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BR Research

Rural casualty of urban lockdown

  Ask most economists to identify the greatest damage from Covid-19, - and most will raise fears of recessi
31 Mar 2020


Ask most economists to identify the greatest damage from Covid-19, - and most will raise fears of recession due to demand compression amid economy-wide slowdown. They may be right, but only because they have their urban-blinders on. While the lockdown may have brought urban demand to a standstill, the rural economy is at the risk of supply-side shocks – an unintended consequence of disrupted agri-value chain.

Government’s promise of liquidity injection through wheat procurement notwithstanding, the semi-lockdown across the country already appears to be creating ripple effects for the farm economy. Last week, disruption in dairy value chain due to widespread incidence of loose milk was highlighted in this space. But a much larger – if slow-moving - impact is set to be felt by the cropping sector yet remains neglected thus far.

First is the rental agri-machinery segment. According to last Agriculture Census conducted in 2010, an estimated 80 percent of staple crop growers depend on rental harvest machinery. According to Sikandar Mustafa Khan the country only has five to six thousand combined harvesters available, which is mainly a rental-based business. These combined harvesters usually move across the country, as harvest season usually follows a south to north trajectory.

While provincial governments may be quick to remove harvest equipment from restriction list, the value chain beginning from auto-mechanic shops to availability of spare parts and even lubricant and engine oil remain closed. What good is a Rs280billion wheat procurement fund if there is no grain to procure?

That said small- and mid-size farms in the country are primarily dependent on threshers and reaper/harvesters that are available on union-council and tehsil level. Ironically, these may be the biggest beneficiaries of delayed availability of combined harvesters, which are mainly relied upon by large-hold growers. Because government food departments mainly procure from large landholders - a consequence more of bureaucratic red tape and influence than corruption – delayed availability of combined harvesters may provide space to smallholders to cash in.

But the government will at best be procuring only 25 percent of total wheat. What of the remainder that is usually sold in open market transactions, by farmers of all sizes? While a shutdown of ghallah mandis may not lead to damage to harvested crop considering wheat is non-perishable grain, it is likely to leave them cash poor.

Because the farming economy primarily depends on informal credit, growers are not only facing the risk of cost of holding inventory, but also delay in procurement of inputs for the monsoon sowing season. From seeds, fertilizer, pesticides and insecticides, inability to timely procure inputs will inevitably mean that many growers will be forced to leave their lands fallow. Unlike textile or cement, growers cannot afford to delay their production season by a month or two.

Eventually, the supply-side challenges will begin to trickle into commodity shortage and prices as well. Recall that last year, substitution of corn with wheat for animal feed partly contributed to shortage of wheat in autumn. Consider if growers are forced to withhold greater share of their crop as livestock feed, only for it to turn into a greater shortfall later?

And if readers believe that grain producers are beset with major disruptions, consider the fallout for keepers of fruit orchards and growers of perishables such as vegetables. A slowdown or even partial closure of mandis will not only immediately turn farmers cash strapped as the produce goes to waste in absence of cold storage facilities, it will also send the prices amok. A food-stagflation, anyone?

This is not to betray chinks in the armour of the lockdown, which is arguably saving more lives by reducing spread of pandemic than any probably damage by resultant economic slowdown. But to point out that there is a world beyond the urban-centric closures of shopping centres and bazaars in Karachi and Lahore. As the government rolls out packages for construction sector and stock market punters, the rural fallout of the pandemic also deserves equal highlight.