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It is that time of year again, when official quarters periodically lament the weak correlation between crop output and yields. Cultivated area – which as a rapidly urbanzing country is in a diminishing supply -remains the primary driver for traditional crops meeting their target levels.

Just this week, SBP’s Annual State of the Economy report while commenting on sugarcane crop for FY19, noted that “there are hardly any incentive to enhance yields, let alone to bring more area under cultivation”. Contraction in cane production of 19.4 percent came largely on the back of 18 percent decline in acreage, while yield only declined by 1.8 percent. This intuitively denotes that had the acreage remained constant, crop output would have remain largely stable despite semi-drought conditions prevalent during kharif season (Mar – Oct 2018 or sugar marketing year MY19).

With all traditional kharif crops – especially cotton, rice, and sugarcane – fighting for finite cultivable land, it is no surprise that competing policy objectives come into conflict.  This is expected to reflect itself in ongoing year’s sugarcane output. Going by news reports, acreage is estimated to be shy by four percent on an already low base from last year, and thus may be lowest since MY13. It is no surprise then that all hopes have been pinned on achieving a healthy yield.

For a crop whose price is set entirely on weight and not on quality (sucrose content), it appears logical that growers have every incentive to achieve higher yield at constant levels of input (in expenditure) to maximize returns on investment. But should it also be the policy objective? This is where evidence and science contradict each other.

In a conversation with BR Research, Dr. Shahid Afghan of Punjab Sugarcane Research & Development Board points out that the correlation between yield and sucrose content is negative. He notes that while delayed maturing of plant allows the crop to gain height (thus also increasing yield in tons per ha), the sucrose content remains same.

As the crop is priced in weight, the farmer is able to demand higher price for his output that in effect will produce same level of sugar, at lower sucrose recovery level. From the processor’s (sugar mill) perspective, it ends up paying higher procurement cost to achieve same level of final output – refined sugar.

The policy question then becomes as following: with demand for sugar growing in tandem with increasing population and income levels, can the competing objectives of increased refined sugar output to achieve domestic self-sufficiency; higher yield to benefit farmers (achieve higher crop production); achieving improved recovery levels; and reducing acreage under sugarcane;* all be achieved at the same time?

For crop sector’s productivity to improve materially, incentives need to align across the value chain. Instead, subsequent governments have relied on fiscal interventions, from support price to export subsidies, choosing winners and losers in the process.

Note: Data for the last two decades (see illustration) is at best inconclusive. While yield and recovery levels for Punjab crop appear to have grown in tandem; yield for Sindh and KP have remained scattered even as long-term trend for sucrose recovery for two province has inched upwards. Industry experts attribute the over-all long term trend trend towards higher recovery levels to introduction of improved varieties.

*(or at least kept at current levels to free up acreage for competing crops such as cotton and rice that feed into export value chain).Source for illustration: Based on data from Annual reports of Pakistan Sugar Mills Association, 2012-2018