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Constraints on Future Agriculture Growth and the Need for Reforms

The relative productivity of most crops is low and productivity growth has been slow. Past growth relied mainly on expansion of cultivable land, expansion that is no longer possible. Fertilizer use is leveling off, suggesting that returns to further intensification are falling. Productivity growth through technological progress appears to have petered out once the green revolution technology was diffused widely throughout the country. What can be done to revitalise the sector so that it can achieve growth rates that are both satisfactory and sustainable? The answer lies in increased productivity compared to present levels, which will require major changes in systems, policies, and institutions for agriculture over the next three to five years.

Broadly speaking, agriculture faces two sets of constraints in Pakistan: resource constraints and policy distortions. Resource constraints fall into four categories: (a) the inappropriate use of land, causing soil erosion and land degradation, caused partly by inappropriate incentive policy; (b) a pattern of land concentration that does not promote eficiency (many farms are either too large or to smal) and the absence of secure tenure, which creates disincentive for investment in land; (c) a problem-plagued irrigation system; and (d) inadequate human resources and infrastructure.

As for policy constraints, although there has been some improvement, they are still serious. Direct intervention by the government in agricultural markets has diminished in recent years but remains excessive. Subsidization of wheat imports, duty and period restrictions on cotton exports, and protection of surgarcane continue to distort incentives, Nominal protection coefficients reveal a persistent policy has against cotton and whet and in favour of sugarcane. Indirect intervention, through protection of industry, penalizes agriculture through the impact on relative sectoral prices. Government policy also afects vital inputs (fertilizers and seeds) and the credit market.

The composition of public expenditure in agriculture is also distorted. Spending is dominated by subsidies that do not help farmers, either because of rent seeking and inefficiencies or because the subsidy is designed to help consumers at the expense of producers.

Growth rates achieved in the past can be sustained and even surpassed if major changes are made in systems and policies. The most important change is a redefinition of the role of government in which the government is limited to ensuring the smooth functioning of markets and promoting private sector activities. Investment and public expenditure in agriculture will have t be reshaped, with government spending focusing on public goods and market failures.

The remaining chapters of this book deal with the major resource and policy constraints currently facing Pakistani agriculture: policy distortions public enterprises, the land market, irrigation, and rural credit. Other key constraints are examined briefly at the end of this chapter.