Pakistan’s agriculture sector is not internationally competitive as it generates a trade deficit of ~US$4 annually, although the actual deficit is even higher if imported costs of inputs are also included.
Competitiveness Issues of the Sector:
Emphasis on low-value crops like wheat, sugarcane, and rice, some of which are not even trade competitive, creating small surplus/self-sufficiency, while ignoring high-value crops like fruits, vegetables, oilseed, pulses, tea, etc., producing high import bills.
Lagging behind in the adoption of modern farm technologies: As a result, despite year-round assured availability of irrigation water on 85% of land, yields of most crops and land-use intensity are lower than the world average. Similarly, animal yields are lower and pregnancy intervals are longer. Thus, the competitive edge is lost just at the farm level.
Little Value Chain Development: Agricultural commodities fail to meet the quality standards demanded in international markets. This is reflected by lower than the world average export prices that Pakistani commodities fetch. The agriculture market system, distant from producers and controlled by someone else, does not transmit to producers the consumers’ demand for quality and its poor infrastructure causes 20-40% post-harvest losses. Thus, competitiveness is lost at the market level.
Agricultural commodities fail to meet the quality standards demanded in international markets.
Little Processing of Agricultural Products in Rural Areas: We fail to bring a small-scale industrial revolution to rural areas. Large-scale agricultural processing could not gain international competitiveness, mainly because of expensive imported inputs, raw materials and machinery (for example, tomato and milk processing). Thus, competitiveness is lost at the processed level.
It is estimated that if we attain yields, quality and processing of agricultural commodities just at par with the world average, agricultural stakeholders can additionally earn US$22 billion, and diversification to high-value crops can further add billions, huge untapped potential of the sector.
The challenges to improve the export competitiveness of the agriculture sector are:
Diversification towards high-value crops;
Development of an effective mechanism to bring new technologies to stakeholders along the whole value chain, especially in production,
Bringing agriculture markets furnished with value addition (VA) facilities closer to and in control of producers, and
Promoting cluster-based small-scale processing in rural areas.
Constraints in Achieving the Potentials:
Increasing Number of Small Farmers. According to the latest census, there are 11.8 million farmers in Pakistan, 95% own less than 5 ha and a few animals only. The public sector simply does not have the capacity and resources to take sophisticated farm, VA, and processing technologies to these ballooning number of farmers and train them to deliver quality products by using these.
Small farmers are not connected to the market. This large number of small farmers, as well as other agents in the value chains, do not have information about new technologies nor the skills and resources to adjust to the demand for quality standards.
Alternative Approaches:
Remove Policy Biases. This can be done by assuring output prices, and through promotion campaigns (among other solutions) for low-value uncompetitive cops. Alternatively, ensure input supplies, like seed, seedling, information, credit, etc. and train value chain agents to produce and handle competitive emerging crops.
Corporate Farming. For Pakistan, the most suitable corporate model is the one in which corporations, rather than the government, provide technologies and training and ensure output prices, while farmers ensure output supplies with quality through contractual arrangements. Farmers get connected with markets through corporates who may also support farmers or involve themselves in processing. The successful example of corporate-farmer cooperation in Pakistan is maize and potatoes, where yields have increased, exports boosted, and local processing encouraged many-fold in just one decade. This model can effectively be used in many crops where strong corporations exist.
Bring Markets and Agro-Businesses to Rural Areas. Where the corporate-farmer model does not work, farmers are connected with markets by establishing Trading Platforms (TPs) furnished with VA facilities (like washing, grading, packaging, storing, branding, etc.) in rural areas. Small-scale cluster-based processing units (PUs) attached to TPs or separate identities can also serve the purpose.
The TPs and PUs are owned by Farmers Entrepreneur Groups (FEGs), so farmers share profits proportionate to their contribution in establishing these. Rather than farmers bringing commodities to markets in urban areas, wholesalers and processors come to these business units to bid for graded and semi-processed products. In this way, farmers know the demand for the quality of their products. These units, having strong forward linkages, also become sources of modern technologies to their producer members.
The major constraints in establishing agro-business units in rural areas and their means to overcome are:
Lack of business capacity can be overcome by providing business training to rural communities.
Lack of capital can be overcome by FEG members by purchasing shares of business units.
Risks involved are minimised by listing shares with the government, and providing a stock-market style legal framework and financial instruments to cover operational and market risks.
Lack of quality market has to be overcome by implementing quality standards for agricultural products by public agencies, without which TPs and Pus are rarely successful.
The mechanisms of corporate ownership of small agro-businesses by rural communities are common in far eastern countries. These minimise post-harvest losses, generate quality surplus for export, and make large-scale agro-industry viable as it gets cheap semi-finished raw material from domestic sources. These can also generate tremendous employment, especially for educated youth, and diversify incomes, thus uplifting the whole rural economy.
The writer is Consultant (Agriculture) at the Planning Commission of Pakistan.