Today, as a country, we are at the point where we struggle to buy food and fuel from the international markets. We may not have been blessed in terms of our fuel needs, but the same cannot be said of our food production potential. Today, wheat is out of reach of ordinary people and given the food inflation, the rulers are under tremendous pressure.
Where have we gone wrong? Or have our agriculture and food policies always been wrong?
Pakistan is an agricultural country and depends on its agri and rural resources for its day-to-day food needs – as do the policymakers who dream of finding a prosperous future for the country.
Yet, despite Pakistan’s food needs and dreams of prosperity, policymakers have been relying on international handouts, including food shipments, ever since the fifties, to meet successive food crises. The fact is that we continue to depend on foreign resources to feed our people – despite having one of the most fertile plains and the largest contiguous irrigation system in the world.
Perhaps very few people know that Pakistan’s irrigation system is arguably the most important physical asset we have. An asset that has become antiquated. The system requires major upkeep and tens of billions of dollars in investments. Yet, we do not have enough in the kitty to pay old debts, including water sector debts.
Pakistan’s food imports were worth nine billion dollars last year – something that is unsustainable given our macroeconomic imbalances. The time has come to think afresh. We do not have the luxury of “business as usual.”
Let us examine what has not worked over the last seven decades and what we could do differently.
There is a case for large Pakistani businesses to get involved in the agriculture sector, including irrigation and drainage. Potentially, they stand to make decent profits while serving the country – if they try to understand the issues and create the opportunities.
Subsequent to the boundary demarcation of 1947, Pakistan got the best soils and the largest contiguous irrigation system in the world. Certainly, there were water-sharing issues between India and Pakistan (West Pakistan at the time), but we did get a good deal (one can debate this) as far as land and water resources are concerned. The 1960 Indus Basin Treaty (IBT), brokered by the World Bank, resulted in ample and reliable water resources for Pakistan. The World Bank also funded major reservoirs, such as Tarbela and Mangla, as well as inter-river links in Punjab to supply irrigation water to farmlands previously watered by the rivers that went to India as a result of the IBT.
The arrangement gave Pakistan over 40 million acres of irrigated land in the Indus Basin, mainly in Punjab and Sindh. One can imagine the vastness of the contiguous irrigation system and its command area of 40 million acres which Pakistan inherited by comparing it to the Netherlands which has just five million acres of farmland and California which has about nine million acres of irrigated land. Sindh only has nearly 14 million acres of farmlands in three barrage command areas. Here, it may be useful to share that the Netherlands’ annual agricultural exports are worth over $110 billion whereas California’s agriculture generates $50 billion for its farmers.
One may then ask, why are we struggling to feed ourselves, despite possessing vast swathes of fertile farmlands?
Irrigation has been practised in this region since mediaeval times. Prior to colonisation, locals practised inundation irrigation, a mechanism dependent on the flow of the Indus and its tributaries. Land was irrigated in the summer months when the river flow was high or, alternatively, limited to winter crops sown on the moist river bed.
After the arrival of the British, a modern controlled irrigation system was put in place. This involved erecting control structures, such as barrages, embankments and canals, and then measuring millions of plots in order to record their sea level elevations, so as to allow gradient flow irrigation water to the farms. The Upper Bari Doab Canal (UBDC) was the first modern irrigation system developed by the British in 1859 and served the newly expanded areas of Gurdaspur, Batala and Amritsar in Punjab. The UBDC irrigation system originated from the foothills of Kashmir and stretched to the edges of the Thar desert and the coastal areas of Thatta and Badin. It provided a vital platform, involving approximately 40 million acres (excluding East Punjab), and should have been ideal for producing food for local consumption and for export.
#### Pakistan’s food imports were worth nine billion dollars last year – something that is unsustainable given our macroeconomic imbalances. The time has come to think afresh. We do not have the luxury of “business as usual.”
Perhaps the biggest disadvantage of this magnificent infrastructure was its public sector nature, as the entire capital investment, the routine operation and maintenance costs came from the general pool of taxation. As a result, farmers (the actual users of the irrigation service) became passive recipients, without the ability or the clout to improve the system. Pakistan’s irrigation system has 19 barrages, of which 13 are in Punjab and three in Sindh. The length of the canals is over 58,000 kilometres, with field water courses running over 1.6 kilometres.
