two land reforms and many agriculturalists have set up orchards, gardens and
horticulture estates which yield higher incomes.
 Class of landowners who reside in urban centers and have made substantial investments in real estate
in the cities.
 Many traders and industrialists have purchased agricultural lands with the intent to whiten untaxed
black income from business by showing it as agricultural income.
Water Crises
 Of the total cropped area in Pakistan, which includes area sown more than once, of 22.15 million
hectares, 18.04 million hectares or 81% is dependent on irrigation primarily through canals and
tube wells.
 Canal irrigation system has had its capacity of carrying water reduced due to poor maintenance
(40% water lost).
 Five major issues:
 1. Pakistan does not have adequate reservoir capacity in its irrigation system to store water (highly
seasonal with 85% flow in summer).
 2. Only about 40% of water from the canal head reaches the root zone, causing water logging and
salinity.
 3. It does not have a drainage system.
 4. Inequality of power based on private property and privilege is a serious problem. Large
landowners try to dominate who steal water.
 5. Insufficient maintenance of irrigation network causing losses in terms of water, land and as well
as financial resources.
 6. Environmental change has placed Pakistan is one of the most affected country in the world.
Home Work
 See Box 5.1 (The Objectives of an Agricultural Pricing Policy)

 See Box 5.5 (Wheat Support Prices or Bad Economics)
 See Box 5.8 (Should there be a mechanization in agriculture)
 See Box 5.9 (The issue of Agricultural Taxation)
 Read section 5.7 (Land owner, Power and Land reforms)

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Pakistan Economy

 Why large no of farmers prefer Informal Source of credit?

 Initially, the Government restricted mechanization based on the comprehension

 Taxation is an economic (budget deficit) as well as political issue (political lobbies).

 See Box 5.1 (The Objectives of an Agricultural Pricing Policy)

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