950827

Agri income

contributes

most to income

inequalities

KARACHI: A study shows that of the five sources of rural income in Pakistan - agricultural, livestock, rental, nonfarm and transfer - agricultural income makes the largest contribution to overall income inequality.

One of the main reasons for this is the link between agricultural income and land which is itself quiet unevenly distributed in Pakistan.

The key findings of the study on agricultural income, cash crops and inequality in rural Pakistan, conducted by an expert of the International Food Policy Research Institute, Richard H. Adams, said that by contrast, of the five sources of income livestock income makes the smallest contribution to overall inequality. Livestock income is weakly and negatively correlated with land which suggests that this income source is of more potential importance to the poor and landless.

Policy makers in Pakistan concerned with rural income inequality would thus be well advised to pay more attention to the livestock sector. Pakistan is not in need of artificial price supports for outputs but of financial assistance for inputs that would benefit small livestock prducers, like cross breeding schemes and veterinarian programme.

The study also shows that efforts to improve rural income distribution in Pakistan should de-emphasize the production of a major cash crop - sugarcane.

Although Pakistan does not possess any comparative advantage in the production of sugarcane, government pricing policies have made sugarcane the most profitable cash crop in the country.

For each additional acre of land planted in sugarcane, households in the top imcome group can realize about 5.5 times as much in the value of total gross output as they could if they planted that additional acre in wheat. As a result, sugarcane production is monopolized by rich farmers.

According to the data, households in the top rural income group recieve more than two and a half times as large a share of their agriculture income from sugarcane as do those households holds in the poorest group.

As a corollary the study suggests that policy makers interested in rural equity should focus on improving technologies for producing the main food (wheat, rice) and livestock crops (fodder, barely).

Not only do all four of these crops represent inequality and decreasing sources of income but each of them makes a relatively small contribution to agricultural income inequality.

For example while sugarcane accounts for 37.3 percent of agricultural income inequality, none of the main food (wheat and rice) or livestock crops (fodder and barely) accounts for more than 12 percent of such inequality.

The study shows why sugarcane is such a profitable crop and why it contributes so much to agricultural income inequality.

This can be demonstrated in two ways.

First the dominant input for agricultural production is land. For households in the top income group, the marginal product of land for sugarcane is about 5.5 time that of wheat and 2.8 times that of rice.

In other words, holding everything else constant for each additional acre planted in sugarcane a household in the top group will realize 5.5 times as much in the value of total gross output as if it had planted that additional acre in wheat.

Second: even for the bottom income group the marginal product of land for sugarcane is much higher than that for the rich group as compared to wheat or rice growers.

For example, the marginal product of land for poor households growing sugarcane, is over 3.5 time that for rich wheat growers and about 1.8 times that for rich rice growers. Even for the poor, the incremental benefits of planting an extra acre of land in sugarcane far exceed those recieved by the rich who plant more land in wheat or rice.-PPI