DAWN BUSINESS & FINANCE April 22 , 2019

Are we food-secure?
Afshan Subohi

Low on productivity and high on wastage, the agriculture sector’s growth at

around three per cent is not even half of its 7pc potential. Little wonder, then,
that in populous Pakistan 18pc of the people are malnourished, 45pc children
are afflicted with stunting, 15pc suffer from wasting and 30pc are underweight.
The National Food Security Policy 2018 highlighted the effects of persistent
neglect and corruption, identified problems and offered solutions. It stopped
short, however, of exposing the nexus that tweaks the system to its own
advantage at the cost of food sustainability and accessibility. It is, therefore,
vital to reassess…
A democratic Pakistan can certainly better cater to the nutritional needs of its citizens. “No
famine has ever taken place in the history of the world in a functioning democracy,” wrote
Amartya Sen, an economist and a Nobel Laureate.
Pakistan is blessed with cultivable land and a sizeable peasant population. The information
explosion and ease of connectivity have instilled high economic aspirations in the rural
populace.
But if the implementation effort of successive governments has tapped only half the
potential of the agriculture sector, is it perhaps the lack of a cohesive policy?
 DAWN BUSINESS & FINANCE April 22 , 2019
Three decades ago the Agriculture Commission of Pakistan, in a report, blamed the
underlying rural power structure, which wields disproportional representation in the
federal and provincial assemblies, for the underperformance of the sector.
Abusing the decisive power vested in the state to manage the economy these elements, it
was found, colluded to evade taxes and divert subsidies and concessional bank credits to
serve its narrow interests.
The expert’s report, however, overlooked the
growing role and influences of the reckless
trading community; particularly those involved
in import and marketing of seeds, pesticides
and livestock.
The National Food Security Policy, launched by
the PML-N government last May, two days
before its term ended, recognises food security
as a key challenge.
It did not draw on the findings of the
Agriculture Commission Report. Instead, it
attributed the slow pace of agriculture
development and lack of food security to the
following: high population growth, rapid
urbanisation, low purchasing power, high price
fluctuations, erratic food production and
inefficient food distribution systems.
The policy hinted at power dynamics when it
stated that the benefits of whatever agriculture
growth has been achieved have not been
equitably shared in the rural economy. For
some reason the said policy document clubbed
wheat, a key crop in context of food security,
with water intensive rice and sugar cane. It
stated that the latter two have been given ‘more
attention’ in the previous related policies.
Ignoring the key factor — the political clout of
the self-serving landed aristocracy — it listed
slow technological innovation, problems with
the quality, quantity and timeliness of input
supply, inadequate extension services and
technology transfer as factors responsible for
 DAWN BUSINESS & FINANCE April 22 , 2019
the situation. As the share of urban-based manufacturing and the services sector expanded,
to around 80.5pc of GDP collectively, the share of the agriculture sector in GDP narrowed
by almost half; to 19.5pc in 2018 from close to 40pc in the mid-1960s.
The hold of the landed elite might be loosening owing to growing economic strength in
urban areas. But, so far, they have managed to guard and promote their interests using
political structures and by blocking any move in the federal and provincial assemblies that
may hurt them.
As the country adopted market-based policies of deregulation, privatisation and
liberalisation in the 1990s, the landed elite expanded its commercial interests in companies
in the agriculture input market.
In a water scarce country, the story of the sugar industry’s growth and expansion in the
water-intensive sugar cane crop, and the subsidy managed for its market disposal, is a
classic case that sheds light on the mindset and machinations employed by this class.
There is a lack of proper planning that magnifies natural disasters or emergencies as is
highlighted by the unusual rainfall and windstorms last week that, farmers fear, have
caused ‘irreparable damage’ to the local variety of wheat crops.
The issue of agriculture income tax is another example where the landed elite have been
able to prevail under all governments, before and after the 18th Amendment. All the talk of
expanding the tax base to improve revenue generation remains just that — talk, when it
comes to taxing agriculture income.
This income is not even reported judiciously while businesspersons and petty salaried
workers are made to contribute to the national exchequer. The corporate sector in contrast
to big farm owners is routinely called on to pay extra, in the form of super taxes, to limit the
resource gap.
The role of the influential rural elite in water consumption is yet another area where abuse
of power is rampant. The diversion of water to farms owned by politicians and their lackeys
is rampant in the southern Sindh. There are several instances where the course of canals
have been diverted, or dikes constructed or destroyed, in an attempt to benefit some at the
cost of many.
The neglect of the key sector by successive governments — which continues to employ 42pc
of the labour force, provides livelihood to 62pc of the population and constitutes 65pc of
export earnings — becomes almost criminal when it comes to biosecurity.
The unsupervised commercialisation and audit-free import of seeds, pesticides and
livestock is said to be responsible for new crop and livestock diseases. These diseases have
compromised the local soil quality and agriculture ecosystem and have a far-reaching,
negative, impact on the health of consumers and on export prospects.
 DAWN BUSINESS & FINANCE April 22 , 2019
There is no dearth of organisations, mostly public but some foreign-funded, active in the
sector. According to information available on the website of the federal Ministry of National
Food Security and Research, there are 18 fairly big departments manned by several hundred
officers and staff.
A stopover at several research and extension service centres during a flying visit across rural
Punjab in 2017 depressed the writer. Most of these deserted buildings wore a haunted
appearance. Their directors blamed low budgets for the lack of capacity and seemed more
focused on survival than in meeting organisational targets.
“Besides the country, it is the grower and the end consumer of commodities who are at the
losing end of the agriculture equation in Pakistan,” commented an expert associated with
the government.
 DAWN BUSINESS & FINANCE April 22 , 2019

