Agriculture Sector

Chapter # 3
 Agriculture Sector

• The agriculture sector is second largest sector of Pakistan

• Largest employer
• Its share in GDP was 21 percent in 2011-2012. Decline in agriculture’s share in GDP indicates
that growth in this sector is has been slower as compared to other sectors

• the sector has strong backward and forward linkages. Closely linked with rest of the
economy. Supplies regularly flow of workers to non agriculture sector.
• Agriculture crops such as cotton and sugarcane constitute two major industries namely
textile and sugar.
• On demand side it is consumer of fertilized, electricity and engineering goods.
• It can be said that performance, problems, and prospects are directly linked to other sectors
of the economy.
• Agriculture is not confined to cultivation of the land, growing and harvesting
seasonal crops. Agriculture includes four sub-sectors:
1. Livestock breeding and Poultry farming (good substitute of beef and
mutton)
2. Fish farming. Although small contribution in GDP, still earns foreign
exchange through export. Good nutritional value of fish with protein
content of 15 to 20 percent. Important source of livelihood for coastal
inhabitants.
3. Forestry
4. crops
 Agriculture Sector
• Agricultural crops such as cotton and sugar cane provide raw material for two
of the most imp industries in Pak i.e.. textile and sugar.

• Pak’s unsatisfactory agri performance is mainly due to traditional methods of

cultivation, illiterate ad uninformed rural population.

• Supply for other inputs has been increased i.e.. tractors imported and locally
manufactured, fertilizers, seeds, irrigation

• Despite of this increased input, the output has not been increased
accordingly.

• There is a decreasing returns to scale in agri sector.

 Agriculture Sector Few Facts

• 1947- Agriculture accounted for 53% of GDP. 2005- 23% of GDP, 21% of GDP in
2011.

• Pakistan ranks 5th in Muslim World & 20th worldwide in farm output.

• Pakistan is world’s 5th largest milk producer.

• In 2005 Wheat production was 21.591 million metric tons- more than all of Africa
and nearly as much as all of South America. (FAO)

• Livestock sector contributes half of the value added in agriculture sector amounting
to nearly 11% of GDP- more than the crop sector.

• Pakistan is Asia’s largest camel market, Second largest apricot and ghee market,
third largest Cotton, Onion and Oil market.

• Fisheries provide direct employment to 400,000 and indirect employment to

500,000 people. It contributes approx. $ 120 million to exports
 Salient Features
• Agriculture employs 44% of the work force in the country.

• 93% of those engaged in agriculture are small farmers.

• Total geographical area 79.6 million hectares. 27% of this area under cultivation.

• 80% of this area irrigated, but approx. 20% of area in Irrigation Canal. Most of the
area is affected by water logging and salinity. An additional area of 2.8 million ha.
affected by solidity.

• no subsidies, high cost of inputs, crop and livestock insurance, lack of veterinary
services, lack of mechanization, primitive management and use of modern
techniques, lack of education and training, seed quality, research and dissemination
of knowledge
 Salient Features
• undocumented economy

• lack of investment

• lack of delivery mechanism

• No Corporatization (as considered attempt to create big business)

• Lack of land reforms

• Lack of organized markets hence fair value assessment

• Lack of reliable statistics

• Institutional Arrangements
 Recent Performance

• The agriculture has lost significant growth momentum as its growth slowed
down to 2.7 % in 2000s as against 4.4& in 1990s and 5.4% in 1980s.

• The structural problem and lack of mechanization remained main

impediment to growth.

• Major crops remained the victim of natural calamities during the last few
years and three out of last four years witnessed negative growth in the
major crop sector. It causes declining trend of agriculture sector contribution
in GDP.
 Agriculture Growth

Year Agriculture Major Minor Livestock Fishery Forestry

Crops Crops
2004-05 6.5 17.7 1.5 2.3 0.6 -32.4
2005-06 6.3 -3.9 0.4 2.8 20.8 -1.1
2006-07 4.1 7.7 -1.0 15.8 15.4 -5.1
2007-08 1.0 -6.4 10.9 4.2 9.2 -13.0
2008-09 4.0 7.8 -1.2 3.1 2.3 -3.0
2009-10 0.6 -2.4 -7.8 4.3 1.3 2.2
2010- 1.2 -4.0 4.8 3.7 1.9 -0.4
11(P)
 Institutional Arrangements
Land in Pakistan is cultivated under 3 broad
institutional arrangements
1.Owner self cultivation
2.Owner cum tenant farms
3.Pure tenant farms
Tenancy arrangements are of two types
1.Fixed rent or lease tenancy
2.Sharecropping
 Phases of agricultural growth.

