In a few words, the FY25 budget for the agriculture sector lacks long-term vision, national priorities, and strategic direction. The absence of defined goals and a coherent strategy to address the sector’s pressing issues renders budgetary allocations and financial measures meaningless and ineffectual.

The budget is devoid of new initiatives and appears to be a mere replica of the previous year’s budget, with some minor adjustments in allocations. Consequently, it is unlikely to catalyse significant growth within the sector.

The agriculture sector faces three major challenges: higher production costs, lower crop yields, and an ineffective crop marketing system. All other concerns are directly or indirectly linked to these fundamental challenges.

After the Covid-19 pandemic and the Russia-Ukraine war, the prices of agricultural crops have considerably declined in the global market as well as in the domestic market. However, the prices of agricultural inputs (diesel, fertiliser, pesticide, seed, electricity, and labour) did not experience a downward trend. As a result, the agriculture sector is struggling to remain competitive in the evolving economic landscape.

The government has set a mere 2pc annual growth target, a drastic reduction from the 6.25pc realised last year

Following significant financial setbacks in FY24, caused by unexpectedly low market prices for three major crops (cotton, maize, and wheat), farmers were optimistic about potential relief and support from the government to reduce their production costs, thereby sustaining the impressive 6.25 per cent and 11pc annual growth rate achieved by the agriculture sector and crop sub-sector, respectively. Nonetheless, the budget has dashed these hopes, leaving the farmers’ aspirations unmet.

The recently announced budget, along with the Finance Bill 2024, has introduced measures like an increase in the petroleum levy, imposition of sales tax on tractors, and reclassification of diammonium phosphate — our second most used fertilizer — from the Sixth Schedule (sales tax exempt) to the Third Schedule of the Sales Tax Act, 1990.

Moreover, the potential hike in electricity rates for tubewells and rising urea prices due to a drastic subsidy cut — from Rs25 billion to Rs3bn — for fertiliser plants are poised to escalate production costs further, potentially rendering agriculture farming economically unviable.

Aslam Pikhali, former senior vice president of the All Pakistan Fruits and Vegetable Exporters Association, while commenting on the announced budgetary measure to shift exporters from the 1pc full and final tax to the standard tax regime, explained, “The current 1pc deduction on the C&F [cost-and-freight] value of exported fruits and vegetables effectively amounts to approximately 20pc of their profit margins.

“This deduction applies even in case of losses incurred due to shipment rejection or spoilage in transit. Exporters often procure produce directly from farmers or local markets, which are part of the informal economy. This complicates compliance with the FBR’s [Federal Board of Revenue] stringent bookkeeping requirements.” He warned that such measures might result in reduced fruit and vegetable exports, potentially thwarting the government’s efforts to boost tax revenues.

Following the 18th Amendment, agriculture is now a provincial subject. However, the annual federal budget undoubtedly reflects national priorities and plays a pivotal role in shaping the trajectory of the agriculture sector of the country.

Astonishingly, the federal government has set a mere 2pc annual growth target for the agriculture sector in FY25, a drastic reduction from the 6.25pc realised in FY24. To many, this target, which is even lower than the country’s population growth rate, speaks volumes about the PML-N government’s historical anti-farmer policies and tacit recognition of the detrimental effects of its own policies.

In FY24, a positive development is the 33.8pc increase in agricultural credit. Financial institutions have disbursed Rs1.64 trillion from July to March, achieving 72.7pc of the annual target of Rs2.25tr. This substantial allocation underscores the government’s commitment to supporting the agricultural community.

A major part of these agricultural loans was acquired by farmers at a Karachi Interbank Offered Rate (Kibor) plus rate, annually exceeding 25pc — a rate typically deemed prohibitive by the manufacturing sector. Still, at the same time, a considerable chunk of agricultural credit is attributed to various schemes that offered loans at subsidised markups, some as low as 7pc or even less.

In the current budget, the government has reduced the allocations (subsidy and grant) for such schemes. The Markup Subsidy and Risk Sharing Scheme for Farm Mechanisation (MSRSSFM), which was applauded by analysts after the budget, has actually been trimmed from Rs6.4bn in 2023-24 to Rs5bn.

The agri growth target, lower than the country’s population growth rate, speaks volumes about the government’s historical anti-farmer policies

Similarly, the allocation for the Minister’s Youth Business and Agriculture Loan Scheme has been sharply reduced from Rs30bn rupees to Rs8.6bn. Additionally, a grant for the concessional credit for small farmers — previously set at Rs8bn rupees in the 2023-24 budget — has been completely withdrawn.

That said, Chaudhry Muhammad Ashraf, former director general of the Punjab Agriculture Department, did praise the Rs5bn allocation for promoting mechanisation in the country under the MSRSSFM scheme saying, “The increasing cropping intensity, along with the growing threats posed by climate change, necessitates the timely sowing and harvesting of crops, which mechanisation can facilitate. It would also help reduce post-harvest losses, which are particularly significant in wheat and rice — the two largest crops of Pakistan.”

Mr Chaudhry also underscored the need for banks to broaden the beneficiaries’ base by accepting self-propelled agricultural machinery as collateral, in line with the current banking practices for vehicle leasing.

A thorough examination of the agricultural credit figures reveals a stark reality: small (subsistence) farmers with less than 12 acres of land, whose interests are often cited in policy discussions, received a mere 21pc of the total disbursement.

In contrast, large-scale farmers, owning more than 50 acres, secured a major portion, totaling Rs409bn rupees — almost 25pc of the total disbursement. This disparity is particularly concerning given that small farmers comprise over 90pc of the agricultural demographic in our country.

To foster equitable growth, the budget could have been more supportive of small farmers by targeting allocations to ensure their preferential access to financial resources.

Furthermore, Erum Tarin Khuhro — a progressive woman farmer from Sindh — advocated that if developing a gender-responsive federal budget were unfeasible, the agriculture sector budget should have, at the very least, incorporated some women-specific initiatives, as a great number of educated women are entering this sector as entrepreneurs.

She did acknowledge that the government’s announcement in the budget to promote solar energy will undoubtedly assist farmers in lowering their irrigation cost. Alongside, she emphasises the need for governmental intervention to reduce the cost of other agricultural inputs, particularly fertilisers.

Finally, Mr Shah also commended the plan to establish the Pakistan Climate Change Authority, as envisioned in the Pakistan Climate Change Act, 2017. He highlighted that the agriculture sector, which is the most affected by climate change, stands to gain immensely from this initiative.

Khalid Wattoo is a farmer and a development professional, Dr Waqar Ahmad is a former Associate Professor at the University of Agriculture, Faisalabad.

Published in Dawn, The Business and Finance Weekly, June 17th, 2024