Tackling poverty via higher Agri-lending

BANKS have increased their agricultural lending; but whether higher lending
has had any impact on rural poverty remains debatable.
The percentage of those suffering from undernourishment, between 2000 and 2016, slipped
from 23 to 21, according to the Food and Agriculture Organisation. However, according to
the World Bank, people living below the poverty line of $1.9 a day fell from 29 per cent in
2001 to 4pc in 2015.
These readings show whereas overall poverty rate is declining fast, extreme poverty as
measured through undernourishment or hunger is not.
Agriculture lending can, and does, help in hunger eradication and poverty reduction if it is
backed by the right set of government policies and sociopolitical attitudes. Changes in
absolute numbers of agricultural lending can be of little help in analysing how helpful this
lending is.
But the quality of the lending and even its outreach can tell us where we are heading.
The problem with Pakistan’s agriculture lending is, it is still directed mostly towards the big
and powerful agriculturists’ lobbies. Further, this lending is injudiciously centred in Punjab.
Also, banks tend to lend more for agri-production and less for agriculture development.
The central bank, in addition to microfinance banks, is also involving
microfinance institutions and rural support programmes for lending
 DAWN BUSINESS & FINANCE April 22 , 2019
The State Bank of Pakistan (SBP) has tried to address all three issues by encouraging banks
to lend more to small farmers, keep an eye over district-wise agri-credit disbursement and
accommodate requests for agri-development borrowing more passionately than before.
For many years the central bank has been assigning indicative targets of agri lending to
Islamic and microfinance banks. But we have a long way to go.
Just consider this: 17,998 big landlords got agricultural credit worth Rs129.5 billion in FY17.
Against this, 1.64 million small farmers got just Rs158.4bn. A little more than 116,464
midsized landowners received Rs67.9bn, according to revised date by the SBP. Statistics for
FY18 have not yet been released.
Also consider this: As per SBP data, during July-Dec 2018, 84.8pc of the total credit offered
by banks went to Punjab; 12pc went to Sindh; 2.4pc to Khyber Pukhtunkhwa; 0.3pc to Azad
Jammu and Kashmir; and 0.2pc each to Balochistan and Gilgit Baltistan. More recent stats
are awaited.
And now, look at this: During July-Dec 2018, banks’ agri lending for development purpose
was just 8.6pc of overall lending to the agriculture sector (Rs76.6bn against the total of
Rs819bn).
Agriculture lending via microfinance banks is growing rapidly and has the potential to make
a positive impact on the lives of smaller farmers, thus helping in poverty control and hunger
eradication.
But owing to the nature of operations of these banks and their rules of business, including
per party lending limits; volumetric gains in their lending makes a small percentage of the
total agri lending.
Between July-Dec 2018, microfinance banks offered Rs81.5bn, or 15.5pc, of the entire
banking sector’s agricultural lending of Rs527.3bn. Going forward there is a need to assign
larger agri lending targets to these banks and make necessary changes in their rules of
business to meet those targets.
Also, there is a need to monitor banks’ agri lending at district levels more closely,
incentivise those that meet their district-wise targets and penalise the ones that don’t.
It is good to see that the central bank, in addition to microfinance banks, is also involving
microfinance institution and rural support programmes in agricultural lending
programmes.
And surprisingly, despite limitations in their scope of business, they are doing pretty well.
Between July-Dec 2018, all such institutions and programmes lent Rs16.7bn to the farming
community. That was equal to 3.2pc of the total agri lending.
In addition to addressing the technical aspects of agriculture lending, the political aspect
also needs to be addressed with wisdom.
 DAWN BUSINESS & FINANCE April 22 , 2019
Unless the federal and provincial governments develop a more harmonious relationship and
join hands in poverty minimisation, no instrument can become effective. Not even higher,
micro- level targeted lending.

Legal framework necessary but not sufficient

THE agriculture tax ordinance was enacted in 1997 and amended in2001. The post-
Amendment law obligates farmers with a landholding of 50acres or more of irrigated land,
and 100 acres of Barani land, to submit adeclaration of agriculture income on a prescribed
form.
They have to paytax on land ownership or income basis, whichever is higher.Post-18th
Amendment, agriculture was transferred to the provinces.
Currently, the legal framework and the administrative set-up to levy andcollect agriculture
income tax exist in all four provinces. Despite having anadequate record of landholdings,
the lack of political will, a weak infrastructureand the skill to assess income render the
exerciseworthless.
The revenue generation under this head isbetter in Punjab but it still continues to be a
tinyfraction of the actual potential.---AS
 DAWN BUSINESS & FINANCE April 22 , 2019

Outdated techniques in the modern world

Mohammad Hussain Khan

SINDH’S first sugar factory was

established in Tando Mohammad
Khan — then part of Hyderabad
district — some time in the early
sixties. It was situated on the left
bank of the Indus.

Cotton cultivation was allowed on the

left bank while rice cultivation has
been banned in this area, at least on
paper. The right bank areas, however,
were to produce rice as a matter of policy. And all this land was fed by the colonial era
Sukkur barrage, built in 1932.

The crop-mapping or zoning strategy for Sindh’s agriculture sector was based on
parameters established long ago. Sadly, things are different today. A major shift is seen in
crop cultivation as the government, both provincial and federal, has turned a blind eye to it.

Crop zoning regulates the farm sector. It determines how and where a particular crop or is
to be cultivated so as to achieve the greatest yield. Such zones are defined in view of weather
conditions, available water flows, drainage system and soil fertility etc of that area. This
method helps ensure efficient utilisation of resources.