Pakistan is an agricultural country, but it depends on irrigation, and irrigated agriculture is a semi-industrial and capital-intensive business. More significantly, Pakistan’s agriculture is underfunded, despite the State Bank of Pakistan’s (SBP) “generous” crop credit limits.
These crop credit limits were last revised in September 2022. Wheat has a crop limit of Rs 100,000, rice Rs 95,000, cotton Rs 102,000, sugarcane Rs 142, 000 and maize Rs 88,000 per acre. Although this may seem good enough on paper, they are absolutely insufficient to meet the transformational needs of farming. It is these deductive financing policies that stunt agricultural growth in Pakistan, making us dependent on imported food.
According to the SBP, the agriculture credit disbursement target for the current year is Rs 1.8 trillion. Speaking privately, bankers admit that these amounts are not entirely disbursed to farmers and a significant amount goes to the arthis (middlemen) and even to large processors, like sugar mills and multinationals. An important fact to note is that nearly four-fifths of Pakistan’s agriculture credit disbursement is in Punjab – and there is some heartburn among farmers and even bankers (non-Punjab bankers), who think the province is favoured in terms of credit disbursement. However, I think we must factor in governance in Punjab, particularly the digitisation of farmland properties undertaken by the Board of Revenue – and which allowed bankers to easily complete the mortgage process. The Board of Revenue in Sindh is said to be decades behind and the same must be true for other provinces – they and the SBP need to make vigorous efforts to ensure a hassle-free mortgage process in these provinces so that bankers can increase credit disbursement and achieve more even agri financing in Pakistan.
Despite the ‘ease of agri financing’ in Punjab, the SBP’s method of agriculture financing has to go beyond a per-acre planting basis and become transformational in nature. This requires major reforms and a change of approach if the objective is agricultural transformation and value addition at the farm and small-town levels.
If Pakistan has to prosper through the transformation of its agriculture, it will prosper on the shoulders of the entrepreneurial farmers in all provinces, and entrepreneurial farmers in Punjab are the low-hanging fruit.
Crop-based per acre credit requires proof of land ownership – and given the complications of hereditary title transfer issues whereby at times titles are not transferred even after many generations – does not recognise “entrepreneurial farmers”, a category of farmers who, along with their own land, also rent land to enhance the scale of their farming. In one of my projects in the Kamalia area, Punjab, where we linked sugarcane growers with the local sugar mill, we registered farmers across an area of 10,000 acres. The data showed that over half of the farmland was rented and was under the management of ultra-efficient entrepreneurial farmers. The SBP and the commercial banks need to take steps to reach entrepreneurial farmers, something that will require a major change of attitude on the part of policymakers.
Entrepreneurial farmers are risk-takers. They are diligent in their management and are backed by excellent collateral. The SBP’s credit policy and the commercial banks should have products as well as an enabling process to serve these entrepreneurial farmers. They have to realise that risk assessments for farming loans only require taking into account the social and business reputation of the client, the quality of collateral and a solid business plan. Nothing else. Since farmland in Pakistan is untaxed (or negligibly taxed), land values, including farming lands, are astronomical. Based on my experience in Sindh and Punjab, the price value of agricultural land in Sindh varies from half a million to two million rupees per acre and ‘special value’ agriculture land (a category of farmland that due to its location can be sold or used for industrial or real estate purposes) is between two to 10 million rupees per acre. In Punjab, the same land is at least two to three times higher in value than in Sindh.
In terms of farm credit, the biggest issue is that the banks are unwilling to recognise the market value of the collateral because the sale purchase is generally highly under-invoiced. Banks know full well the actual market value of the mortgages entrepreneurial farmers provide and the SBP should allow them sufficient financing under a mechanism I call ‘stringently liberal’, meaning that when assessing a potential client, banks should be stringent and once satisfied with the client and the business data (which should go beyond bank statements), the SBP’s prudential regulations should have a provision for liberal financing. If Pakistan has to prosper through the transformation of its agriculture, it will prosper on the shoulders of the entrepreneurial farmers in all provinces, and entrepreneurial farmers in Punjab are the low-hanging fruit.
