Newspaper reports that the government is set to withdraw agricultural subsidies ahead of the International Monetary Fund (IMF) package have shocked stakeholders.

They fear that it may further choke the sector, which is already under stress for want of subsidies.

“The local farming sector receives just 20 per cent of subsidies that are available to the agriculture sector elsewhere in the world, including neighbouring countries like India and China,” says Jawaid Saleem Qureshi, convener of the Lahore Chamber of Commerce and Industry’s standing committee on agriculture, seeds and pesticides.

Farming is not highly profitable in Pakistan because of a lack of sufficient subsidies, analysts say. Their withdrawal to meet the IMF conditions will weaken the sector’s growth and hurt financial interests of the rural population.

The higher cost of production will render the local produce uncompetitive in the international market, he says.

‘The budget should provide a 40pc subsidy on pesticides to offset the impact of the price hike caused by the rupee depreciation’

“Some landowners have already left the business by contracting out their land while exploring employment opportunities in urban centres. Now the government seems to be scaring away the contractors (lessees).”

Statistics available with the provincial government make an interesting comparison between the costs of production in the two Punjabs — our province and the one across the Indian border.

Data reveals that the per-hectare cost of production for the wheat crop here is 48pc higher than that in Indian Punjab — Rs76,248 versus Rs51,260. Likewise, the difference for the cotton crop is 45pc — Rs127,526 per hectare here against Rs87,646 in India.

This difference increase further in the case of rice, sugar cane and maize crops (Rs124,429, Rs222,436 and Rs119,511 in Pakistan versus Rs67,580, Rs142,000 and Rs53,029 in India, respectively).

The Indian government pays subsidies for fertilisers. It offers a subsidy of Rs1,100 per bag of urea, Rs1,050 per bag for diammonium phosphate (DAP) and Rs765 per bag for muriate of potash. Islamabad has subsidised fertiliser by reducing the general sales tax from 17pc to 2pc.

Pakistan Kissan Ittehad President Khalid Mahmood Khokhar says farmers receive the latest farm technology, certified seeds and well-funded agriculture research institutions in the rest of the world. But the government’s priorities in Pakistan are different, he says.

“We are lagging far behind in the use of the latest farm tools and machinery. Certified seeds and adulteration-free pesticides are but a dream.

“Research takes a back seat here as the institutions supposed to conduct farm research are not being funded. Rather, their properties are being handed over to other departments for setting up offices and residential colonies.

“Other countries are doling out agricultural subsidies while our rulers allow the duty-free import of cotton from these heavily subsidised producers,” he says.

That’s the reason, he adds, India has grown its cotton production manyfold. In contrast, our cotton yield is in decline. Pakistan continues to foot the bill, which runs into billions of dollars, for the import of edible oil despite being an agrarian country.

Threatening to stage a demonstration outside parliament if the government increases sales tax on fertilisers from 2pc to 17pc, Mr Khokhar demands that the government should instead do away entirely with the levy.

Furthermore, he believes that the budget should provide a 40pc subsidy on pesticides to offset the impact of the price hike caused by the rupee depreciation as well as the closure of many chemical plants in China.

However, there are some analysts who think that the government is following the right strategy by withdrawing subsidies.

Malik Sajjad Sulaiman, who manages a rice seed development business, says the government is struggling to steer the country into the right direction. “It has to accept harsh conditions put forward by the IMF,” he says.

He admits that the cost of production will go up as consumers will suffer because of the withdrawal of ‘artificial’ or subsidised support prices. But he believes that the process won’t slow down the sector’s growth because people “cannot give up eating and drinking”.

Published in Dawn, The Business and Finance Weekly, May 27th, 2019