Sindh and Punjab are both bearing the brunt of adverse implications of this change.
Punjab’s southern parts are home to sugar cane cultivation thanks to the unusual growth of
the sugar industry in water deficient areas that do not suit the crop. Sugar cane is
considered Pakistan’s political crop commanding patronage of all bigwigs.

The crop-mapping or zoning strategy for Sindh’s agriculture sector was based
on parameters established long ago. Sadly, things are different today. A major
shift is seen in crop cultivation as the government, both provincial and federal,
has turned a blind eye to it

Pakistan’s National Food Security Policy was approved for the first time in 72 years by the
outgoing PML-N government. Punjab and Sindh — Pakistan’s two main grain producing
provinces — have also framed their own agriculture policies.

Besides these two provinces, Balochistan contributes towards the paddy crop while Khyber
Pakhtunkhwa focuses on tobacco, although it also has a lot of potential for maize
production.
 DAWN BUSINESS & FINANCE April 22 , 2019
The national food security policy, coupled with the two provincial agriculture policies, cover
all policy areas for sustainable agriculture growth. However, to ensure sustainability, what
appears to be missing is synchronisation at federal and provincial levels.

“The government needs to share information-based knowledge to convince growers about

which crop should be sown in a given season. This culture needs to be developed if we aim
to achieve sustainability in our farm sector which has a huge potential for growth,”
contended Dr Yusuf Zafar, former chairman Pakistan Agricultural Research Council.

Water, a precious commodity, is becoming scarce. The government often uses the public’s
purse to provide subsidies to first produce a certain crop, such as sugarcane, and then
export the sweetener with rebate, without benefitting either genuine farmers or consumers.
Farmers don’t get the desired price for their produce while consumers get expensive sugar
thanks to institutional
lacunas at the
implementation stage.

It is owing to a missing
zoning system that Pakistan
often has a bumper sugarcane
crop coupled with sugar
surpluses, all at the cost of
declining cotton acreage and
looming water scarcity. The
country has a huge potential
for cotton production and a large textile industry.

To borrow from a Punjab-based agriculture analyst, Ibrahim Mughal, Pakistan is spending

Rs600-700 billion on import of various agro-commodities especially cotton, edible oil and
pulses.

“We can easily produce [these commodities] by ensuring proper zoning to protect our
ecosystem. But we have to protect the natural habitat of our crops and we must stop
tinkering with the natural ecosystem or be ready to face the consequences,” he observed.

If the country earns foreign exchange on rice exports, it also spends a huge amount to
import edible oil and pulses. And both crops can be grown domestically, as evident from the
experience gained in the 2010 super floods when sunflower cultivation boomed.

The West Pakistan Rice (Restriction on Cultivation) Ordinance 1959 is often invoked in
command (left bank) areas of Ghotki Feeder canal (Guddu barrage), Nara and Rohri canals
(Sukkur barrage) to ban sowing of paddy. This mirrors the zoning system. But due to weak
 DAWN BUSINESS & FINANCE April 22 , 2019
governmental writ these rules are not strictly enforced, thus paddy surpluses are seen in
banned areas.

Pakistan exports a freshwater resource when rice is exported, says former chairman
Pakistan Council of Research in Water Resources Dr Mohammad Ashraf. Out of 8.6 million
tonnes of rice produced in 2015-16, 4.2m tonnes (worth Rs194bn) were exported. These
exports required 6.8MAF of freshwater amounting to Rs8.4bn (at Rs1,233 per acre foot of
water)

Due to nonexistent zoning, high delta crops

are grown in areas where surface water is
insufficient and groundwater is deep or
saline. Edible oil crops should be
introduced which require less water and
don’t affect foreign exchange.

Dr Ashraf underscored the need for crop

zoning given depleting water resources.
The focus should be on water conservation
and maximization of per acre productivity
to lessen the usage of surface freshwater
resources. Abstraction of groundwater,
another important resource, is going
unchecked and is another burden on the
ecosystem.

Over the years Pakistan has become largely dependent on cotton import thanks to declining
domestic production of cotton bales. The textile industry needs around 15m cotton bales
while domestic production hovers around 10m, resulting in imports.

The area under cultivation for cotton faces massive encroachment in Sindh and Punjab by
the sugar cane crop which continues to be politically patronised regardless of which party is
in power. This has lead to an unnatural growth of the sugar industry.
 DAWN BUSINESS & FINANCE April 22 , 2019

Prelude to a drought
Khaleeq Kiani

THE country’s precarious water situation

has become one of its most well-known
facts. Per capita water availability has
declined from 5,260 cubic metres in 1951 to
less than 1,000 cubic metres at present.

A more painful reality to accept is that since

Mangla (1967) and Tarbela (1976), the
country has failed to build one-dam-a-
decade as required under the development
plans of the Indus Water Treaty of 1960.

While the share of agriculture in the

country’s GDP is declining, the population
is growing at an annual rate of 2.4 per cent.
Water scarcity has raised food security
concerns given Pakistan’s overwhelming
economic dependence on agriculture.

Importantly, irrigated agriculture is the

backbone of the country’s economy and
consumes around 95pc of the nation’s water
resources, according to the Ministry of Water Resources.

Changing demand patterns may increase demand for water outside agriculture. Within a few
decades, growth in agricultural consumption of water may be limited. This will require
reforms and investments that dramatically reduce water losses

“With a rapidly growing population, Pakistan is heading towards a situation of water

shortage and by corollary, a threat of food insecurity,” the ministry’s National Water Policy
stated.

