Pakistan’s food and agriculture systems

Executive Summary

National and global economic changes-inflationary oil prices and skyrocketing food prices-and national political uncertainty, compounded by deterioration in law and order present serious challenges for Pakistan’s economy and its agricultural sector in particular. Growth has slowed, inflation has increased, and the trade deficit has widened. Stagnant wheat production and an unprecedented level of informal wheat trade to neighboring countries have made the food supply insecure. Pakistan’s traditional, subsistence agriculture is becoming commercial, albeit slowly. Directly and indirectly, the sector is the main source of income for about 66 percent of the rural population and is key to poverty reduction and national food security. In this context, how can Pakistan raise the value of its production of food staples and remove impediments to food marketing and market access systems? Here we offer answers to these questions by recommending possible solutions to specific problems and systemic issues, as well as recommendations for USAID interventions.

AGRICULTURE SECTOR

Pakistan’s agriculture sector consists of four subsectors: food and fiber crops, horticulture and orchards, livestock and dairy, fisheries, and forestry. From the 1960s to the late 1980s sector output grew, thanks to high yielding and fertilizer responsive crops and expansion of the land base and irrigation water supply, but little was done to reduce post-harvest losses or add value. Since 1990 farmers have put more land under food crops, oilseed, orchards, and horticulture at the expense of “other” crops. But rising food crop yields-attributable to use of fertilizer and pesticides-are, on average, still lower than elsewhere in the region and much lower than yields in developed countries. Likewise, Pakistan is the world’s fifth largest producer of milk, but the average yield per animal is very low and very little is processed hygienically. About 80 percent of the recent rise in value-added has come from livestock, with the livestock and dairy subsectors now contributing about half of agriculture’s share of GDP. Meanwhile, total factor productivity is stagnant.

Technical change and value addition have been slow for a number of reasons: low investment in research and development, in developing or disseminating higher production packages, in maintaining an effective agricultural education and extension system, and in maintaining physical infrastructure. Problems are compounded by resource degradation and the dominance of the public sector in agricultural trade and price controls. What can be done to effect positive change in the sector as a whole?

Facilitate formulation and enforcement of a policy on minimum economic farm size based on digitized cadastral maps and an electronic land titling system that is easy for farmers and banks to use. Out of 34.5 million hectares of arable land in Pakistan, about 23.4 million are cultivated. Farm size distribution is skewed with many small, owner-operated plots and a few very large holdings. With most farms less than the economic landholding size of 5 hectares ha. there is little investment in land development, farm structures, and machinery. The antiquated land titling system discourages efficient land markets, investment in land, and the use of land as collateral for formal credit.

Pass and enforce laws to check the mushrooming growth of tube wells and the high rate of abstraction. About 85 percent of Pakistan’s cropped area is irrigated. Tube wells are increasingly used but groundwater abstraction has not risen commensurate with the number of wells, indicating abstraction in excess of recharge and leading to saline encroachment into fresh groundwater aquifers.

Enable fair competition in the agricultural marketing system at all levels. The provincial food departments and a parastatal, the Pakistan Storage and Supplies Corporation, procure wheat up to a target amount, after which the private sector may procure wheat. Similarly, the Trading Corporation of Pakistan, under the federal Ministry of Commerce, imports wheat, fertilizers, and occasionally other food commodities. The factor and product markets are linked at the retail/wholesale stage. A commission agent (arhti) supplies input as a dealer and wholesaler, purchases produce, and supplies regular customers inputs on credit, whether for production or consumption. Farmers pay a very high implicit interest rate because of risk and lack of competition.

Ensure private seed companies a level playing field and access to basic seed and plant materials developed by public researchers. Farmers retain seed for cereals from previous crops or purchase them from other farmers or wholesalers/commission agents. Wholesalers provide seed from previous crops or by way of national and multinational seed companies, as well as the public sector provincial seed corporation. About 600 registered private seed companies import or produce oilseed and vegetable seeds, while multinationals deal mainly in hybrids. Only provincial seed corporations are permitted to multiply improved cultivars released by public researchers, and handle their processing and sale to farmers. A national company has started producing and marketing hybrid paddy seed. Breeder’s rights need to be protected and access to private seed companies should not be restricted. Seed corporations should operate as commercial entities and not be subsidized. A Breeder’s Act, now being considered, would ensure breeders’ rights and private sector access to the new seeds.