• Phase 1 lasted up to 1960, period of agricultural neglect, resulting in low

annual growth of1.5%.

• Phase 2. Between 1960-65 trend was reversed, growth rate was 3.9%

• Phase 3. 7.78% between1965-70, period of Green Revolution

• Phase 4 i.e. between 1970-77 growth rate declined to 1.67% due to number
of exogenous and policy related features.
 Major & Minor Crops
• Cotton: 8.2% of value added in agri and about 2% to GDP.

• Rice: it earns substantial amount of foreign exchange. 5.4% of value added in agri and 1.3% to
GDP.

• Sugar cane: 4.2% of value added in agri and about 1% to GDP.

• Wheat: 13.4% of value added in agri and about 3.4 to GDP.

• Other major crops are tobacco, mustard and rapeseed, maize and barley.

• Minor crops are major oil seed crops i.e.. cottonseed, rapeseed/mustard, sunflower, canola.

• Most of these crops are imported which is about 70.85 % of total availability and remaining
29.15% is made available through farming.

• Most of the pulses, tomato, potato, onion are other minor crops
 Agriculture Policies
Government agriculture policies can be divided
into:
1.Land reform
2.Green revolution
3.Mechanization of agriculture in Pakistan
4.Development of commercial agriculture
5.Agriculture price policies and economic
incentives
 1. Land Reforms
• It means the measures designed to readjust
the rights, obligations, and arrangements
connected with the ownership of land with a
view to greater productivity, higher living
standards, improved social status, and
opportunities for those engaged in cultivation.
 2. Green Revolution
• Green Revolution in the late 1960s
What is Green Revolution:
“The Green Revolution means introduction of new technology in agriculture sector, in order
to increase its production through different measures .” Many of the world’s countries
made diversified efforts through following measures:
i . Introduction of new high yield varieties of wheat, rice, and maize
ii. Improvement in per acre yield through quality fertilizers to compensate for land
deficiencies in many less developed countries.
iii. Pesticides and insecticides have expanded the acreage a single farmer can tend by
reducing the time required to disinfect the crop.
iv. Irrigation has made double cropping feasible in many countries where formerly
one harvest a year was standard.
v. New methods of rotating crops were developed which increased land
productivity.
vi. New shorter plants have been discovered that are more responsive to fertilizer.
Similarly, some sturdier types are more disease-resistant.
vii. Botanists have been able to breed the photosensitive genes out of plants .
Making planting possible at any time of the year.
Impact of Green Revolution:

Impact of Green Revolution Green Revolution had impact on Production,

Consumption Overall Societal Development, leading to a tangible increase in
production of agri produce, and its easy and cheaper supply to the consumer.

Impact on Agricultural Production:

Impact on Agricultural Production Growth Plan Growth Rate of Agri. Sector

First 1.8% Second 3.8% Third 6.0% Which indicates that due to green
revolution the average annual growth rate has doubled.

year Million tons

1959-60 3.7
1968-69 6.8
Benefits of Green Revolution:
Benefits of Green Revolution General Factors High yield varieties were
introduced, which gave more production. Progress in fertilizer manufacturing
was observed. Better quality pesticides and insecticides increased acreage of
land. Better management of human resource was made through optimal
utilization of already available farm labor and induction of newly trained
laborers. An effective utilization of non-human resources was made. Water
availability was ensured, keeping in view its quantity required.
Impact on Employment:

Impact on Employment The introduction of the new high yielding wheat and
rice technology has resulted in an increase in the demand for labor. The net
effect of the increase in demand for labor lead to a significant rise in real
wages. The increase in labor use has been due to greater labor utilization per
unit of cropped area, and in some cases to high cropping intensity. Even
mechanized forms typically were utilizing increased labor inputs per hectare
although simulation results conducted by some researchers indicate that labor
inputs per hectare might be expected to decline substantially under fully
mechanized techniques combined with adoptions of the HYV technology