The main challenge is that water per capita availability is estimated to further drop to about
860 cubic meters by 2025, marking our transition from a “water stressed” to a “water
scarce” country. Hence, there is a need for rapid development and management of the
country’s water resources forthwith; to ensure food security on a sustainable basis.

It was in this background that the country’s first national water policy was unanimously
approved in April 2018. The centre and four provinces agreed to increase the allocation for
water sector projects to at least 20pc of the Public Sector Development Programme (PSDP)
 DAWN BUSINESS & FINANCE April 22 , 2019
next year, from about 9.6pc at present. Subsequently the allocation is to be increased to
30pc by 2025.

The allocations used to be 17.6pc of total PSDP in 2003-04 and dropped to a meagre 3-4pc
before it was increased to 9.6pc in recent years. This was with the induction of Diamer-
Basha and Mohmand dams in the development portfolio.

Another sustainability challenge is unregulated groundwater extraction across the country.

The water resources ministry estimates that more than 1.3 million tube wells operate
without any monitoring or regulation, putting unprecedented stress on the water table.

The centre has prepared a pilot project for Islamabad to start formal registration and
licensing of groundwater extractors. An annual fee will be charged for higher than licensed
quantities consumed. This model would then be replicated in the provinces to ensure
sustainable groundwater extraction.

The World Bank (WB) agrees that the National Water Policy provides a sound basis for
reform, but provincial water policies need more attention. Furthermore, the underpinning
legal framework is incomplete and needs strengthening.

In a WB report “Pakistan: Getting More from Water,” the bank noted irrigation water use
could increase to meet growing food demand if efficiency improvements were made. As
wealth increases, changes in diet will have significant impact on commodity demands and
crop choices.

While the share of agriculture in the country’s GDP is declining, the population
is growing at an annual rate of 2.4 per cent

While irrigation dominates water use in the country, the four major crops (rice, wheat,
sugar cane and cotton) use 80pc of the water while contributing only 5pc to GDP. Poor
water management, conservatively estimated, costs the country 4pc of GDP or around $12
billion per year, the WB noted.

Changing demand patterns may increase demand for water outside agriculture. This means
that within a few decades, growth in agricultural consumption of water may be limited. This
will require reforms and investments that dramatically reduce water losses.

It is argued that to ensure continued food security and contribution to accelerated economic
growth, the productivity of water in agriculture must be greatly increased. Reforming
distorted agricultural policies that support wheat and sugar cane will help move water
toward high value crops.

Changes in diet — already apparent as incomes rise — will further change patterns of food
consumption. If production of low-value cereals declines in response to falling demand,
more water may shift to growing cotton for export.
 DAWN BUSINESS & FINANCE April 22 , 2019
Cotton, and the associated textile industry, generate considerable export income for
Pakistan and should remain economically attractive over the long term, especially if greater
value addition post-harvest is achieved. These benefits can only accrue, however, if major
reductions in water losses can be achieved.

Assuming optimistic rates of economic growth, modelling suggests Pakistan can reach
upper-middle income status (GDP of $6,000 per capita) by 2047, ensure adequate food
supply, improve environmental sustainability, and deliver better municipal and industrial
water security; even in the context of a rapidly warming climate. However, this will not be
easy and will require action on many fronts.
 DAWN BUSINESS & FINANCE March 25, 2019

Our LNG flaws

Khaleeq Kiani

Pakistan LNG Terminals Ltd proposed that the private sector be allowed to import LNG to reduce idle capacity.

Last week, rates of liquefied natural gas (LNG) in the fixed spot market for deliveries in May
dropped to $4.7 per million British thermal units (mmBtu). This coincided with Pakistan’s
public-sector entities finalising the bidding for six cargos with deliveries due between May 1
and June 30.

The lowest evaluated bids ranged between 9.278 per cent and 9.938pc of the Brent price. At
the Brent price of around $69 a barrel, the effective bids work out to be between $6.4 and
$6.85 per mmBtu, way above spot rates.

That means Pakistan will be paying roughly $4m extra on every cargo. A raw extrapolation
— based on more than 70 cargoes under normal circumstances, even though terms and
conditions vary for different import arrangements currently in place — would take the
annual loss to around $300m. The cost then trickles down to the consumers through
electricity rates, fertiliser price and cost of production.

That apparently shows a flaw in Pakistan’s import mechanism that is based on the Brent
price besides the inherent inflexibility in the public sector and the procurement rules and
procedures. Thanks to oil politics involving big players like Saudi Arabia, Russia and the
United States, crude prices have been on the rise of late.
 DAWN BUSINESS & FINANCE March 25, 2019
Pakistan LNG Terminals Ltd proposed that the private sector be allowed to
import LNG to reduce idle capacity charge by about $12m. This will ‘pave the
way for the optimal utilisation at LNG terminals while opening avenues for
private participants in the RLNG value chain, which will result in competitive
prices and lowered financial risk for the government’

For long-term secured supplies, a Brent-based arrangement might be a compulsion. But it

has to change for the short term to improve the overall basket. This is important because
some long-term imports are based on 13.37pc and others 12pc or so of the Brent price.
Import quantities are rising with each passing day.

Arguably, Pakistan’s entire public-sector is operating inefficiently. Besides, gas companies

transporting these expensive imports suffer a 10-11pc system loss that is also built into the
consumer price. The gas companies recuperate their high distribution system losses
through this 10-11pc extra charge to bulk consumers that are mostly on the transmission
system having less than a 1pc loss. This is despite the fact that they claim their profitability
on the basis of their return on assets.