Target fertilizer subsidies. The private sector produces and sells fertilizer. The government imports fertilizer to fill any supply gaps and subsidizes all purchases to encourage balanced usage. The main problems with fertilizers are timely availability and adulteration. The subsidy should target small and marginal farmers, not all purchasers.

Disseminate information on safe pesticide use. Except for aerial sprays and locust control measures, the public sector is not involved in pesticide formulation, manufacture, or trade.

Indiscriminate use of pesticides is creating health and environmental hazards. Provincial extension departments need to inform farmers of safe methods of pesticide application.

Explore opportunities for integrating farmers, supermarkets, processors, and exporters into value chains. Contract farming was recently introduced in Pakistan on a limited scale. The main producers of maize-based products negotiate pre-sowing contracts with growers. Fruit processors and exporters are bypassing commission agents to enter into direct agreements with orchard owners for supply of given quantity of fruits at a negotiated price. Two cash and carry companies have started buying vegetables and fruits from growers.

Improve governance to expand private sector’s role in the sector. Poor governance, especially rent seeking, is hampering the role of private sector in agriculture. Contract enforcement is very weak and investors bear great risks (e.g., in linking credit with input provision and output purchase). The obsolete titling system makes credit disbursement against collateral or contract farming arrangements nearly impossible. Moreover, the mechanism for settling disputes over property, land rights, or tenancy is cumbersome, costly, and usually not favorable to the small and vulnerable. The justice system as a whole needs reform to make services accountable and to empower the disadvantaged, particularly women. Though women contribute to most farming operations, that contribution is not accounted for. Local tradition deprives women of the right to inherit property, or, if they do own property, to manage it or earn money from it.

IRRIGATION

Pakistan’s surface and groundwater sources are at their limit and the country is facing severe water stress. One of the world’s most arid countries, Pakistan has the world’s largest contiguous irrigated area in the form of the Indus Basin Irrigation System. The country’s once huge groundwater reserves are threatened by salinization and water logging caused by intensive irrigation. This, in turn, is threatening the agriculture sector in Punjab and Sindh. More than half the farmers in Sindh may be keeping part of their land fallow because water is scarce. In Balochistan, drought-stricken since 1997, the provincial government subsidizes groundwater pumping through low electricity tariffs and farmers pump water from hundreds of meters depth. Because tariffs do not reflect the scarcity value of the resource water is not used efficiently. Multiple uses, particularly of canal irrigation water, are not considered; and poor farming practices-such as failure to use canal lining or water-sparing innovations-squander water. Aging infrastructure requires massive investment to be upgraded; dwindling capacity to manage the irrigation system must be revitalized; and the government must enforce water rights. Looming water shortages threaten Pakistan’s economy and polity. The need for more storage capacity and efficient water management and allocation is urgent.

Donors supporting irrigation in Pakistan include the World Bank, Asian Development Bank, the UK Department for International Development, and The Netherlands. In 2008, the World Bank approved a $38 million grant to Pakistan to build capacity and to support federal institutions in water resources planning and management; hydropower planning; the upgrading of modeling and management systems and databases; and in conducting a sediment study for the Indus system.

Work will include studies on water resources regulation, policy, and planning; stakeholder benefit-sharing; action plans for asset development, ownership, and operation including potential interprovincial assets, public-private partnerships; institutional regimes for benefit sharing across administrative levels; lessons learned on resettlement; environmental and social assessments at basin level; climate change impacts on Indus hydrology, water availability and infrastructure development; studies on water use productivity and irrigation efficiency; and knowledge sharing on groundwater and conjunctive use. Training in system planning and management, mainly through the Water and Power Development Authority, will cover GIS and modeling efforts, including optimization models for the basin. What else can be done?

National agricultural water policy covers water law, rights, pricing, and allocation; user participation; subsidy policy; and asset and management transfer of infrastructure as in Irrigation Management Transfer (IMT). Recent reforms have emphasized economic valuation of water resources, though valuation has proved difficult. For national level improvements, we offer three broad recommendations:

– Assemble a panel of stakeholders to consider reforms in governance and regulation of water management, including water entitlements and administration from the interprovincial level to the user level.

– Generate awareness of the need to improve basin modeling and system design capacity to address flow variability, and invest in new infrastructure.

– Develop capacity for river basin management, basin modeling, and socioeconomic analysis of water basin planning by supporting graduate training, secondments, study tours, etc.

