Farm & the budget

AGRICULTURE contributes almost a fifth to our national income annually but its growth has been moribund for years. Last year`s uptick reported in the recent Economic Survey needs to be seen in this perspective. It is not a pointer towards sustained growth but a one-off bounty delivered by nature, which has been somewhat shrivelled by the crash of commodity prices. Otherwise, the growth number would have been significant and probably, highlighted as an indicator of a reviving rural economy by the government.

For the next year, the budget projects growth in the agriculture sector at 3.9pc.

This number is a key input to realise the GDP growth target of 5.5pc set for the economy.

Given the sector`s dismal track record, a concerted effort at all levels to enhance farm productivity will be required to reach the target. In this scheme, the government has a pivotal role as its sector interventions, unveiled in the budget, set the tone for driving other stakeholders including farmers and agribusinesses to perform.

In the recent budget, three key new incentives have been announced for the agriculture sector. The first and second pertain to income tax holidays for businesses investing in the establishment of cold chains for storage and distribution of perishable farm products, warehousing of agriculture produce and production facilities for halal meat. The third relates to reduction of taxes on local and imported farm machinery and post-harvest equipment for handling and processing vegetables, fruit and fodder. The thrust is towards farm mechanisation and curtailment of postharvest losses which, for some perishable fruits, can exceed 20pc of total production.

The question is whether these interventions are going to revive the farm sector and help the economy achieve its agriculture growth targets set for the next year.

The first two initiatives have no direct bearing on productivity enhancement of the farmlands which is critical for sustainable growth. They will still contribute towards increasing the farm incomes by limiting postharvest losses and benefit the economy by incentivising the corporate sector.

The third initiative has a direct impact on the rural economy but is likely to benefit large farmers more than small farmers owning less than 12 acres of land. Such farmers constitute more than 80pc of the country`s farming households and cultivate almost 48pc of the arable land. But they don`t have surplus resources to invest in farm machinery and rely on borrowed or hired machines to till their subsistence holdings.

In terms of an equitable treatment, the budgetary package offers little relief to the small farmers and also overlooks the necessity of their contribution in meeting the sec-tor`s growth target. If their lands don`t deliver more produce, the target can never be achieved by the rest of the farmlands.

The policy focus on farm mechanisation is also less meaningful than other possible options, particularly reduction in input costs of seed, fertiliser and pesticide as a means to spur agriculture growth. Such interventions would have been quick in generating results, starting from the crop sown after the budget`s approval. They could have been targeted at small farmers to address productivity and equity issues and funded jointly with the provinces to curtail resource load on the federal exchequer. They would, however, have entailed cash allocations/outflows, adding to concerns, shared by the government and the IMF, about overshooting the fiscal deficit target. They, therefore, did not figure on the priority list of the budget mal

Another reason for not prioritising expenditure on agriculture is rooted in devolution of this subject to the provinces. This has fragmented policy formulation and responsibility in a sector where integration is a necessity for optimal planning based on comparative advantage of different ecological zones, national food security concerns and cross-border input and commodity movements and transactions.

In some ways, the setting of a national target for agriculture growth after devolution, without ensuring agreement amongst the federating units on sector priorities and corresponding resource allocation in their budgets, is a paper endeavour.

The upshot is that the budgetary measures are unlikely to increase agriculture growth to the required levels. For this, other stakeholders must shoulder a greater burden.

In a resource-constrained situation, the government can ensure productivity gains and growth through regulatory interventions. It should begin by protecting farmers` investments in agriculture inputs which have a direct impact on productivity levels. A campaign to check the sale of spurious seeds, fertilisers and pesticides, and enforcement of international standards for quality manufacturing of farm inputs will help improve farm yields. Otherwise, the economic pundits will have to hope for another plentiful year in which the domestic prices also escalate to hit the ambitious growth target. •

The writer, a civil servant, has worked in the agriculture sector.

Published in Dawn