Pakistan is reported to have imported about 7-8m tonnes of LNG last year. Imports are
expected to be 15-30m tonnes over the next four to five years, according to official
estimates. This stems mainly from the fact that Pakistan is adding at least 300,000 small
gas consumers every year who consume most of the local production at cheap rates and
elbowing out productive sectors to imports.

According to the Oil and Gas Regulatory Authority (Ogra), the country’s gas shortage is
estimated to touch four billion cubic feet per day (bcfd) — almost equal to current total
supplies — by the next year. It will go beyond 6.6bcfd by 2030. “The shortfall in gas is
expected to reach 3.999bcfd by 2019-20 and the gap will reach 6.611bcfd without imported
gas by 2029-30,” Ogra said.

It noted that a significant rise in demand and consumption of gas by residential and
domestic consumers is owing to the price differential vis-à-vis other competing fuels —
liquefied petroleum gas (LPG), firewood and coal.

Over the past five years, more than 300,000 consumers were added to the gas network
annually by gas companies and the growth in power, commercial, residential and fertiliser
sectors resulted in a shortage, Ogra said. “Demand for natural gas will further increase in
coming years,” it added.

For the next fiscal year, the government expects about 1.2bcfd of additional demand. It is
trying to secure a third LNG terminal before the 2020 winter to avoid a repeat of the acute
gas shortage that would force the closure of industries, fertiliser plants and power units
until a couple of years ago. However, it remains unclear how the government will go about
it.
 DAWN BUSINESS & FINANCE March 25, 2019
Despite having developed a legal and regulatory mechanism, the government has not yet
practically permitted private entities to import LNG at their own risk nor has it allowed
them to set up LNG terminals. This is despite the fact that five to six major investors have
been lobbying in this regard. Some market players believe such a move can reduce LNG
prices and re-gasification charges through competition among private parties.

The state-run Pakistan LNG Terminals Ltd (PLTL) has already reported that LNG
consumers were affected by a cost loading of $45m (Rs6.2bn) in 2018 only because of the
sub-optimal utilisation of the existing two terminals. It forecasts that 53pc capacity of the
second LNG terminal will remain idle in 2019 based on the annual delivery plan agreed
upon by public-sector entities, with an additional cost of $40m. In 2018, the first operating
year of Pakistan Gasport Terminal, the government had to pay an average tariff at the rate
of $0.784 per mmBtu instead of $0.417 per mmBtu, or 72pc costlier because of 47pc idle
capacity.

PLTL proposed that the private sector be allowed to reduce the idle capacity charge by
about $12m and shift a substantial part of the government’s LNG import bill and guarantees
for letters of credit. This will “pave the way for the optimal utilisation of LNG terminals
while opening avenues for private participants in the RLNG value chain, which will result in
competitive RLNG prices and lowered financial risk for the government,” it said.

For that to materialise in a cost-effective contribution to the economy, Pakistan has to open
up the entire LNG supply chain to the private sector — from import to transportation and
down to retail sale — with simultaneous pricing reforms for domestic gas.
_______________________________________________________________
 DAWN BUSINESS & FINANCE April 15, 2019

Fruit and vegetable exports need attention

Mohiuddin Aazim

Mobilising local investors for

upgrading the horticulture sector is a
must. Without this even foreign
investment, within or outside the
CPEC umbrella, can hardly make a
big difference. ─ APP/File

THE country is exporting a greater quantity of fruits and vegetables, but forex gains remain
limited. The reason is we are not investing in those technologies that are a must for
enhancing outputs and improving quality of exports. Besides, our effort to reach out to new
export markets needs impetus.

In eight months of this fiscal year i.e. between July 2018 and Feb 2109, forex earnings of
fruits and vegetables totalled $479 million. In the same period last year it was $387m.
While this gain of $92m or about 24 per cent looks impressive, we achieved this only after
exporting much larger quantities of fruits and vegetables, squeezing supplies in local
markets.

Between July-Feb FY19, Pakistan’s exports of fruits and vegetables stood in excess of 1.165m
tonnes. In July-Feb FY18 it was 1.016m tonnes. In other words, supplies to local markets
shrank by no less than 149,000 tonnes. Its effect can be seen in higher prices of almost all
fruits and a number of vegetables, minus potato. We had a potato glut this year.

The numbers, reported by the Pakistan Bureau of Statistics, bring a couple of things to the
fore:

First, exports of fruits and vegetable are far lower than the country’s potential. Second, the
average per tonne export price is low. And third, since this is in continuation of a trend, we
need to invest more in revamping and modernising our horticulture sector.

Mobilising local investors for upgrading the horticulture sector is a must. Without this even
foreign investment, within or outside the CPEC umbrella, can hardly make a big difference
 DAWN BUSINESS & FINANCE April 15, 2019
In the entire last fiscal year, combined export earnings of fruits and vegetables rose to
around $641.7m from $565.8m a year ago — or just around 12pc. Meanwhile, export
volumes grew to 15.85m tonnes from 12.78m tonnes — or 24pc.

If forex gains grow by just half the rate of the export volume, our export efficiency comes
under question. It is time to set our house in order.

Pakistan is famous for its mangoes and citrus though it also exports dates, melons and
apples. We also export lots of vegetables but potatoes are our mainstay. Vegetable exports
get a boost when we export onions, though exporting large quantities of onion every year is
not possible as crop size is highly dependent on climatic conditions, and local demand keeps
mounting.

Mango and citrus fruit exports suffer heavily whenever their crops are hit by disease or
when pre-export treatment and tests fall short of global standards.