The regulatory framework for the water sector should address the relationship of groundwater entitlements to surface water rights and actual surface water deliveries by involving users in groundwater monitoring and voluntary self-regulation. Groundwater management is inextricably linked to formal and informal water allocation and rights regimes. Hence one must consider not only regulations and policy, but also informal entitlements given the fact of overlapping rights regimes. In addition, irrigation services are delivered mainly through large public enterprises operating with little oversight by or input from users. Ensuring accountability, transparency, and financial sustainability will require that new community and user associations enter the sector, as well as small and large private operators, using clear entitlements, benchmarking, and transparent rules for operation. Some decentralization has already taken place; Punjab and Sindh have undertaken reforms to decentralize irrigation management and improve user participation, including clear entitlements.

One type of new user association could be “multiple-use water organizations.” Water agencies give irrigation priority but poor households use and re-use water from multiple sources for not only irrigation but also drinking, livestock, industrial applications, sanitation, and recreation. Urbanization requires reallocating water from agriculture to industry, energy, and urban consumption. Despite the evidence of integration of water uses at the local level, there are few “multiple-use water organizations.”

Plenty of donors are intervening directly to remedy waterlogging and salinity, so USAID should do no more than monitor those issues. Our general recommendations for other local or provincial interventions are as follows:

– Help make irrigation services more competitive, accountable, and efficient by supporting continued development of (water users associations) WUAs below the distributary level and by supporting public-private partnerships at the canal command level.

– Investigate institutional approaches to groundwater management and develop a program for sustainable management

– Subsidize technological interventions, such as drip irrigation or microhydel investments, and complement with focused extension efforts and development of an integrated value chain and business development services.

Investing in irrigation reduces poverty by increasing food output, raising demand for agricultural labor, and generating higher incomes than rain-fed agriculture alone-especially when land ownership is less stratified. The effect of investment on poverty depends largely on how water availability affects demand for agricultural labor by increasing agricultural intensity and the area under cultivation. Further, high-value crops such as spices, cotton, and groundnut, produce more employment per drop of water than traditional crops. Women benefit directly through crop-based income and indirectly through irrigation-driven agricultural employment that reduces rural out-migration. One may quantify the indirect multiplier effects on women’s contribution to economies at different scales through, for example, gender-disaggregated input-output or social accounting matrices, or CGE models.

To be successful, such initiatives must also support the development of local suppliers, taking into account the production and distribution of low-cost equipment, market outlets, individual farmers’ technical knowledge and management capacity, and the organizational capacity of WUAs. Projects to increase horticultural production and the production of other nontraditional crops should also define target groups in a transparent way, and consider the sex-disaggregated labor impacts of increased production, processing, and marketing in local areas. Feasibility studies should estimate the number and proportion of farms in the command area that will be lifted above the poverty line through projects.

Irrigation managers have for some time considered spatial inequity in relation to physical structure, but inequitable access due to tenancy, gender, or other socioeconomic factors is less frequently considered. WUAs are helping to resolve water distribution issues for upstream and downstream users, but inequitable access due to social status is less easily overcome. In Punjab, a tenant’s right to join a WUA depends on the tenancy. Permanent tenants long associated with a certain plot of land are often delegated a right to membership, though this remains the prerogative of the landlord and is thus vulnerable to manipulation.

Pakistan’s small-scale and traditional irrigation systems range from spring-fed and shallow-well systems, to elaborate groundwater conveyance systems such as the karezes of Balochistan, as well as water harvesting systems and small-scale storage for kitchen gardens and the like.

Participatory approaches to drainage investments have also worked well and sorely need additional support in Pakistan.

By delivering water directly to plant roots, drip irrigation can double average yields. The PPAF has a community funding provision for drip irrigation kits in water-deficit areas, mainly for horticultural crops, and requires a community contribution of 20 percent to enhance local ownership. For centuries, communities in the hilly areas of Pakistan have built and managed small irrigation channels fed by mountain streams. Organizations such as the Aga Khan Rural Support Program (AKRSP) have scaled up these channels through microhydel schemes financed mainly by grants, with some community contribution; total costs per scheme average about US$$10,600 or $150 per household served. Microhydels are used for lighting for heating and cooking, agricultural processing, small business, and even community washing stations and low-wattage water heating for off-peak use. The power generated by the microhydels is compatible with irrigation since only the head and not the total water volume is reduced so the irrigation command area does not have to be reduced. AKRSP’s simple, cost-effective approach can be replicated easily.

In sum, to improve small-scale irrigation specifically, USAID should consider supporting, promoting, or aiming for

– Irrigation management transfer reforms.

– The bundling of water, agricultural extension, and financial services.

– Pilot initiatives for private sector financing of small-scale irrigation.

