Pakistan’s Agricultural Sector: Challenges and Response (Part 5)

Introduction

In my previous four articles, I have discussed how Pakistan can increase its agricultural production through horizontal expansion (bringing more area under agricultural use), and vertical expansion (increasing the yield/productivity of the resources, land, and inputs). In this article, I will be discussing the third pillar of agricultural development, namely its structural transformation

The structural transformation of agriculture refers to the process through which the political economy of the sector undergoes significant changes in its composition, organization, production relations, and other related aspects. This transformation typically involves a shift from traditional, subsistence-based agriculture to more modern, commercial, and technologically advanced forms of agricultural production. Essentially, these can be achieved by introducing appropriate policy interventions in the following areas;

1. Reducing Post-production losses
2. Value Addition
3. Marketing Improvement
4. Changing Production Relations

Reducing post-production losses

Unfortunately, Pakistan has a highly underdeveloped input supply, grain storage, and handling system at all levels: farms, regional, and port levels. Annual grain storage losses are estimated at between 12 and 18% per year (depending on seasonal factors), or a minimum of $900 million per year. Historically, the storage infrastructure for grains was never well-developed in the country and continues to be underdeveloped owing to the limited participation of the private sector. The private sector is reluctant to invest the significant capital required due to a weak business environment.

The ability to move grain efficiently from the farm to the market is also compromised, adding to transaction costs. At harvest time, farmers ideally need to deliver their grain to a secure storage environment. This option doesn’t exist for most grain producers. In addition, the lack of secure and reliable grain storage limits the development of financing and marketing options based on warehouse receipt programs and other such modalities.

The storage infrastructure built by the federal government in 1983 has become insufficient to meet increased requirements because of the increase in population and the substantial deterioration of existing facilities. The storage infrastructure in the provinces is pathetic. Consequently, approximately 85% of the wheat procured is stored in the open.

Similarly, processing and marketing are also weak areas, although the processing and marketing of wheat, rice, and other grains are reasonably developed. They are not as per international standards and practices. Areas that need attention are quality control and quality assurance (adulteration-free & expiration dates mentioned on every pack), standardized packing, etc. The interventions required by the government to improve post-harvest handling, storage, processing, and marketing include the following:

1. Reducing post-production losses through the development of cool chain infrastructure, including storage, in the private sector.
2. Establishing grain storage and handling systems at all levels, including on-farm, off-farm, and points of entry/exit (seas and airports), and refurbishing existing storage facilities.
3. Enforcing grain quality standards and establishing reliable grain testing laboratories at delivery points
4. Motivating the private sector to invest in storage infrastructure construction by providing the private sector with limited financial support. In exchange, the government will ensure that at least 20–25 % of storage space is available to it during the harvest season at reasonable rent.
5. Refurbishment and enhancement of existing storage and handling infrastructure in the public sector as well as private sector (farm level);
6. Bringing the grain quality standards in line with market requirements, and establishing reliable grain testing at all delivery points to allow segregated grain storage;

Value Addition

Value addition in the agricultural sector refers to the process of increasing the economic value of agricultural products at each stage of the supply chain, from production to consumption. This can involve various activities and improvements that make agricultural products more marketable and valuable. Value addition is crucial for enhancing the profitability of agriculture, increasing the income of farmers, and boosting the overall agricultural economy. Some key aspects of value addition in agriculture:

1. Value addition begins with the processing of raw agricultural products, such as cleaning, sorting, grading, drying, milling, and packaging, to improve the quality, shelf life, and marketability of agricultural goods
2. Attractive and efficient packaging can significantly enhance the perceived value of agricultural products.
3. Value addition involves efforts to improve the quality and safety of agricultural products by implementing quality control measures, ensuring compliance with food safety standards, and implementing organic or sustainable farming practices.
4. Farmers can add value by diversifying their products. For example, instead of selling raw fruits, they might produce fruit preserves, juices, or dried fruits. Similarly, dairy farmers can process milk into cheese, yogurt, or butter.
5. Expanding market access, both domestically and internationally, by exporting agricultural goods to new markets or improving distribution networks can lead to higher prices and increased demand.
6. Adding Nutritional Value by fortifying food products with vitamins and minerals can make them more valuable in terms of nutrition.