Apart from crop planting finance requirements, the antiquated irrigation and non-existent drainage systems require financing to the tune of tens of billions of dollars. The question is, who will finance this lifeline of Pakistan?
Pakistan is already mired in international loans, including water sector loans, which began in 1960 with the IBT. Water sector projects included the construction of dams, barrages, canals and canal lining. Drainage projects included Salinity Control and Reclamation Projects, known as SCARPs, Left Bank Outfall Drain (LBOD) projects and Right Bank Outfall Drain (RBOD) projects. SCARP drainage tube wells were installed all over Pakistan and provided temporary relief by basically shifting the problem from one place to another and the drainage effluents were simply offloaded in canals and rivers. However, LBOD and RBOD, despite indebting Pakistan to the tune of billions of dollars, were worse than useless and the former was instrumental in exposing farmlands in Badin District to sea intrusion. Activists and enlightened farmers in the left and right bank areas were agitated and warned the implementing agencies and the donors about the havoc LBOD and RBOD would create, but were ignored. We saw the devastation caused by the LBOD and RBOD during the 2022 rains and the devastation was termed as “flood” damage.
The result is that despite incurring billions of dollars’ worth of international debt for irrigation and drainage projects and the fact that over 40% of Pakistan’s farmland – 15 million acres – (these figures are prior to the 2022 rains) is waterlogged and saline and either incapable of producing food or crop yields, or if they do, they are significantly low. With an average wheat yield of 1.2 tonnes per acre, Pakistan is losing millions of tonnes in wheat production every year due to land resource degradation. Pakistan imports nearly three million tonnes of wheat as well as 80% of its edible oil. There is certainly a causal relationship between these food imports and the degradation of the soil due to a lack of drainage. The question is how to fund a modern irrigation drainage system that allows the farmlands to produce according to their best potential without harming the soil’s productiveness?
The bottom line is that Pakistan’s irrigation and drainage system is antiquated and requires the kind of massive financing no one is willing to provide unless policymakers show real reform and vision by bringing in the private and financial sectors. Farmers use irrigation and drainage services to raise crops and orchards, and sell their produce in the local and international markets – and if farmers are given the option of a better service, they will certainly be willing to pay more for a world-class irrigation and drainage service.
The question is, will Pakistani businesses see irrigation and drainage as investment worthy?
I think given the food security crisis implications and the scale of the opportunity, they would respond positively – if the government approached them with the right policy framework. Thar coal is a recent example. In this case, Pakistani businesses, led by Engro and the banks, invested in a government-owned majority project with management in private hands. Hussain Dawood, a leading Pakistani businessman, when pressed to explain the logic of investing in a government project, replied that although such investment may initially appear “illogical, but then all investments – for example, textiles – would be at risk if there was no energy.”
This response from one of Pakistan’s leading businessmen regarding investing in Thar coal shows the degree of government involvement that is required to convince businesses to participate in a venture which was alien to them – and which western businesses were unwilling to be part of. Compared to Thar coal, irrigation and drainage is a far more positive proposition for international investors, including Western bilateral and multilateral institutions. The scale of this opportunity is too big to miss for Pakistani businesses and the financial sector. However, here again, it is the government (federal and provincial) that must make their case to businesses. Similarly, businesses must increase their capacity to explore and create opportunities by lobbying the government and international stakeholders.
Finally, there is good news as well. Post 2015’s Paris Agreement and COP27, the international community is committed to providing $100 billion a year to developing countries to mitigate climate change. This money will be available to countries that commit to serious reforms and present plans that are professionally risk assessed and marketable to international donors and lenders.
Pakistan cannot expect much given the nature and quality of the plans it has submitted in the past. There are already reports of donors complaining about the lack of quality plans for the post-2022 rain damage (this was never a flood!) and Pakistan’s UN resilience conference in Geneva in January will be a test of the government’s competence to showcase that we mean serious business.
Aijaz Nizamani is a hands-on farmer and an agri entrepreneur.