– Multiple uses of irrigation water.

– Parallel development of water and small-scale energy, including micro hydels for electrification (including agricultural processing) and pump set operation in hilly areas.

– Improved equity and pro-poor outcomes for women and land-poor men.

– Mainstreaming groundwater management concerns in the IWRM, particularly in Balochistan, Sindh, and Punjab.

– Participatory design to focus on environmental issues, such as soil and water quality.

– Research on role of small towns in rural areas and implications for water management

VALUE CHAINS

Pakistan’s key food crops are wheat, rice, maize, oilseeds, and sugar. Wheat, essential to food security especially in urban areas, has little value added until it is milled. Commercial growers and researchers have greatly different wheat yields and the incidence of leaf and stem rust is on the rise. Crops are not diversified and no research has been done on other related crops, such as triticale. Confusing policies hamper private sector crop development, yet Pakistan could well become a wheat exporter as most of its commercial crop is irrigated. Rice is significant in the Pakistani diet and Basmati and coarse rices are profitably exported. Pakistan’s public agricultural research system has not yet produced hybrid rice varieties. Maize has good growth potential and a ready market in the feed milling industry. If, as reported, the main crop production area is being irrigated with “mined” non-replenishable water the government may need to encourage production where water does not have to be mined.

Pakistan consumes around 3.0 million MT of edible oil, 70 percent of which is imported, and demand is rising. The country could perhaps be more self-sufficient in edible oil. Domestic edible oil is mainly from cotton seed oil, and the rest from sunflower and canola. Soybean is able to supply edible oil and protein for feed mill rations, although this crop is in decline and as it is a non-hybrid, self pollinated crop this situation is not expected to be reversed until Pakistan passes plant breeders rights and has an effective rule of law. Meanwhile, the growing sugarcane subsector competes for land and water with wheat and oilseeds. Historically, costs of producing sugar in Pakistan have been much higher than the cost of importing it because of tariffs and a variable import quota; at today’s prices the cost disadvantage is less.

Other important subsectors are horticulture and livestock. Horticulture is profitably exported, but little value is added and most products are exported ‘fresh’ and often are of very low or inconsistent quality. Unhealthy practices deter innovation and investment. For example, land owners sell mango crops prior to harvest to traders who then manage the produce from harvest and trade to domestic or export markets, resulting in a lack of transparency, and poor quality assurance across the supply chain. This implies that many land owners are not interested in growing activities, perhaps because many inherited land and don’t appreciate its value. The livestock sector is not much advanced with the possible exception of the dairy industry. Value adding, genuine quality assurance, product traceability, brand recognition or other supply chain strengthening approaches are minimal.

Agricultural inputs include seed, fertilizer, and agricultural mechanization. Most hybrid seed in Pakistan is imported. Local seed is often of low quality yet Pakistan has no AEZ restrictions to be self sufficient and export seed. Public sector research is increasingly unable to deliver new varieties commercially acceptable to growers. Parastatal and government participation in the seed market complicates market signals as their poor quality seed is sold below real costs and without profit. Private sector actors are reluctant to research and develop new products as Pakistan does not protect breeders’ rights. New products must follow a restrictive pre-release testing phase, while public sector plant quarantine and seed certifications are largely ineffective. Few entities participate in fertilizer and few products are suited to the range of AEZ and crops. This input area could benefit from private sector led commercial agronomy services promoting tailor made solutions. Participants include subsidiaries of multinationals who generally market higher quality products. National and family owned enterprises formulate off-patent and sometimes harmful products of varying quality. Regulatory measures are federal and provincial.

Agricultural mechanization-ranging from land preparation, growing, harvest and post harvest-is not advanced in Pakistan’s commercial agriculture sector. For example, some maize is hand shelled or separated from cobs by laborers flailing with sticks. And disc ploughs still common in Pakistan have been shown to create hard pan; farmers should use other cultivation options or minimal tillage options.

Some well established private sector trade groups collect, transport, store, and assemble rural produce, and trade in and outside the country. They tend to be simple and focused on urban areas. Overall, the agriculture supply and value chains are weak-lacking innovation; diversification in cropping, production, and enterprise selection; trading sophistication; value addition at the cottage level; and new products, packing, and marketing.

