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Asian Development Bank - its role in the growth of agro-industry.

Rao Abdul Rauf Khan, Senior Director, Economic Research Department ADBP & Editor Agridigest.

It would be most appropriate if ADB experience gained in establishing small and medium scale industries on the pattern of Thailand, Philippines, Hongkong and Singhapore is employed in the remotest productive areas of Pakistan.

Nature & Importance of Agriculture

Agriculture with its branches of animal and crop husbandry, forestry, fisheries and horticulture is the largest segment of Pakistan economy. The bulk of 72 per cent population living in rural areas is depending on it for livelihood. The main features of Pakistan agriculture are the fertile soil of the country, a generally favourable climate with a net work of canal irrigation. The unhappy aspects of agriculture are low yield per acre, uncertainty of weather condition, recurring floods, sub-division and fragmentation of holding and incidence of large scale waterlogging and salinity. The un-organized market, the unsatisfactory means of transport and communication is another reason that why agriculture is not considered as an economically viable unit specially by small farming community, comprising 76 per cent. Finally the pace in mechanization still needs acceleration. Present Government has given to agriculture its due place by devising development strategy thereby attaining sustainable rate. The growth rate attained in agriculture during First Plan (1955-60) had been 2.1 per cent whereas during Second; Third; Fourth (no plan (1970-78); Fifth and Sixth plan had been 3.8; 6.3; 1.7; 4.4 and 3.8 per cent respectively. Again because of bumper wheat, cotton and sugarcane crops that the growth rate during VI plan is expected to increase to 4.7 per cent which will be a significant achievement. The average growth rate in agriculture during first three years of current VIth plan has been more than the envisaged target of 4.7 per cent which is mainly because of favourable climate and good harvest of wheat; cotton and sugarcane crops.

Why Agriculture Lagged Behind?

The main cause of being agriculture passing through a transitory phase even after lapsing of 45 years of independence is that, since the time immemorial, we have considered farming as a mode of life rather than a mode of business. It was mainly in the absence of institutional infrastructure like regular markets, roads, transport and communication, electricity and sound effective credit institution, supply of inputs and other farm equipments that hindered in the way of achieving our desired goal. In fact these factors refrained them to carry out farming on commercial scale. This made him to be conservative towards adoption of new ideas based on new cropping pattern and cultural practices. As such even today in developing country like ours the growers lay more emphasis on raising food crops rather than much thinking for growing cash cum remunerative crops. By simple calculations of costs and benefits, if one aims to maximize his income, the farmer should grow vegetables or raise orchards or other such crops which can give him maximum per acre return and buy his food from elsewhere. The growers especially small farmers suffer mainly because they show reluctance of growing remunerative or such exotic crops and continue to grow their own food because of financial stringency. He also hesitates in specializing such crops as this would be greatly increasing his various risks and uncertainties because of non-existence of adequate marketing and processing arrangement of produce or of by-products. Another reason for not adopting of innovative ideas is because of non-availability of additional capital which is not easy to borrow from institutional sources. Further to meet his food requirements he needs certain amount for consumptive purposes for which there is no provision of obtaining loan for such purposes from any source except from un-authorised dealers or money lenders who charge interest exorbitantly. The responsiveness of farmers to new ideas receive a little attention mainly because in the absence of agro-industries in localized areas he fails to predict that there will be a definite demand for his produce. This in fact has limited the scope of growing any crop on large scale, which needs realistic planning in all sub-sectors of agriculture.

Among other causes that agriculture lagged behind is the lack of communication facilities. The fact is that in the absence of road, transport, mass media agencies like Radio, Television and other communication facilities like telephonic service etc. the mobility of agriculture produce has been slowed down resulting in low income to farmers because of the absence of regulated markets. The lack of capital does not allow them to buy essential inputs as well as the improved technologies. The exibitory rate of interest and absence of institutional credit facilities at gross root level has made the case worst confounded. The main impact of inadequate prevalent communication system in fact does not allow to shift from existing central marketing system to decentralized one due to which farmers are unable to get fair price of their produce. However, where the communication facility existed the economic condition of farmer because of organized market and achieved opportunities have improved steadily. The existing social system which led poor farmer to invest lavishly on performance of social ceremonies need to be improved through human resource development. Modernisation of agriculture has had considerable impact on the life and economic activity of the people. The interdependence between agriculture and industry is imperative as the economy is envisaged to be expanded at large because of the deregulation, denationalized and privatisation policy of the government. However, to modernized agriculture there is need for strengthening of backward and forward linkages of agriculture with industry. This is one of the pre-requisites for attaining rapid and sustainable growth of primary sector. This also facilitate the growth of agro industry in which World Bank and Asian Development Bank has played the key role.

Agriculture V/S Industry

The interrelationship between agriculture and industry are complex. The basic difference between agriculture and industry is that from most other industries that management method and practices used in industry have little if any application to farming. The main difference pointed out by Mr. J.M. Efferson in his book titled 'Principles of Farm Management' that exist between agriculture and most other industries are:

1. Variation in the primary sources of production;

2. Size of production unit;

3. Dependence on climate factors;

4. Frequency and quickness of decision;

5. Changes in prices;

6. Standardization practices;

7. Turn over;

8. Organization;

9. Length of life; and

10. Financing.

To come over these problems a scientific approach is needed which is not so easy to adopt in farming because of subject to natural hazards and calamities. A scientific approach is a non-biased, carefully planned, thorough attack on a given problem without any pre-conceived idea of the answer. It is an impartial search for knowledge not a rationalization of our own bias.

