FY19 proved to be an unfortunate year for Pakistan’s real sector in many ways. Contraction in large scale manufacturing and major crops – two most important indicators of real sector’s performance – was highest since at least FY01.
With LSM contraction projected to pick pace in the ongoing fiscal, it appears all hopes of real sector economic activity have been pinned on revival in agriculture. The optimism has not only received support from statements out of Q-block, but also in the most recent SBP-MPS, which foresees ‘considerable’ improvement in agriculture.
That said, extracting ‘considerable’ growth out of agriculture is no rocket science for statisticians at Q-block. Consider that up to 60 percent of farm-based GDP is contributed by livestock and dairy sector, which has been growing at a flat pace since 2006 thanks to delays in conducting much overdue livestock census.
A little sleight of hand, called inter-census growth rate, has allowed the subsector to grow at three percent average growth per annum over last decade, giving face-saving to farming GDP even in periods of major crop contraction (For more read, ‘Falling livestock GDP’, published on June 17, 2019).
This means that the onus for improvement in on-ground economic activity is now ever more dependent on performance of crop sector. Some respite has been received in this respect from improved rainfall and water availability, with SUPARCO-based geospatial surveys corroborating government’s version.
Yet, some caution may be necessary. According to both IRSA and SUPARCO, surface water availability in irrigation system during Apr-Aug stood at 52MAF, which may push total kharif season available water to 65MAF. This will certainly be much higher than last year’s semi-drought conditions – by over ten percent no less – but still less than last ten year’s kharif season average at 67MAF.
But even best-water years (by availability) have proved to be no guarantee for improved crop sector performance. Kharif water availability peaked between FY15-FY17, resulting in aggregate major crop acreage for the season at close to 8 million hectares per annum, yet the sub-sector still managed to post a dismal performance, contracting annually at 1.76 percent during the three-year period. It demands little explanation that improved water availability can only do so much in presence of subpar yields.
One needs to look no further than major crop output targets for ongoing season to question policymaker’s excessive optimism. Federal cotton crop committee, for example, is certain that the crop will post 51 percent growth in production over last year. Granted that the sown area under cotton has recorded dramatic improvement of 22 percent, but production target of 15 million bales requires yield of 880 kg per hectare, even though Pakistan only has managed to cross 800 kg per hectare in two out of last twenty years (and of course, never before).
Second hope is of course paddy, which also builds into export momentum with its average Rs2 billion share in forex earnings.
News of improved farming inputs application from northern Sindh’s rice belt also feeds into better paddy outlook, which may manage to touch three million hectares under acreage with yield closing in on 2.6 ton per hectare target.
Except, record acreage under the two major kharif cash and cereal crops means reverse for the competing crops. For one, maize - which has almost doubled in output since 2011 - is set to lose bonus acres gained on expense of cotton in southern Punjab regions of Multan and Vehari.
Similarly, while sugarcane is set to record some up tick over last year largely based on yield improvement, total output is expected to be a far cry from record levels noted between FY17 and FY18, given no change in support price levels for past four seasons. Put together, area under sugarcane and maize is expected to be no more than 2.4 million hectares, itself a marked decline over last five-year average.
Despite the obvious expansive forward linkages of farm activity with the services sector, policymakers would be cautioned from placing all bets on agri-revival, which mind you recorded its lowest decade-wise growth between FY11-FY19 (under one percent!) since independence. Moreover, if wheat’s performance in the upcoming rabi season falls short of target, no conjuring tricks even with the livestock numbers would save the day.
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