•Tripling in cotton production over the 1980s due to the use of quality
seed and proper incentives to the sector
 3. Mechanization of Agriculture in
Pakistan
Farm mechanization is one of the package of the
green revolution technology. Farm mechanization
implies the use of mechanical technology in varied
farming operations like sowing, harvesting, threshing,
leveling water etc. it includes:
•Chemical technology-plant protection measures
•Hydrological technology-tube wells
•Mechanical technology-tractors, threshers, bulldoers
4. Development of Commercial Agriculture
In Commercialized agriculture farmers produce to sell, not to
consume. Essential requirements of it are:
1.Change in thinking in agriculture sector
2.Use of modern cultivation and harvesting techniques
3.Better distribution of land
4.availability of credit to all types of farmers
5.Sharp increase in agriculture productivity
6.Adequate storage facilities
7.Proper standardization of products
8.Improve transport and market system
9. agriculture price stability
 5. Agriculture Pricing Policy and economic Incentives
• The pricing policy of agri input and output determine direction of agri productivity and also
income distribution of small farmers. A good agri pricing policy can be defined as the
one where prices act as an incentive to produce certain goods in required
quantities.
• National Commission of Agri (NCA) analyzed the issues in the pricing policy of the first
two decades. Govt fixed the consumer retail prices of agri goods at low levels which
depressed the market prices for producers. Heavy export duties were imposed on cotton
to facilitate local industry. Inter district and inter province restrictions on movement were
imposed.
• For a decade after independence, no systematic attempt was taken to develop agri sector.
Industrial sector was highly protected at the cost of agri sector. Barter trade was a
common feature where agri products were exchanged for industrial machinery and input.
Due to these policies agri sector was taken as a medium to protect industrial sector. NCA
argued that the main objective of the pricing policy of 1960-65 was to provide low cost
food to urban population, to provide cheap raw material for agri production, to keep the
wages of agri workers low. First step govt took to encourage agri output was to subsidize
agri inputs which cover seeds, fertilizers, tube wells, plant protection and agri machinery.
But this policy was biased towards large farmers. Argument was raised to look beyond the
input subsidizing policy. Concept of minimum price support program was introduced to
protect farmers from fluctuations in international prices
 Agri Pricing Policy Importance
1. For removing uncertainty
2. To increase agriculture production
3. Keynesian argument: stable agri prices may enhance economic activity
4. For filling the lag between prices and other prices
5. Lack of storage value
6. Stabilize the tempo of economic growth
7. To overcome income disparities
8. For increasing standard of living

Stability in agriculture prices is achieved by:

1. Acreage adjustment
2. Creation of buffer stock
3. Setting up of machinery
4. Control over imports and exports
 Series of Major Problems
• Firstly, despite the policy makers stress on crop diversification, the economy is dependent on cotton for
more than half of its export earnings. This strong dependence is dangerous given the climatic and viral-
induced setbacks that cotton production has historically experienced throughout Pakistan’s history.
• Secondly, the avowed objective of food security, which should have been possible given the favorable
resource endowment of the country __ one of the largest irrigation systems in the world__ has not been
achieved so far.
• Thirdly, the rapid increase in population, with the growth rate estimated at 3 percent has substantially
reduced the per capita agricultural production rate.
• Fourthly, growth in the most recent decade has come from more extensive, and not intensive, agriculture.
• Fifthly, productivity growth in agriculture has been small according to a number of indicators___ output
per hectare, output per unit of a single factor, yield gaps between average and best farmer yields, and
total factor productivity.
• Sixthly, the government price system has been criticized for inducing a number of distortions and
incorrectly trying to remedy the situation through a series of input subsidies.
• Finally, erratic and inconsistent policies and poor planning and management, for example of the irrigation
system, deficiency in providing fertilizer, lack of quality control on pesticides, inadequate investment in
rural infrastructure, and improper research and extension services, have all played havoc with Pakistan’s
agriculture.
 Agriculture Credit
• Zaree Taraqiyati Bank Limited, Commercial Banks, Cooperatives and other
private domestic banks are the main providers of credit to the farmers.

• In 2003-04, loans extended to the farming community was in the form of:

• Production and Development Loans. Rs.47.9 billion were disbursed in 2003-

04 through ZTBL as compared to Rs. 37.6 billion in 2002.

• Purpose-wise disbursement of loans. Short term/seasonal loans.

• Credit to Women Program.

