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Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274

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Fertilizer consumption, water availability and credit distribution: Major


factors affecting agricultural productivity in Pakistan
Abdul Rehman a,⇑, Abbas Ali Chandio b, Imran Hussain c, Luan Jingdong a,⇑
a
College of Economics and Management, Anhui Agricultural University, China
b
College of Economics and Management, Sichuan Agricultural University, China
c
Allama Iqbal Open University, Pakistan

a r t i c l e i n f o a b s t r a c t

Article history: Agriculture is an important sector of Pakistan’s economy, accounting for approximately 26 percent of the
Received 21 May 2017 country’s gross domestic product (GDP). The aim of this study was to use an econometric analysis to
Revised 24 July 2017 investigate the relationship between agricultural gross domestic product (AGDP) and variables such as
Accepted 13 August 2017
cropped area, fertilizer consumption, credit distribution and water availability in Pakistan Data were
Available online 16 August 2017
explored from 1978-2015; we used time series data collected from secondary sources, including the
Pakistan Bureau of Statistics, Statistical Year Books and the Economic Survey of Pakistan. Data were anal-
Keywords:
ysed by using the Phillips-Perron (P-P) and Augmented Dickey Fuller (ADF) test, and results were inter-
Water availability
Credit distribution
preted by using the Johansen co-integration test. The Cobb-Douglas Production Function was used to
AGDP examine the impact of these major factors on agricultural productivity in Pakistan. We found that fertil-
Crop production izer consumption, improved seed distribution, and credit distribution had a positive and significant influ-
Fertilizer consumption ence on AGDP, whereas water availability had a negative but insignificant influence on AGDP. Based on
our results, we suggest that the Government of Pakistan should formulate policies and funding schemes
for the development and improvement of water availability including irrigation systems.
Ó 2017 The Authors. Production and hosting by Elsevier B.V. on behalf of King Saud University. This is an
open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).

1. Introduction Studies demonstrate that the agricultural sector enables the


development of basic industries and other non-agricultural sectors.
Agriculture has been the largest economic sector in Pakistan, Agricultural products serve as raw materials for other industries,
since 1947, comprising 60% of Pakistan’s GDP. Although agricul- and create effective demand for other industrial products. These
tural production was historically the main source of revenue for incentives for demand and supply lead to industrial expansion,
the economy of Pakistan, the agricultural sector as a share of the which in turn promotes economic growth in the country
GDP has declined significantly with time, due to technological (Subramaniam and Reed, 2009). The growth of the Pakistan’s agri-
inventions. Thus, the agricultural sector as a share of the GDP has cultural sector has lowered as compared to other developing coun-
reduced from 57% to 60% in 1949–50, to 29% to 31% in 1978–79, tries, but its growth rate has been sustained by technological
and still further to 20.8% in 2014 (Pakistan Economic Survey, advances, subsidies and agricultural research. Thus, the agricul-
2013–14). Nevertheless, agriculture still forms the backbone of tural sector grew at a significant annual rate of 5.1% of the econ-
the Pakistan’s economy, employing 44% of the labour force and omy (Ahmed and Gill, 2007; Rehman et al., 2016a, 2016b, 2019).
contributing greatly to Pakistan’s export revenue (Pakistan In general, the agricultural sector in Pakistan faces several
Economic Survey, 2014–15). obstacles, challenges and distortions, including lack of credit, lack
of water, increased agricultural inputs, lack of seeds and fertilizers,
natural resource management issues, power shortages and gaso-
⇑ Corresponding authors.
line price volatility (Bhangar et al., 2008).
E-mail address: abdulrehman@ahau.edu.cn (A. Rehman).
Peer review under responsibility of King Saud University.
1.1. Major factors affecting agricultural productivity

1.1.1. Water availability


About 70% to 80% of the area in Pakistan is irrigated through the
Production and hosting by Elsevier
canal system. Recent data indicate that about 93% of freshwater

http://dx.doi.org/10.1016/j.jssas.2017.08.002
1658-077X/Ó 2017 The Authors. Production and hosting by Elsevier B.V. on behalf of King Saud University.
This is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).
270 A. Rehman et al. / Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274