During kinno export season that closed in mid-March, Pakistan failed to meet the export
target of 300,000 tonnes, which in itself was below the last season’s actual exports of
370,000 tonnes. Growers say the inability to control the spread of disease in kinno orchards
in Sargodha, the main growing area, created this situation.

Apart from the structural flaws in our horticulture sector the ongoing weaker rupee and
high-inflation phenomenon is also playing havoc. The cost of growing fruits and vegetables
has been on the rise after a substantial rupee depreciation in the past year and headline
inflation now scaling new heights every month.

Increased cost of inputs is also making it difficult for fruit and vegetable exporters to remain
competitive in international markets.

Over the last few years, Pakistan has lost its key kinno markets such as Australia, Canada,
New Zealand, Norway, USA and UK. During the last season we sold kinno mostly to
Afghanistan, Indonesia, Philippines, Russia, Saudi Arabia, Ukraine and Uzbekistan,
according to the Trade Development Authority of Pakistan.

Mango exports are expected to start from mid-May and an export target is yet to be set. But
just as in the case of citrus fruits, mango exports too may come under stress, both on
account of quality as well as pricing, exporters fear.

In the vegetable sector, we have just experienced a massive potato glut due to the absence of
a reliable system of future price discovery, broken chain of supplies and mismanagement in
commodity market operations.

Official warnings of super floods revisiting Pakistan next year amplify fears of a loss of
vegetable crops. Growers of these crops are already in trouble as they cannot get a fair price
for their produce owing to the continuing practice of advance-selling of entire fields to
middlemen. This, by the way, is a problem facing fruit orchards as well.
 DAWN BUSINESS & FINANCE April 15, 2019
Pakistan’s export potential of fruits and vegetables is huge, by some estimates up to $5
billion a year. But the reason why the country manages to earn less than $1bn is that despite
an increase in volumes of bank credit the to agriculture sector as a whole, the share of
horticulture is fractional — less than 5pc.

A very large part of bank loans extended to this sector is used for growing produce and not
for acquiring technologies to help upgrade growers’ skills or modernise orchards and farms.
In recent years, some funds have flown towards companies engaged in tunnel farming of
vegetables.

Just how scary the situation is can be gauged by the fact that the country does not have
disease-free nurseries of citrus fruits and mangoes. Facilities for pre-export temperature
treatment of both fruits are also scant.

Modern machinery used in speedy fruit picking from trees is a rare commodity. The same is
true for machinery meant for economised and efficient watering of fruit trees, for example
of apples, growing in high-altitude areas of Balochistan and KP.

Date processing plants are few and not well-equipped. Losses due to fruits falling from trees
before or after they have ripened are very common. In case of vegetables, the loss of crop
due to rudimentary methods of cultivation and lack of proper on-farm storage facilities is
just too high — in some cases up to 30pc.
_______________________________________________________________
 DAWN BUSINESS & FINANCE March 18, 2019

Wheat purchase under question while scams continue

Mohammad Hussain Khan

THE procurement of wheat has always been a hassle for farmers in Sindh.
Successive governments have been unable to establish a system where public
money, in the shape of the support price, reaches small and medium farmers
so that they are not exploited by market forces.

While the Kharif season began from April 1, the government remains indecisive about wheat
procurement; largely due to huge carry-over stocks from last year’s crop.

As of March 26 such stocks, according to Sindh food department officials, stood at 870,000
tonnes. This year there seems to be another bumper crop owing to good weather conditions.
The official wheat price
remains unchanged at Rs1,300
per 40kg.

The Sindh government

procures a specific quantum of
the crop at the support price.
Growers, by and large, sell
their grain in the open market
or to middlemen to save time
and get cash payments that
they then use for cultivation of
Kharif crops.

Ground realities indicate that the support price doesn’t reach farmers. It is pocketed instead
by middlemen in collusion with officials from the food department. In addition,
parliamentarians, ministers, top government functionaries and representatives of
influential growers’ bodies get gunny bags, free of cost, that are meant for poor farmers.

Ground realities indicate that the support price doesn’t reach farmers. In
addition, vested interests get, free of cost, gunny bags that are meant for poor
farmers

Gunny bags are of particular importance as it is only after farmers get them that they are
able to take their crop to the food department for sale.

Many cabinet members believe that the crop should not be procured this season in view of
the carry-over stocks.

A possible reason why the Sindh food department hasn’t floated tenders for this season’s
gunny bag purchase may be because it is believed to have moved a summary to the chief
 DAWN BUSINESS & FINANCE March 18, 2019
minister. It has requested approval for the procurement of 500,000 tonnes of wheat which
is to be discussed in the forthcoming cabinet meeting.

Currently, there is no ban on the inter-provincial movement of wheat whilst exports of

wheat remain open. There are reports that the Pakistan Agriculture Storage and Supplies
Corporation also intends to procure 1.1m tonnes of the current crop.

But amidst reports that the Punjab government will procure 4m tonnes of wheat, anxiety
among farmers is growing as the wheat crop in Sindh has been harvested and has reached
the market. To quote a grower leader, Mahmood Nawaz Shah, wheat prices have declined to
Rs850-900 per 40kg in the open market due to the missing crop procurement target.

Former Sindh agriculture secretary Agha Jan Akhtar contended that wheat in Shikarpur is
being sold at Rs1,240 per 40kg which is an unacceptable price for farmers. Given the
current rupee devaluation farmers will be at the losing end when selling their crop in the
open market.

He also opposed the procurement, even 500,000 tonnes, of wheat considering the
availability of stocks. He argued that since the government has statistics it must ensure
equity in next season’s procurement — after linking it with area under cultivation and
production in each district — coupled with civil administration’s oversight, to ensure
transparency.

