IN an economy which still relies heavily on the farm sector for its GDP growth and export earnings, the recent ‘agriculture package’ un­ve­iled by the prime minister is a step forward.

In the past few years, declining commodity prices, rising input costs and natural calamities had taken a heavy toll on farmers. A strong intervention from the government to resuscitate the impoverished smallholders and revive the rural economy had actually been long overdue.

The incentives offered by the government have been designed to address concerns of both small and large farmers. Direct cash transfers promised to small cotton and rice farmers owning less than 12.5 acres of land will compensate them for earlier losses and provide them with liquidity to purchase inputs for the next crop. In doing so, the government has also managed to balance regional sensitivities of the cotton zone in Sindh and southern Punjab and of the rice belt in central and northern Punjab.

Provision of electricity for tube wells at decreased rates, being charged since 2012-13, and tariff reduction on import of agriculture machinery will mainly facilitate medium to large farmers. The smallholders will gain indirectly as they rent agricultural implements and buy tube-well water from richer counterparts.

There is a flip side to the agricultural incentives.

Increase in the collateral value of land Produce Index Units for raising bank loans, enhanced financial allocation for agriculture lending along with 2pc cut in interest rate and decrease in price of phosphate and potash fertilisers will deliver benefits to the rural community.

While the package will surely lessen the financial hardship of small farmers, its impact on productivity improvement and growth in the farm sector is likely to be mixed. Infusion of additional liquidity into the farm sector through cash grants and bank loans should generally improve application of crop inputs by farmers. Similarly, enhanced usage of phosphate and potassium fertilisers due to their greater affordability should bring about improvement in crop yields.

It should also help in restoring balanced use of nitrogenous, phosphate and potash nutrients in accordance with the recommended ratio of 2:1:1 respectively for crop fertilisation. Acco­rding to estimates, a jump of higher than 10pc in wheat output is possible merely by ensuring the balanced use of fertiliser nutrients.

Together, these interventions should help improve crop productivity levels, mainly wheat, to be sown in the next few months and also rehabilitate the rural economy. Beyond the next crop season, their lustre will, however, be lost as the one-time fertiliser subsidy fund and cash grants would have run their course. The major structural issue facing the rural economy — the high cost of agriculture inputs — will resurface.

If productivity levels are to be improved on a sustainable basis and low-cost agricultural raw materials are to be produced to spur manufacturing value addition and exports, a consistent reduction in agriculture input costs is imperative, particularly to optimise yields of farms owned by smallholders.

Rich farmers have adequate resources available to invest in the application of expensive inputs in the recommended dosage. Their lands produce higher yields, comparable or even greater than yields across the border where inputs are subsidised and accessible to all farmers. They usually earn handsome incomes.

On the other hand, smallholders, who till almost 50pc of the cultivated land in Punjab, lack the financial means to use the recommended inputs. Their access to credit is constrained. Barring those times when the government intervenes or nature is kind, they fail to raise and sustain productivity levels. Their low crop yields also pull down the national production average and the cycle rolls on to the next season.

The simplest way to contain this is to ensure provision of the re­­quired dosage of inputs by bringing them within the financial reach of small farmers through subsidy or another institutionalised mechanism. This is a challenge requiring resources which are not easy to arrange and decisions which are not likely to go down well with our international partners.

Notwithstanding short-term impact of the new measures on crop productivity levels, they have tremendous importance for rehabilitating rural communities and putting them back on their feet. Implementation of the incentives package, particularly cash transfers and enforcement of reduction in retail price of fertilisers, in an orderly and transparent manner in time for wheat sowing, is a huge administrative challenge for the provinces. They will have to ensure that the benefits are not pocketed by unscrupulous government officials, undeserving farmers and fertiliser manufacturers and dealers.

The good news for the government is that the farmers’ demand for an increase in wheat support price is now likely to be muted. However, a bumper wheat crop next year resulting from recent incentives, combined with the existing inventory pile-up of expensive wheat with no export prospects, is likely to create a new set of issues for all stakeholders.

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

Published in Dawn, September 24th, 2015

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