Biting the Growth Bullet

‘Pakistan is an agrarian economy’. This statement has been repeated time and again for the past half a century. Perhaps 50 years ago it held true, but the fact is that the direct contribution of agriculture to Pakistan’s GDP has declined since the sixties. Nevertheless, Pakistan’s agriculture sector still plays a crucial role in the country’s economy, contributing approximately 23% to the GDP and employing over one-third of the national labour force. Agriculture is the second-largest sector in Pakistan’s economy, following the service sector.

Major crops include wheat, cotton, rice, sugarcane and maize. Contrary to popular belief, the agriculture sector doesn’t only include crops, and livestock is particularly dominant within this sector, accounting for 62% of the total share, making Pakistan the fifth-largest milk producer and the fourth-largest leather apparel exporter. Agriculture is also one of the largest sources of foreign exchange earnings, with about 70% of our exports linked to it. Textiles account for the highest export revenue and Pakistan is also the fourth-largest rice exporter globally.

Around 82% of the cultivated land is irrigated through traditional means, and the remaining 18% relies on rainfall. Out of the five major crops grown, wheat and rice are the primary staples and play an essential role in both the domestic food supply and the country’s economic development, with Pakistan being the world’s 10th-largest producer of rice and the seventh-largest producer of wheat.

Despite its significance, the sector faces challenges such as slow growth (compared to previous decades), poorly functioning agricultural markets, and ineffective subsidy programmes. Urbanisation and changes in food consumption patterns are putting pressure on the sector to adapt and increase production. Moreover, climate change has further aggravated the pressure on the sector’s ability to perform consistently.

The global average GDP per capita currently stands at around $11K, with the US at over $65K, South Korea at $30K and Turkey at around $10K. Within our region, Pakistan is at $1.5K, while Bangladesh is at $2.5K and India is at $2.85K. Pakistan should aim to reach and exceed the global average GDP per capita as a policy benchmark. Moreover, as per rough estimates, Pakistan needs to achieve a consistent GDP growth of over seven percent over 25 years to eliminate poverty and reach global average levels. In this regard, the key is education, job creation, healthcare and, above all, longevity in policy decisions.

Today, Pakistani economic policymakers have realised that agriculture is the one sector from which we can extract the maximum growth in the least amount of time with the least amount of investment.

The laws, regulations and rules framed by successive governments in the sixties and seventies facilitated growth in major cash crops, (wheat, cotton, rice, sugarcane and maize), and these five major crops are still considered strategic crops in Pakistan. In those days, the private sector was not as active in Pakistan’s agriculture economy; as a result, governments took various supportive initiatives to boost agriculture, including the Seed Act of 1976. The objectives of these policies were to make Pakistan self-sufficient and they worked. By the eighties and nineties, Pakistan had become self-sufficient in these commodities. However, these policies were neither updated nor tweaked to meet changing business dynamics. Furthermore, the rules and regulations governing these policies are not private sector-friendly, primarily due to the red tape and inefficiencies that exist within the government sector, in contrast to the business dynamics of today’s private sector.

The required pace and scale of R&D in agriculture are broadly missing. On the other hand, following a thorough ground reconnaissance in 2014, a consortium of private sector investors comprising the Sapphire, Nishat, and Fatima groups (SANIFA in short), set up a seed company that was able to produce a cotton seed variety with a much higher yield, both in terms of quantity and quality. The sale of these seeds funds the research for this company.

Another important requirement for the agriculture sector is large-scale mechanised farming, and this calls for scale in deployment. For example, a six-row cotton picker is viable for 10,000 acres, but in Pakistan, 88% of the farms are considered small by acreage (less than 12.5 acres). Yet, these farmers hold about 55% of the total cultivated area, leaving only a small proportion of large landowners who can deploy mechanised farming methods.

There are also inhibitions to agriculture mechanisation. For example, it is believed that if farming were mechanised, many people would lose their jobs. Now, this is where the debate becomes interesting. Why do we think we can achieve economic progress and alleviate poverty without changing anything? Diverting and deploying human resources towards higher-value tasks and jobs is inevitable to achieve national progress. Other related sectors within the agriculture landscape require skilled people; hence, such redeployments are essential. In China and South Korea, menial farm workers were moved to low-productivity industry jobs. In fact, this phenomenal shift in China is celebrated. The relocation of agricultural workers, between 1980 and 2000, to low-productivity industry jobs in the eastern seaboard of China is considered to have been the biggest peacetime migration in human history.

This is something that every country must go through on a varied scale.

Let us look at maize, a demand-driven success story in Pakistan. In 1947-1950, maize production stood at 0.38 million tons; by 2007, it had reached 3.037 million tons; and by 2019, the maize sector had expanded to cover 1.3 million hectares, with national yields approaching over six tons per hectare.

Several factors have contributed to this, including the adoption of high-yielding varieties and hybrids, leading to higher yields per unit area, as well as the expansion in maize cultivation, particularly in Punjab and KP. There has also been growing demand for maize in the poultry industry, which currently consumes nearly 65% of Pakistan’s maize production. Other factors that have contributed to making maize the third most important cereal crop, after wheat and rice, are improved irrigation infrastructure and techniques, better water management, enhanced credit facilities for farmers, government programmes aimed at improving agricultural extension services, and the establishment of research institutions focused on maize improvement and development.

The demand-growth trajectory of maize cultivation in Pakistan, primarily on the back of growth in the local poultry sector, suggests that this success can be replicated with other crops. For example, local production of world-class dairy-based products, including cheese, would contribute substantially to promoting import substitution, as well as promoting exports.

Agriculture remains a critical component of Pakistan’s economy due to its importance in food security, job creation, and foreign exchange generation. However, the required efforts to prioritise it through policy dialogue and a national narrative are missing. The velocity of change in global economics warrants seeking specialised assistance in agriculture and related sectors in Pakistan. It is time agriculture received the attention it needs to drive Pakistan’s growth.

S.H. Irtiza Kazmi has three decades of experience in corporate and investment banking and financial advisory services. irtiza.kazmi@gmail.com