In February the Hyderabad accountability court sentenced flour mill owners for colluding
with food officials in Mirpurkhas, in a wheat procurement case that had been ongoing

since 2011. The case has raised questions about over the entire procurement exercise as
inquiries into past procurement practices continue.

Sindh Chamber of Agriculture Vice President Nabi Bux Sathio observed that hardly 5-10pc
of farmers are actually able to get the benefit of the support price, otherwise it is mainly the
traders who are provided gunny bags by those with vested interests.

“Food officials mint money by providing gunny bags to those who don’t own farmland or
grow wheat. In connivance with officials, these people manage the paperwork in such a way
that they win the support price. Ultimately, the price is shared with and amongst food
officials while the government looks the other way,” alleged Mr Sathio.

He proposed the formation of committees led by deputy commissioners and having farmers
as members to ensure transparency in the entire exercise.

Farmers with small landholdings usually borrow money from private lenders in the shape of
farm inputs for cultivating crops. They settle their accounts by providing grain to the same
lenders at a lower price.
 DAWN BUSINESS & FINANCE March 18, 2019
So, growers are always hard-pressed to sell their crop at an inadequate price to settle
accounts. The objective of the support price is to keep the price of wheat stable since the
arrival of a new crop always suppresses price.

With the government’s presence felt in the market through the announced support price,
traders are pressurised to offer a reasonable, if not an ideal, rate to growers.

Growers would, however be at the mercy of market players if the support price mechanism
is completely done away with. This, in turn, may enable hoarders to store crops bought at
low rates to be resold at higher prices in case of a shortage in the market.

Estimates from the Sindh agriculture department show that the wheat sowing target could
not be met this season. Against a target of 1.15 million hectares, 1.047m hectares (91 per
cent of the target) were sown in FY19 whereas 94.7pc of the target had been met the
previous year. The wheat sowing target remains unchanged since FY15.

The province produced 3.64m tonnes of the crop last season against a target of 4.2m tonnes.
The food department had procured 1.4m tonnes of crop with carry-over stocks of 360,000
tonnes last season.
 DAWN BUSINESS & FINANCE March 18, 2019

Agri-finance: are banks missing out on a big opportunity?

Younus Sandeela

Informal credit and the ease with which it is available are the biggest menace prevalent in
the agricultural sector since it has kept farmers hostage to money lenders from pre-partition
era. Referred to as aarti in domestic lingo, the phenomenon of borrowing for the
middleman is common not just in the subcontinent but in many third world countries.

Subsequent to partition and migration

of Hindu money lenders, informal
credit in the agriculture sector is now
almost fully dominated by aartis, the
basis of which is usually personal
relations. Normally, no interest is
charged, no documents are signed
(except for aarti unilaterally noting it
down in a register maintained by him)
and no collateral is required. Most
importantly, no questions are asked regarding the purpose of the borrowed amount or the
schedule for release of funds to match with crop production stages.

The only condition imposed on the borrower is that he has to bring his produce for
auctioning at the lender’s shop and pay commission on the value fetched. Failure to fulfill
this condition makes the borrower liable to pay interest in proportion to the shortfall in the
quantity the farmer was supposed to auction. In an event of complete crop failure, farmer is
usually extended credit again to enable him to grow the next crop and repay the combined
outstanding loan amount. However, in this case farmer pays interest on the unpaid loan.

The borrowing cost of informal credit significantly surpasses the interest

charged by commercial banks

On the face of it this interest free, uncollateralised and undocumented informal running
finance facility should have been a blessing for poor farmers. However, unlimited greed has
turned these financial messiahs into blood sucking moneylenders. Being perpetual
borrowers, poor farmers are never in a position to question their financiers about the
fairness or transparency with which their produce is auctioned. It is very common for aartis
to manipulate the auction process to disadvantage the farmer who is almost never present
when the auction is taking place.

Similarly, aartis have a free hand with respect to weighing the shipment normally sent by
farmers on shared cargo vehicle. Any quantity can be declared substandard and categorised
as wastage. The cost of borrowing paid by farmers in the form of losses incurred due to
 DAWN BUSINESS & FINANCE March 18, 2019
these unfair practices, plus the commission paid, significantly surpasses the interest
charged by commercial banks.

The main reason that farmers are unable to borrow from commercial banks is the cultural
practice of keeping family assets in joint names. In many areas it is considered improper to
transfer inherited property, particularly the agricultural land, into the names of individual
heirs’ even years after the original owner has passed away. Sometimes the property is not
only in the name of siblings but also first cousins. Therefore, it is not the unavailability of
collateral but the manner in which its title and possession is held that limits farmers’ ability
to offer agricultural land as collateral against commercial borrowing.

Secondly, farmers are highly uncomfortable dealing with banks. Bankers appear to be
people different in terms of dressing, language, and environment, offering products that
farmers do not fully understand. The invariably lengthy documentation process necessary to
avail bank borrowing further scares away farmers as they often lack the ability to read
papers that they are required to sign.

Religion also plays a huge role. One of the major reasons why farmers do not opt for formal
financing is the interest factor. Many farmers do not want to pay interest and willingly
prefer to be fleeced by aartis.

Lastly, the unstable and unpredictable wholesale market hugely limits farmers ability to
predict revenues and hence their capacity to repay the loans. The crop insurance products
that are currently available, and are made mandatory for farmers to avail if they opt for
bank credit, are quite ineffective. Their protection is limited as a claim is only entertained
when a farmer’s entire land has been declared calamity hit by the relevant government
authorities.