resources in the country are used in the agricultural sector and to increase the productivity of agriculture through the use of
(Qureshi et al., 2009). Evidence suggests that existing surface water participations, including seeds, fertilizers, pesticides and the usage
resources are lacking, and unbalanced in time and space. This of modern agricultural technology is urgent (Wanyama et al.,
change in surface water runoff has led to the expansion of a 2009).
large-scale groundwater irrigation system in the Indus basin in The effects of output, education, farm size and fertilizer price
Pakistan. The dramatic increase in groundwater use over the past levels have a deep impact on crop production. Farmers use fertiliz-
half century has evolved into a ‘‘quiet revolution”, by the millions ers for crop production, while gender, age and family size are not
of farmers who use groundwater as a reliable irrigation water sup- (Amanze et al., 2010). Afzal and Ahmad, (2009) show that stable
ply. Since 1960, the share of total irrigated groundwater has fertilization leads to improved crop yields, and agricultural income.
increased by more than 50 percent (Kijne et al., 1999). Although Furthermore, deficiencies in soil nutrients serve as a remedy and
groundwater resources play a vital role in agricultural productivity, help to maintain the fertility of soil. It has been observed without
these resources are currently in scarce in Pakistan (Shah et al., fertilizer usage, crop yields can no longer be increased. According
2000). to Quddus et al., (2008), commercial fertilizer usage in Pakistan
Globally, agriculture consumes approximately 70% of all fresh- was initiated in 1952, and 1000 tonnes of nutrient fertilizers con-
water extracted (Winpenny et al., 2010). Due to the increasing taining N were consumed; in 1959–60, 100 tonnes of phosphorus
competition and demand of freshwater, and the increased supply containing fertilizers was used. Potash fertilizers started being
of freshwater for higher economic value uses to satisfy urban and widely used in 1966, with a capacity of about 120 nutrient tonnes.
industrial needs, the use of wastewater is increasingly becoming Fertilizer consumption from 1960–2015 is shown in Fig. 2.
a regular and reliable means for irrigation globally, particularly
in semi-arid and arid regions (Scott et al., 2004). Tiercelin and 1.1.3. Credit distribution
Vidal, (2006) revealed that nearly 90% of the world’s irrigated land Credit is a basic and important necessity of the agricultural sec-
is using relatively unproductive surface irrigation methods. Thus tor and any other commercial activity. Credit plays an important
about 20 million hectares of irrigated land worldwide are severely role in the commercialization and modernization of agriculture
damaged by salt, and it is estimated that salt affected soil area will in rural economies. Institutional credit also has an important role
surge by about 0.25 to 0.5 million hectares per year. The water in the agricultural sector. Modern agricultural technology is neces-
availability from 1960–2015 is shown in Fig. 1. sary for national and economic development, and the use of such
technology in rural economies is only possible when farmers are
1.1.2. Fertilizer consumptions provided credit for the purchase of modern technological inputs
Fertilizers are the main inputs used to achieve high and fast (Schultz et al., 1980; Zuberi et al., 1989). Many developed countries
rates of agricultural return. For instance, one kilogram of nutrient have recognized the benefits of using modern agricultural tech-
fertilizer produces about 8 kg of grain. In Pakistan, almost all the niques to raise their production. In rural economies, however,
soil is deficient in nitrogen, about 80% to 90% is deficient in phos- farmers can only increase their agricultural production if they are
phorus and 30% in potassium. Balanced fertilization is defined as provided with farmer’s agricultural credit (Mellor et al., 1966).
the optimum yield of fertilizer necessary for optimal use of fertil- The easy access and availability of credit makes it possible to raise
izers and other inputs for all the necessary nutrients. Hamid and the production of agriculture. Therefore, it is necessary that gov-
Ahmed, (2009) used data from 1972 to 2007 and apply the Cobb- ernments in Pakistan fulfil the credit requirements of agricultural
Douglas Production Function (CDPF) to clarify the change in agri- societies in the country (Vogt et al., 1978).
cultural added value. Their results show that agricultural added In Pakistan, institutional credit has been identified to have a
value depends on the level of agriculture and trade in the labour positive impact on the agricultural production (Iqbal et al., 2003;
force engaged in agriculture, capital stock, intermediate inputs of Rehman et al., 2015). Much effort has been invested in advancing
agricultural technology, and human resource development. Inter- agricultural credit delivery through the years. For instance, during
mediate inputs include fertilizers, seeds, pesticides, and other the 1970s, all commercial and private banks were nationalised, and
high-yield variety crops. The state has established the importance authorized and to deliver agricultural loans (Akram et al., 2008).
of fertilizers in increasing agricultural production as a developing The fastest way to promote modern technology in agriculture is
country. Fertilizers are commonly believed to be as important, to raise the credit demand for increasing agricultural yields of
and contribute up to 50% of the growth in output (Tomich et al., farmers, and by providing them with easy and cheap credit. How-
1995). An analysis of the fundamental ways in which agricultural ever, farmers in Pakistan were hesitant to use credit facilities from
productivity can be improved, especially in sub-Saharan Africa, formal credit institutions, due to the complex and lengthy process