Value addition in Pakistan’s agricultural sector faces several issues and challenges, many of which are interconnected and have complex causes. Here are some of the key issues and their underlying causes:

1. Lack of Modern Infrastructure: Insufficient investment in modern storage, processing, and transportation facilities. Inadequate cold storage and transportation infrastructure lead to post-harvest losses and reduced product quality.
2. Limited Access to Finance: Limited access to credit and financing options for small-scale farmers and agribusinesses. This hampers their ability to invest in value-added activities and modern equipment.
3. Inefficient Supply Chain: Fragmented and inefficient supply chains that lack coordination between different stakeholders. This results in delays, waste, and higher transaction costs.
4. Low Technological Adoption: Limited adoption of modern agricultural technologies and practices. Many farmers continue to use traditional methods, which can be less efficient and productive.
5. Quality Control and Food Safety Issues: Inadequate quality control measures and adherence to food safety standards. This can result in low-quality products that do not meet international standards, limiting export opportunities.
6. Lack of Research and Development: Insufficient investment in agricultural research and development hinders the development of new varieties, technologies, and best practices.

Addressing these challenges in Pakistan’s agricultural sector requires a multifaceted approach involving government policies, private sector initiatives, and international cooperation. Some of the policy interventions needed are as follows:

1. Encouraging quality consciousness among the farmers through awareness campaigns.
2. Introducing and implementing grading standards and improving the marketing system of agricultural produce.
3. Establishing modern agricultural produce wholesale markets in a public-private partnership with cold storage, pack houses, customs facilities, etc.

Marketing

Sustained growth of the rural economy lies in the development of efficient and effective agri-based supply chains that link the agriculture sector with its corresponding upstream and downstream links in the rural nonfarm to the national and international markets.

1. Establishing modern agricultural produce wholesale markets in a public-private partnership with cold storage, pack houses, customs facilities, etc.
2. Encouraging the processing and value addition of agricultural produce to fetch better value, and reduce post-harvest losses.
3. Introducing a warehouse receipt system for easy realization of sale proceeds to farmers. This, however, requires legislation and its enforcement to create a win-win situation for everyone.

Production Relations

Agricultural production relations relate to the ways land is owned and cultivated and its produce is distributed among the stakeholders in rural areas. Presently, there are two dominant forms of land cultivation: relationship cultivation and tenant cultivation with multiple forms. Favourable terms of trade have resulted in increased commercial production and mechanization, with owner cultivation becoming more popular. There is thus a need to formalize the following three modern production relations in the political economy of the rural sector;

1. Contract farming: Also known as “out-grower schemes” in Africa, it is a formal arrangement whereby agricultural production is carried out on the basis of an agreement between the buyer, usually a firm, and the farmers, specifying the quantity, quality, price, and date of supplying the produce. The government should promulgate proper legislation backed by effective implementation machinery and dispute resolution mechanisms, encouraging agri-based processors to supply inputs and technology packages to farmers on deferred payment with buy-back of produce at guaranteed prices.
2. Commercial Cooperative Farming: Traditional cooperatives have unfortunately not worked despite all the efforts of the state to popularize it among farmers. We need to develop new forms of cooperative farming whereby all the stakeholders, i.e., farmers, input suppliers, banks, and buyers, are engaged. These cooperatives should be professionally managed, adopt mechanized farming, and use collective bargaining to increase their profits, which should be fairly distributed.
3. Corporate Farming: It refers to leasing commercially viable tracts of land to corporate-level entrepreneurs who are willing to practice high-tech export-oriented agriculture and share profits with the owners. Recently, these have come under heavy criticism, but the Government should encourage corporate farming as it helps increase agricultural production by bringing new areas under cultivation and increasing the productivity of inputs with the help of technology and better management. However, respecting the right of the farmers to land, the government should encourage the firms to enter into leasing agreements with the farmers themselves in the spirit of mutual advantage.

The government should also consider leasing cultivable waste under federal or provincial control for corporate farming. As these cultivable wastelands are sources of livelihood for the communities living in and around these areas and serve as grazing fields and pastures for their cattle, the respective provincial and federal governments will ensure that the legitimate rights of these communities are adequately protected while leasing out the cultivable waste.

However, all three above need comprehensive legislation as well as strict implementation through a specially created institutional infrastructure.

In my last article, I will discuss cross-cutting issues that need to be sorted out to make the agricultural sector a dynamic one.

From the book “Agricultural Sector of Pakistan: Challenges and Response”, published by Amazon and available at

Agricultural Sector of Pakistan: 2nd Edition: Challenges & Response