• Microcredit Scheme. Rs. 25,000 can be advanced to both men and women
against security. Loans are recoverable within 18 months.
 Major Issues in Agri. Credit

• High cost of borrowing - Cost of borrowing vis-a-vis rate of interest?

• Perceived high risk associated with agriculture lending

• Hassles in credit delivery

• complex documentation, collateral requirement, delays, under financing

• Limited access to credit to tenant farmers/ oral lessees/share croppers

• Provision of adequate & timely credit

 Agri Income Tax

• There are arguments on whether agri income should be taxed or not.

• NCA is against this argument and says that agri holdings are too small to
generate taxable income.
• Agri is a risky business and heavily depends on natural factors which
creates uncertainty in final output.
• No proper insurance of agri output.
• Agri sector pays the largest percentage of indirect taxes i.e. 42% of all
indirect taxes, so it should not be taxed more.
• On the other hand National Taxation Reforms Commission (NTRC) has
evaluated policies of imposing a tax on agriculture.
• There is a group of landowners who reside in urban areas and made
investment in real estate with income from their agri business.
• Since they pay no tax, so they are questioned by traders and salaried class
to pay tax.
• Many traders have purchased agri land with an intent to escape from
income tax.
• Many large farmers are earning handsome amount of money from agri.
 Agriculture (Pakistan Economic
Survey Highlights)
1. The agriculture growth stood at 2.9 percent during July-March, 2014-15 as
compared to 2.7 percent during the last year.
2. During 2014-15, cotton production stood at 13,983 thousand bales as compared
to 12,769 thousand bales in 2013-14 and registered an increase of 9.5 percent.
3. Wheat production decreased to 25,478 thousand tones in 2014-15 as compared to
25,979 thousand tones in 2013-14 showing a decrease of 1.9 percent.
4. Rice production has increased to 7,005 thousand tones in 2014-15 as compared
to 6,798 thousand tones in 2013-14 showing an increase of 3.0 percent.
5. Sugarcane production has decreased to 62,652 thousand tones in 2014-15, as
compared to 67,460 thousand tones last year, and registered a decrease of 7.1
percent.
6. Maize production had decreased to 4,695 thousand tones in 2014-15, as
compared to 4,944 thousand tones in 2013-14 showing a decrease of 5.0 percent.
7. Other crops that contributed 11.1 percent value addition in agriculture witnessed
a positive growth of 1.1 percent in 2014-15, against negative growth of 5.4
percent during the same period last year.
8. Gram production has increased to 484 thousand tones in 2014-15 as compared to 399 thousand
tones in 2014-15, showing an increase of 21.3 percent.
9. During July-March 2014-15, the production of Potatoes, Moong, Onions and Chilies increased by
6.3 percent, 6.2 percent, 1.3 percent and 0.3 percent, respectively. While production of other
pulses Mash and Masoor (Lentil) decreased by 12.7 and 5.8 percent, respectively.
10. During July-March, 2014-15 about 446.1 thousand tones of improved seeds of various
Kharif/Rabi crops were procured.
11. During July- March, 2014-15, the banks have disbursed Rs. 326.0 billion which is 65.2 percent of
the overall annual target of Rs. 500 billion and 27.5 percent higher than disbursement of Rs.
255.7 billion made during the corresponding period last year. The banks were able to achieve 65
percent of their annual indicative targets of Rs 500 billion.
12. During 2014-15, the availability of water for Kharif 2014 stood at 69.3 MAF showing an increase
of 5.8 percent more than Kharif 2013 and 3.3 percent more than the normal supplies of 67.1
MAF. The water availability during Rabi season 2014-15 is estimated at 33.1 MAF, which is 1.8
percent higher than Rabi 2013-14 but 9.1 percent less than the normal availability of 36.4 MAF.
13. Kharif 2014 started with inventory of 386 thousand tones of urea. Total availability of urea
(including 122 thousand tones of imported supplies and 2451 thousand tones of domestic
production) was about 2959 thousand tones against the offtake of 2716 thousand tones, leaving
an inventory of 184 thousand tones for Rabi 2014-15.
14. Total availability of DAP during Kharif 2014 was 1023 thousand tones comprising 99 thousand
tones of inventory, 524 thousand tones of imported supplies and 400 thousand tones of local
production. DAP offtake was 586 thousand tones leaving closing balance of 430 thousand tones
for coming Rabi 2014-15.