The enabling environment for value chain development encompasses rural infrastructure, finance and credit, land marketability, asset valuation; and national sector coordination. The many weaknesses in the rural infrastructure-communications transport, postharvest processing, bulk handling or specialized product movement facilities-are compounded by an uncertain business environment. Commercial growers and agribusiness, for example, have few genuine or innovative opportunities for acquiring finance and insurance. Rural credit options exist, but growers must have a land title deed before banks will lend. A land title is a prerequisite for a bank account, and banks tend to lend only to those with an account. Other collateral options (e.g. livestock herd; crops in safe and accredited storage) are generally not recognized in formal operations. Informal loans are exploitative and expensive. Five private commercial banks dominate rural lending and there are a range of micro finance institutions, the top one being the National Rural Solidarity Program.

Since independence, Pakistan has not developed equity in land allocations, or a transparent and fully functioning land administration system. Land administration and accountability appears challenged; it is difficult and costly to access records, which turn out to be inherently unreliable. IT is not used in maintaining land registry records.

Though many federal ministries and agencies and provincial departments administer agriculture, land, water, and natural resources, there is no coordinated approach to linking strategic objectives and provincial implementation to assist farmers and agribusiness. Everyone seems to rely on the Planning Commission, which is not an implementing body. More work is needed to document which organizations are directly or indirectly involved in the sector to better appreciate the regulatory and operational framework to assist mobilizing sustainable supply and value chains.

Many agriculture value chains identified here will struggle to sustain themselves and adopt best practices in the absence of assistance. Such assistance should focus on policy reforms in specific commodities, on raising farm productivity and energizing commodity markets by improving credit and business development services, on targeting growth of small and medium-scale farming, and on involving women in positive roles.

SECTOR POLICY

Wheat accounts for about three quarters of grain production in Pakistan and is sown on over a third of all cropped land. Because of its symbolic and practical importance, it is a major exception to the government’s commitment to market price regimes for food and food crops. For decades the government has used a system of “procurement price” and “issue price.” The procurement price is usually less than the landed cost of imported wheat. Flour mills purchase wheat according to a quota based on milling capacity, and many likely sell their output at a higher margin than they are supposed to. This system can be characterized as an untargeted subsidy to flour consumers financed in large part by a tax on wheat producers. Drawbacks are numerous:

– Farmers have little incentive and ability to produce more.

– Handling and storage are inefficient, and post-harvest losses are large.

– Government is rarely able to procure targeted volumes at the pre-set procurement price.

– Flour mills overinvest in capacity.

– When provincial governments try to procure targeted quantities they create a “need” for bans or administrative restrictions on inter-district/interprovincial procurements that further discourage private investment in wheat marketing and storage.

– The system compels a ban on legal exports of wheat from Pakistan into Afghanistan while creating an incentive for clandestine trade.

Yet Pakistan is still a marginal importer/exporter of wheat. It is reasonable to suppose that a movement toward less government control of wheat marketing complemented by other productivity enhancing measures could make Pakistan a reliable supplier of wheat to Afghanistan and to some distances beyond.

If wheat and flour pricing policies are the most urgent problem facing Pakistan’s food and agriculture system, water is the most important one. Without the Indus irrigation system agriculture in Pakistan would scarcely exist. Pakistan is headed for water scarcity, possibly by 2035, because of population growth. And there is nothing to be done about it; there is simply no additional water to be injected into the system. Moreover, 15 million tons of salt accumulate in the Indus Basin every year from evaporation; without sediment, the Indus delta is degrading rapidly. Groundwater, which now accounts for about half of all irrigation is overexploited and becoming salinized, yet tens of thousands of additional wells are being put into service every year. In the barani areas of Balochistan, farmers (using subsidized electricity) are pumping from depths of hundreds of meters and in the sweet water areas of the Indus Basin, depletion is now a fact in all canal commands. There is an urgent need to bring withdrawals into balance with recharge and since much groundwater recharge in the Indus Basin -about 80 percent-is from canals, this requires an integrated approach to surface and groundwater.

As if growing water demand colliding with static supply, salt accumulation, and degradation of the Indus delta were not enough bad news, climate change will pose even harsher challenges to Pakistan. The Indus basin depends heavily on the glaciers of the western Himalayas which act as a reservoir, capturing snow and rain, holding the water and releasing it into the rivers which feed the plain. It is now clear that climate change is already affecting the western glaciers far more seriously than in the damper Eastern Himalayas. While the science is still in its infancy, best estimates are that there will be 50 years of glacial retreat, during which time river flows will increase. But then the glacial reservoirs will be empty, and there are likely to be dramatic decreases in river flows conceivably by a terrifying 30 percent to 40 percent in 100 years time.

Even in the shorter term much of the water infrastructure is in poor repa

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