5000
140 Water Availability (MAF) Total Fertilizer Used

4000
120

3000
100
000 N/T
MAF

2000
80

60 1000

40 0

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Years Years

Fig. 1. Water Availability in Pakistan from 1960 to 2015. Fig. 2. Total fertilizer consumption from 1960 to 2015.
A. Rehman et al. / Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274 271

of applying for loans; they were more willing to invest in dual- 26


price payments after the input of their products into the market Total Land Used for Crops
24
(Abedullah et al., 2009; Rehman et al., 2016a, 2016b, 2019). The
credit distribution in Pakistan from 1960–2015 is shown in Fig. 3. 22

Million Hectares
20
2. Crop production
18
The agricultural sector in Pakistan directly supports the coun-
try’s population, and accounts for 26% of the GDP. Major crops 16
include sugarcane, rice, wheat, cotton, vegetables and fruits. There
14
is thus a critical and pressing need to improve agricultural produc-
tion to make more the use of resources such as water and land 12
more effective. However, in the Pakistan the irrigation system is
mostly controlled by landowners, who have about 40% of the ara- 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
ble land, making it difficult to bring about reforms. Years
Major crops including cotton, rice, wheat and sugarcane com-
Fig. 4. Land Used for crops from 1960 to 2015.
prise the most important commodities in Pakistan, due to their
high export value in the international trade market. Cotton, which
is a major cash crop accounts for about 6.9% of the agricultural 10000
added value, and contributes 1.4% to the country’s GDP. Pakistan 9000
is the fourth largest producer of cotton, with 9.8% of the global
8000
market share in 2011–12. During the same period, the export of Wheat Crop
7000
yarn and associated apparel accounted for about 26%, and was Rice Crop

000 Hectares
Bajra Crop
14% of the global market. The export of cotton accounts for 46% 6000 Jowar Crop
Maize Crop
of total exports at the national level, and employs 35% of the total 5000
Barely Crop
industrial workforce (Government of Pakistan, 2011–12; Rehman 4000 Sugarcane Crop
Cotton Crop
et al., 2016a, 2016b, 2019). The total area used for crops, and the 3000
area under major crop production from 1960–2015 are shown in
2000
the Figs. 4–7.
1000

0
3. Materials and methods 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Years
This study explored the impact of major factors on the agricul-
tural productivity in Pakistan over the period of 1978–2015. Fig. 5. Area under Major Crops from 1960 to 2015.

Annual time series data were collected from the Pakistan Bureau
of Statistics, the Statistical Year Books and the Economic Survey
70000 Wheat Production
of Pakistan (various statistical supplements). The variables used Rice Production
65000
in this study were: Agricultural Gross Domestic Product (AGDP) 60000
Bajra Production
Jowar Production
(in million rupees), cropped area (in million hectares), water avail- 55000 Maize Production
ability (in million acre feet), fertilizer off-take (in 000 nutrient ton- 50000 Barely Production
nes), improved seed distribution (in 000 tones) and credit 45000 Sugarcane Production
000 Tons

40000 Cotton Production


distribution (in million Rs.) respectively.
35000
(a) Specification of Cobb-Douglas Production Function Model 30000
In order to investigate the relationship between agricultural 25000
gross domestic product (AGDP), cropped area, fertilizer consump- 20000
tion, credit distribution and water availability in Pakistan. The fol- 15000
10000
lowing equation represents the Cobb-Douglas Production Function 5000
(CDPF) for the current study and is specified as: 0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Years
600000
Total Credit Distribution Fig. 6. Major Crops Production from 1960 to 2015.
500000

400000 Y ¼ AX b1 b2 b3 b4 b5
1 X2 X3 X4 X5 ð1Þ
Rs. Million

300000 Taking the natural logarithm of Eq. (1) and considering the five
explanatory variables, the Eq. (1) converts to the following form:
200000
LnY ¼ b0 þ b1 LnX 1 þ b2 LnX 2 þ b3 LnX 3 þ b4 LnX 4 þ b5 LnX 5 þ l ð2Þ
100000
Where,
0 b0 = Natural log of A = Intercept.
ln Y = Natural log of Agricultural Gross Domestic Product per
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Years
year in (million rupees).
ln X1 = Natural log of cropped area (in million hectare).
Fig. 3. Total Credit distribution from 1960 to 2015. ln X2 = Natural log of water availability (in million acre feet).
272 A. Rehman et al. / Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274

