Policy risks to agriculture

Policy risks to agriculture
By Ahmad Fraz Khan

If farmers’ fears are to go by, the new year might not be any different for agriculture from the last one. They think that this year too, the terms of trade would be unfavourable for them, international recession would keep commodity prices down and an ever-expanding domestic tax regime would keep the cost of production high.

Listing factors causing fears, farmers maintain that uncertainty is also haunting them. At the policy level, no one knows who is in-charge of the sector? The federation has abdicated the sector to provinces after the 18th amendment, but the federating units have yet to come to grips with the problems agitating the growers.
Ideally, it should be a temporary phase and the provinces, especially Punjab and Sindh, should quickly develop the capacity to plan and execute their own agricultural priorities. The problem, however, is that agriculture, as a sector, is yet to appear on provincial policy radar. The budgetary allocations reflect the level of neglect that the sector faces by the provinces. Punjab, which is considered to be the food basket of the country, allocates only Rs3-3.5 billion for the sector each year. To put the things in context, it has allocated Rs50 billion for police this year.

The spending patterns leaves even more to be desired. Out of Rs3.5 billion, the subsequent budgetary revisions regularly rob almost half of the amount, which leaves the sector with less than Rs2 billion to spend during an entire year. For the last three years, the actual budgetary spending has never crossed 60 per cent of the allocations. It means, actually, the sector gets only Rs1 billion each year; it indicates the commitment of the provincial government. With this meagre money, it can hardly meet the level of expectations raised by the 18th Amendment. That is precisely the point that continues to haunt the farmers. Can the Punjab government reverse the spending trend in 2012, the farmers are not convinced.

Second, the farmers fear crop cycle failure during this year. They feel that the country has started the year on a wrong foot.
The cane crop is sprinting towards marketing failure and wheat would be the next one. The cane crop, which is hugely healthy, has seen delayed start of the crushing season and price sliding. The millers, fully aware of the crop size, are making up to 25 per cent deductions in price on excuses like quality. If crop is short, the millers never mention the quality issue. But now, they are doing so with full fiscal ferocity.
On the other hand, farm temperatures have dropped much below the zero degree, injuring the crop from within. Both these factors are hurting the farmers. Cane has overlapping harvesting and sowing activity; on the one hand, it is harvested, and on the other, sown. If farmers don’t get proper returns, the sowing would immediately suffer.
The wheat failure is also feared, not because of production but procurement, as is the case with cane. The country is currently holding close to ten million tons of wheat, with a clogged debt of around Rs300 billion. Servicing this debt is costing the country around Rs6 billion per month. The State Bank has warned everyone that they would get as much loan as they retire.
Thus, money would severely be in short supply when the government needs it the most four months down the line

The federation has increased wheat price by more than 10 per cent, correspondingly raising the inventory keeping cost. If these factors lead to a price crash, the farmers would be in for a big trouble.
Both crops, if they fail as much as the farmers fear, can take the entire crop cycle down next year. If farmers do not get money from one crop, their investment would naturally drop on the next one. The fertiliser crisis has already taken a toll on wheat this year. Punjab is still lagging 600,000 acres behind its target, which it would, most probably, miss this year because temperatures have already dropped in the country to a level that make germination impossible.
Third fear factor is prices of inputs, especially fertiliser. In the last one year, urea prices have doubled and that of DAP increased by more than 50 per cent. It has already reflected in their off-take; urea consumption in Rabi has dropped by more than 15 per cent so far and DAP by 40 per cent.

The new increase in gas prices, effective from January 1, would further increase urea prices, taking them out of farmers’ fiscal reach. To make the matter worse, the government, instead of controlling ever-increasing fertiliser prices, is contributing to their increase. Taxation, increasing gas prices, failure to print prices on bags and failure to move its machinery for regulating prices are a few examples of government unwillingness or inability to keep prices in check.
The fourth factor is the federal attitude. After lobbing the sector in provincial lap through the 18th Amendment, it seems to have abandoned even those decisions it can take. Like, export of agriculture commodities and imports of inputs. The country is still holding huge wheat stocks because it failed to export wheat due to federal fears and delayed decisions. Its import of fertiliser got dangerously delayed because the federation took time to get fully convinced.
Courtesy: The DAWN

 

Source: http://www.pakissan.com/english/issues/policy.risks.to.agriculture.shtml