Banks are also reluctant to increase exposure into this highly lucrative but semi
documented market. Farmers are prone to high default rates due to volatile wholesale
markets that limit farmers’ ability to have consistent revenue streams.

Another problem faced by banks is their limited ability to understand the farming sector.
Officers dealing with agri credit are mostly business graduates who lack in-depth
understanding of agriculture. It’s a pity that agriculture economics or agriculture marketing
is not part of any major MBA program offered by numerous business schools in the country.

In order for banks to effectively penetrate the agri credit market they must completely
overhaul their strategy. Agriculture extension services have failed to provide the required
support to farmers. Banks must assist farmer’s earning capability by playing a role in
educating them and introduce better paying crops. This in turn will help them attain a more
stable revenue stream.

State Bank must step in to remove the mismatch between value of collateral and loan
amount in agriculture lending. Farmers are required to place their pass books (ownership
 DAWN BUSINESS & FINANCE March 18, 2019
document for agricultural holding) as collateral with the bank when they borrow, which
pledges their entire holding. This is especially painful when per acre value of land is more
than ten times the State Bank’s approved per acre credit ceiling for different crops.

Working with select group of farmers and forming them into cooperatives will slowly
develop entities in the agriculture sector that could borrow from banks based on the
strength of their balance sheets.

Financing viable projects in downstream agro processing will create alternate marketing
channels for farmers. This will eventually stabilize wholesale prices and enable farmers to
better predict their revenue cash flows. Also, a vibrant Islamic Banking arm will aid banks
into exploiting lending potential in the agri sector.

However, these shifts in approach will take place only when banks genuinely want to
explore new avenues for increasing their profitability. This will remain a far cry as long as
government borrowing continues to crowd out the private borrower.
 DAWN BUSINESS & FINANCE March 25, 2019

CPEC: When the alarm goes off

Dr Faiza Ismail

CPEC consists of numerous

agreements, however these
are not available to conduct a
cost and benefit analysis of
CPEC.

There is no doubt that successful completion of CPEC will revolutionize the

power sector making it highly efficient. There are added benefits in the growth
of GDP, export and balance of payments. However, its successful completion
requires substantial policy making and enormous planning.

Publicly available policy related documents include CPEC Long Term Plan (LTP) and Belt
and Road Initiative (BRI). CPEC consists of numerous agreements, however these
agreements are not available to conduct a cost and benefit analysis of CPEC.

All publicly available documents discuss the benefits CPEC will generate and policy
measures Government of Pakistan should take to ensure these benefits materialise.
However, the benefits discussed are quite generic.

The veil of secrecy raises serious concerns when state institutions like SBP
disclose lack of access to CPEC related agreements.

Extensive research shone light on the absence of any documents which specifically
identified benefits with reference to original agreements. This veil of secrecy over CPEC
raises serious concerns when state institutions like the State Bank of Pakistan (SBP)
disclose lack of access to CPEC related agreements. A research on the financial and legal
aspects of CPEC turns on alarm bells for the following matters

First, Pakistan’s attempt to make Saudi Arabia one of the strategic partners for CPEC has
failed on account of presumably China’s reluctance to accept Saudi Arabia as a partner.
There is no transparency to justify China reasons for doing this.
 DAWN BUSINESS & FINANCE March 25, 2019
Second, IMF raised concerns over whether potential funding would be used to repay CPEC
related debt to China. IMF requiring assurance from the government over the use of its
funds also brings to question the financial structures applicable to CPEC.

Third, numbers available on the Board of Investment website indicate CPEC’s worth to be
around $45 billion in investment that serves two sectors — energy and infrastructure.
Energy sector consumes around $34bn of the investment whereas the infrastructure sector
accounts for approximately $10bn.

However, the capital structures of CPEC related agreements are not available publicly. It is
not possible to identify the exact amount of borrowing, and the cost of borrowing, the
government has accepted from China. Therefore, CPEC related Chinese debt cannot be
compared to debt available in international money markets to gauge whether it is cheaper
or more expensive.

Fourth, SBP is unable to identify the source of finance for the import of machinery from
China for CPEC related projects. Dr Ishrat Hussain, former governor SBP, explained that
the only reason SBP has been unable to trace the source of funds is that the Chinese
machinery is being financed by Chinese banks. In other words, Pakistan banking industry
does not benefit through CPEC. Instead Pakistan’s import bill is increasing along with
borrowings from Chinese banks. It is rather like Pakistan is borrowing from China to invest
into Chinese machinery to carry out CPEC related projects.

Fifth, the capital requirement for foreign banks to open a bank head office in Pakistan is
Rs3bn. However, there is a question of parity between capital requirements to open a bank
in China versus opening a bank in Pakistan. Moreover, Habib Bank Limited has opened a
bank branch in China two years back but the details of the operations of the branch are not
available publicly (just like its branch operations in the UK, US and other parts of the world
are available on the main website). Therefore, it is not possible to examine the benefits the
bank is deriving through its China branch, particularly in the context of CPEC.

Finally, non-availability of actual agreements signed under CPEC is the reason there is no
clarity regarding dispute resolution mechanism. It is not known what choice of law and
jurisdiction are applicable to CPEC, nor is it possible to figure out potential venue for
resolution of dispute. This is a serious issue since SBP has warned that in the past, trade
agreements between Pakistan and China have always been more beneficial for the latter
than the former.

It is high time for the government to engage the Finance Ministry and SBP to conduct a cost
benefit analysis of CPEC agreements in terms of finance and law. This analysis has to be
made public to ensure transparency as well as credibility of CPEC.