4500 unit root tests presented in Table 1 and Table 2 shows that all vari-
Wheat Crop Yield Per Kg/Hectares
Rice Crop Yield Per Kg/Hectares ables did not attain stationarity at their level form, while all vari-
4000
Maize Crop Yield Per Kg/Hectares ables became stationary after taking the first difference I (1), as
Yield Per Kg/Hectares

3500 Gram Crop Yield Per Kg/Hectares


Cotton Crop Yield Per Kg/Hectares representing the values of the ADF t-Statistic, and P-P Adj. t-Stat
3000 are greater than the critical values at the 5% level of significance.
2500

2000 4.2. Results of the Johansen co-integration approach


1500
This study examines the long run relationship between depen-
1000 dent variables like agricultural productivity, and five independent
500 variables including cropped area, water availability, fertilizer con-
0
sumption, improved seed distribution and credit distribution
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 respectively, over the period of 1978–2015. The Johansen Co-
Years integration test is based on two tests, that is, trace statistics and
maximum eigenvalue. The estimated results of Johansen Co-
Fig. 7. Yield per kg/hectares from 1960 to 2015.
integration tests are represented in Tables 3 and 4. The values of
the trace statistic (240.3840) and the Max-Eigen statistic
ln X3 = Natural log of fertilizer consumption (in 000 nutrient (93.66502) are larger than their critical values (95.75366 and
tones). 40.07757 respectively); this means that there exists a long-term
ln X4 = Natural log of Improved seeds distribution (in 000 relationship between dependent and five independent variables.
tonnes). Thus, we reject the null hypothesis of no co-integration. Addition-
ln X5 = Natural log of credit distribution (in million Rs.) ally, Trace statistic and Max-Eigen statistic tests indicate that the
b1, b2, b3, b4 = Output elasticities and m = error term. four co-integrating equation is at the 5% level.

This empirical study is based on the annual time series data over 4.3. Regression analysis
the period 1978–2015. First, Augmented Dickey Fuller (ADF) and
Phillips-Perron (P-P) unit root tests including trend and intercept The present study examines the impact of key factors on agri-
were applied to check the stationarity of the series. Furthermore, cultural productivity in Pakistan over the period of 1978–2015.
after checking the stationarity of the variables, the Johansen Co- An econometric technique known as the Ordinary Least Square
integration test was used to examine the long-term relationship (OLS) method has been employed. The estimated results of the
between agricultural productivity used as the dependent variable, regression analysis are reported in Table 5. The overall significance
and the five explanatory independent variables. Finally, the Cobb- of the model could be seen from the value of the coefficient of mul-
Douglas production function was used to examine the impact of tiple determination, that is, the R-square. The value of the R-square
the major factors on agricultural productivity in Pakistan. is 0.924 which is high, showing that about 92% of the total change
in agricultural productivity can be explained by the five explana-
4. Results and discussion tory variables chosen in this study. The calculated value of the F-
statistic is 77.99601, which is highly significant. This suggests that
4.1. Results of ADF and P-P unit root tests (including trend and the explanatory variables included in the model significantly influ-
intercept) enced agricultural productivity.
Our results show that fertilizer consumption, improved seed
In this study, ADF and P-P unit root tests were employed to distribution and credit distribution are positive and significantly
check the stationarity of the series. The estimated results of both influence crop production. Using fertilizer off-take as the main

Table 1
ADF unit root test including (Trend and Intercept).

Variables At level First Difference


t-Statistic Critical values t-Statistic Critical values
LnAGRP 2.226411(0.4617) 1% 4.226815 6.255271**(0.0000) 1% 4.234972
5% 3.536601 5% 3.540328
10% 3.200320 10% 3.202445
LnCROPEDA 2.267234(0.4404) 1% 4.226815 8.675618**(0.0000) 1% 4.234972
5% 3.536601 5% 3.540328
10% 3.200320 10% 3.202445
LnDISEED 2.502699(0.7823) 1% 4.226815 6.158716**(0.0001) 1% 4.243644
5% 3.536601 5% 3.544284
10% 3.200320 10% 3.204699
LnWA 1.577008(0.1369) 1% 4.234972 8.945190**(0.0000) 1% 4.234972
5% 3.540328 5% 3.540328
10% 3.202445 10% 3.202445
LnFRC 1.026479(0.9998) 1% 4.252879 6.946792**(0.0000) 1% 4.234972
5% 3.548490 5% 3.540328
10% 3.207094 10% 3.202445
LnCD 1.633555(0.7600) 1% 4.226815 4.725690**(0.0029) 1% 4.234972
5% 3.536601 5% 3.540328
10% 3.200320 10% 3.202445

Note: *, **, *** shows 1%, 5%, and 10% of significance level
A. Rehman et al. / Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274 273

Table 2
P-P Unit root test (Including trend and intercept).

