Agrarian economy deluged, again!

For Sindh, the 2011 monsoon season is no different than last year when heavy rainfall and floods wreaked havoc across the province. Besides inflicting formidable human misery, recent torrential rains have also pushed the agrarian economy of the province into dire straits. Like last year, floods have struck right before the harvesting of major crops and sowing of the Rabi season crops. Preliminary estimates by the National Disaster Management Authority (NDMA) state that 1.7 million acres of arable land have been inundated in Sindh. Standing crops, which include major crops of the Kharif season like cotton, sugarcane and rice, are submerged deep in water. Adding to the ado, plantations of essential vegetables like onions, tomatoes and chilies have been destroyed in low-lying districts of Sindh. With heavy downpour and deluge affecting 22 of the 23 districts in Sindh, the scope of the damage and destruction to the farming sector seems similar to last year. However, it would be premature to guesstimate the extent and scale of agricultural losses, as economists believe this exercise will take at least another three to four weeks. Last year, it took the World Bank and Asian Development Bank roughly two months (after the peak of monsoon season) to come up with a comprehensive damage and needs assessment report which put a figure of Rs855 billion on account of flood-related devastations. Sugarcane growers are worried that their crop, which was to be harvested this month, but is likely to stay submerged until next month. They contend that if the crop remains in water for more than fifteen days, the per-acre yield deteriorates, sometimes upto 50 percent of the potential yield. Similarly, the cotton crop is usually vulnerable to viruses and fungi once water subsides. Such circumstances make damage assessment difficult. There is little doubt that these torrential rains are bound to have adverse impact on the countrys economic indicators. Firstly, the export volume of affected commodities may be lower due to the loss of cotton bales, lower per-acre rice yield, and obliteration of famous export items like green chilies and dates. Pakistan might also end up importing essential vegetables to absorb supply-shocks. Secondly, the agricultural losses may also chip away at Pakistans GDP growth in FY12. According to the latest economic survey, cotton accounts for 6.9 percent of value added in agriculture and makes up about 1.4 percent of GDP. Sugarcanes share is 3.6 percent in value added in agriculture and 0.8 percent in GDP. Rice accounts for 4.4 percent of value added in agriculture and 0.9 percent in GDP. Thirdly, there is an inherent risk that the prices of essential food commodities may spiral as witnessed during and after the great floods last year. Take sugar for instance: the deterioration in sugarcane yield and quality would mean less, not more sugar availability in Sindh after the upcoming crushing season in November. This may put sugar prices under pressure from the onset of next year. Any extraordinary hike in the FY12 CPI inflation would pose a serious macroeconomic dilemma for the central bank which reduced its discount rate by 50 bps in August, anticipating the CPI inflation for the ongoing fiscal to stay within 12 percent. All this depends on the extent of agricultural losses, whose accurate scale will only be known after the floodwaters subside and a meticulous damage assessment exercise is undertaken by the authorities. Till then, an ominous silence!