Rural areas of Pakistan are characterized by high incidence of multi-dimensional poverty and low levels of financial inclusion. These areas are also home to 63% of Pakistan’s population. Almost all socio-economic indicators of the rural population are worse than the country’s average. Most people in rural areas are directly or indirectly dependent on agriculture as a source of income. Agriculture is the single largest sector for income-generating activities for Pakistan’s labour force. This sector engages more than 38% of the country’s labour force.
Resources have been extracted from the agriculture sector to support industry and services sectors. And agriculture investment has been minimal. This is not an option anymore! In Pakistan, the lagging socio-economic indicators of the rural population as compared to the national average make it absolutely essential for the government to undertake a reform-based agriculture growth strategy. On a war footing.
Agriculture growth is two to four times more effective in increasing incomes of the poorest than any other economic sector, according to the World Bank. Agriculture is positioned at the heart of Pakistan’s most important policy agendas of reducing poverty and vulnerability, building shared prosperity through inclusive growth, increasing financial inclusion and financial capability, protecting bio-diversity and investing in natural assets, reducing the effects of climate change, enhancing food security, empowering women and formalizing its economy. Agricultural growth that increases farm income of the smallholder farmers with a higher propensity to spend drives up demand for industrial products. In addition, agriculture growth can export labour, investment and food to support industrial growth. Industrial growth can not only depend on export markets but local demand has to be an integral driver of growth.
Pakistan encounters agriculture productivity gap at three levels. Firstly, between the 7.4 million smallholder farmers and the country’s progressive farmers, who produce more from the same agro-climatic conditions using the available inputs. Secondly, between Pakistan’s national average and the world average and third between Pakistan’s average and best-in-class countries. The first of these productivity gaps is an immediate win which the government can achieve perhaps in the remaining two and a half years of its tenure. The sub-sectors to focus on have to be livestock – 57.9% of agriculture GDP and major crops – 23.2% of agriculture GDP. Reportedly, 8 million families are involved in livestock with 95% of them owning less than 5 animals. Smallholder farmers allocate a larger proportion of their farm land to crop cultivation. Women are mostly engaged in managing livestock both for dairy and meat products. Geographic focus should be on Balochistan, the newly-merged tribal districts, southern Punjab and Tharparkar.
Pakistan’s strategy for agriculture growth should be based on the underlying objectives of the strategies deployed by Japan, China, Republic of Korea and Vietnam. All these countries have small average farm sizes similar to Pakistan ranging from 2.4 ha in Vietnam, 1.5 ha in
Republic of Korea, 1.2 ha in Japan to 0.6 ha in China. Japan’s average farm size is 0.9 ha if Hokaido, its northern province is excluded. Countries with small average farm sizes and high rural population density focus initially on land productivity rather than labour productivity. This is in contrast to the USA’s average farm size of 176 ha, Canada and Mercosur countries that have increased productivity of labour before that of land. Mechanization can wait! Thirdly, the pitfalls that the government must avoid include: pre-mature release of labour from agriculture without adequate industrial growth and high incidence of rural-urban migration.
For the next two years the government should focus on increasing land productivity of the smallholder farmers from the existing resources while preparing for the next phase. Utilization of better inputs and improved planting practices. This will increase farm income in the short-term. Reforming the agriculture system to unleash the potential for small-holder farmer income growth founded on fortified village level farmer institutions is in line with the reforms undertaken in China (Household Responsibility System) in 1978, Vietnam (Doi Moi) in 1986 and Republic of Korea (Saemaul Undong Movement) in 1970. However, Pakistan has the potential to graduate to the next phase of agriculture transformation in much less time than most East Asian countries including China because of the existence and functioning of market-based infrastructures. The strategy for the first phase can be executed by constructing an alternate and highly formalized value chain that reduces the cost of production, increases the quantity produced and generates higher revenue. Successful implementation of this strategy will increase aggregate demand for the industrial products, driving industrial growth without releasing labour from the agriculture sector. Freeing up labour immediately through mechanization would lead to political problems for the government due to higher unemployment. In the next phase, the focus should be on increasing labour productivity. However, prior to implementing the next phase of the strategy, the government should install well-managed and industry-demand driven labour re-skilling infrastructure for technical and vocational training. In the first phase, the government should prepare for the next-phase-incentives for village level farmer organizations to move into downstream agribusinesses and rural areas focused investment vehicles. This is when the government will have the opportunity to increase agriculture exports and leverage China Pakistan Economic Corridor (CPEC) infrastructure investments.
Strategy execution is the challenge! The government must be mindful of the fact that a project-based approach which is built around PC-1 and subsidies from development funding budgets will neither provide consistency in implementation nor the desired impact due to inefficiencies and lack of a business model to crowd in private sector investment. The government should construct a system-based business model approach to strategy execution that is effective, financially viable and scalable. Subsequent articles in this series will focus on the policy measures needed to execute the agriculture growth strategy and the institutional re-orientation for delivery of the strategy on the ground. The main pillars of a system-based approach will include life-cycle digital financial services, impact investment fund, agriculture index insurance pool, contract farming, commercialization of the government-owned research and seed system, digitization of government procurement, and the requisite institutional structure for strategy execution.
(The writer is an advisor on agriculture policy and reform) Email: [email protected]
Copyright Business Recorder, 2021