Variables At level First difference


Adj. t-Stat Critical values Adj. t-Stat Critical values
LnAGRP 2.229500 1% 4.226815 6.314103** 1% 4.234972
(0.4601) 5% 3.536601 (0.0000) 5% 3.540328
10% 3.200320 10% 3.202445
LnCROPEDA 2.034449 1% 4.226815 9.049883** 1% 4.234972
(0.5639) 5% 3.536601 (0.0000) 5% 3.540328
10% 3.200320 10% 3.202445
LnDISEED 2.498694 1% 4.226815 6.886200** 1% 4.234972
(0.3269) 5% 3.536601 (0.0000) 5% 3.540328
10% 3.200320 10% 3.202445
LnWA 1.551622 1% 4.226815 15.82521** 1% 4.234972
(0.7927) 5% 3.536601 (0.0000) 5% 3.540328
10% 3.200320 10% 3.202445
LnFRC 1.255563 1% 4.226815 7.431114** 1% 4.234972
(0.8833) 5% 3.536601 (0.0000) 5% 3.540328
10% 3.200320 10% 3.202445
LnCD 1.910422 1% 4.226815 4.760908** 1% 4.234972
(0.6290) 5% 3.536601 (0.0026) 5% 3.540328
10% 3.200320 10% 3.202445

Note: *, **, *** shows 1%, 5%, and 10% of significance level.

Table 3
Johansen Co-integration Test Using Trace Statistic.

Eigenvalue Trace Statistic 5 Percent Critical Value Prob** Hypothesized No.of CE(s)
0.936382 240.3840 95.75366 0.0000 None*
0.848018 146.7190 69.81889 0.0000 At most 1*
0.744104 82.66312 47.85613 0.0000 At most 2*
0.514364 36.32168 29.79707 0.0077 At most 3*
0.279652 11.76363 15.49471 0.1686 At most 4
0.017807 0.610910 3.841466 0.4344 At most 5

Trace test indicates 4co-integrating equation at the 0.05 level.


*
Denotes rejection of the hypothesis is at the 0.05 level.
**
Indicates values are accurate.

Table 4
Johansen Co-integration Test Using Max-Eigen Statistic.

Eigenvalue Max-Eigen Statistic 5 Percent Critical Value Prob** Hypothesized No.of CE(s)
0.936382 93.66502 40.07757 0.0000 None*
0.848018 64.05586 33.87687 0.0000 At most 1*
0.744104 46.34144 27.58434 0.0001 At most 2*
0.514364 24.55805 21.13162 0.0158 At most 3*
0.279652 11.15272 14.26460 0.1467 At most 4
0.017807 0.610910 3.841466 0.4344 At most 5

Max-eigenvalue test indicates 4 co-integrating equation at the 0.05 level.


*
Denotes rejection of the hypothesis is at the 0.05 level.
**
Indicates values are accurate.

Table 5
Regression Analysis.

The OLS Estimates of Cobb-Douglas Production Function


Variable Coefficient Std. Error t-Statistic Prob.
C 21.14954 6.617215 3.196139 0.0031
LnCROPEDA 3.361398 2.753226 1.220894 0.2310
LnFRC 2.174827 0.928229 2.342987 0.0255
LnDISEED 0.722112 0.266856 2.706000 0.0108
LnCD 0.350132 0.173138 2.022268 0.0516
LnWA 4.604577 2.255333 2.041639 0.0495
R-squared 0.924167 Adjusted R-squared 0.912318
F-statistic 77.99601 (F-statistic) 0.000000
Durbin-Watson stat 0.843300

input indicates that its coefficient is 2.174827; this implies that a distribution as an input shows that its coefficient is 0.722112; this
1% increase in the use of fertilizers results in an increased means a 1% increase in improved seed distribution will enhance
agricultural productivity of 2.17%. Similarly, using improved seed the agricultural productivity almost by 0.72%. Additionally,
274 A. Rehman et al. / Journal of the Saudi Society of Agricultural Sciences 18 (2019) 269–274

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