Agriculture is an activity in which man and nature work together for transforming of natural resources into food and other raw materials. Thus the role played by the agriculture is to serve as a supplier of food for industrial labour force and the raw material for industry. It is a convinced fact that the process of industrialization in Pakistan was only possible as through export of primary produce, capital goods required for industry could become possible. Besides this the agriculture population provides a market for industrial product not only for consumer goods but also for wide range of equipment and material used in agriculture production. As per estimate the difference that exist between the income received by industrial labour and that of an average farmer is 7:3 which can be narrowed down only if agri-based industries are established extensively in rural areas. The basic agro-based industries which can be established, keeping in view of the potential available relating crops, livestock, forestry and fisheries can be visualized in foregoing paragraphs. These industries of which significance is fully realized will help government in adopting development strategy which will help poor rural masses in increasing their income. This will help growers in raising their output at large scale with full confidence. The rural development in overall perspective will take place only when all classes of rural society are benefited from socio-economic aspect of life.

Besides these there are numerous industries relating forestry, fisheries and livestock products of which mention has been made in the proceeding columns for which there is no ample space to discuss in detail separately. The main out-come of establishing such industries on small scale in rural sector will mainly be:

1. That the migratory trend of rural people to abroad and urban areas will be checked because of pull factors. As per estimate the population of cities in comparison to that of 1961 census has almost been doubled which is mainly because of rural migration.

2. The industries if set up at large scale will not only ensure employment to disguised labour but will also attract investment of huge capital from those who are working abroad and have earned lot of money in term of foreign exchange. It is in the absence of any precedence that the rural people working abroad hesitate in investing their earned income on various new agro projects and

3. The setting up of these industries will help in improving the existing social infrastructure.

Development in Agri-Business

Agro-industries constitute an important segment in the manufacturing sector in terms of number of units. However, fixed capital invested is not high and thus it is less capital intensive. Viewed from this perspective, the employment generated per unit of fixed capital is considerable if not substantial. Within the agro-industry sector, the AIMU ranked high with respect to capital invested whereas APPU and EAPPU put together dominated in all other categories.

The inter-dependancy between agriculture and agro-industry was found to be well established in terms of aggregate output and value added. The influence of the growth of primary sector on agro-processing has been found significant, indicating a very strong forward linkage. Similarly, the ASU contribution to the growth of other groups of agro-industry as well as the primary sector was found to be significant depicting a strong backward linkage.

Poverty and unemployment have persisted to be the most formidable maladies facing Pakistan ever since she achieved independence. Immediately after independence, the government had given priority to industrial development which recognized the importance of cottage and small industries in their utilisation of local resources in achieving local self sufficiency for essential consumer goods like food, cloth and agricultural implements. There was in fact a need for carrying out survey of various reforms and policies formulated for accelerating pace in rural industrialisation to find out consequence and that why development in real term could have been made in this specific field. If the potential of these industries in extending work opportunities, raising income and standards of living and bringing about a more balanced and integrated rural economy was kept in mind then why the success in the process of rural industrialisation has not taken place. Further the role of Agro-industries in providing employment therefore needs to be examined.

ADB has played an important role in the process of country's industrial and economic development size of loans equivalent to US $40 million under ADB credit line 617-PAK(SF) starting from June 1983 to June 1991 have almost been utilized by ADBP for establishing of Agro-projects. The type of agro-industry established by ADB are:-

* Nine Processing Plants of Dairy Products;

* Three Edible Oil Extraction;

* One Poultry Production;

* One Foundry machinery;

* One Livestock Fattening;

* Two Par Boiled Rice;

* Three Juice Processing;

* One Embryo Transfer Project;

* One Paper of Duplex Board;

* One Fish Meal Production;

* One Tractor Component.

The major outcome of ADB loans was to set up such agro-projects in places where raw material was available in abundance. As such for the first time in a most systematic manner agro-projects were established in remote productive areas of which no precedence formerly existed. Moreover, it provided a base for further acceleration of industries of small, medium and large scale. Pakistan economy continues to be predominately rural based despite the massive efforts for industrialisation. The Pakistan has been pursuing a policy of deregulation, denationalised and that of privatisation with measures of social justice. Several measures-both at the macro and micro levels have been initiated to achieve these objectives. As a result the structure of the economy is undergoing a change. It would be most appropriate if ADB experience gained in establishing small and medium scale industries on the pattern of Thailand, Philippines, Hongkong and Singapore is employed in the remotest productive areas of Pakistan. ADBP under the present dynamic Chairman, Mr. Javed Talat is conscious of the fact, who from the very beginning has given weightage in establishing cottage industries for which separate department has been constituted.

Conclusions and Policy Implications

Although overall growth of industrial sector compared to most of the Asian countries is very encouraging, yet the growth of small and cottage industries specially located in rural areas is very depressing. Further there is plan to provide adequate funds to realize growth target as envisaged in Annual and Five Year Plans, which will be futile if pragmatic approach to conceive realistic results is not adopted. The provision of concessions as fiscal measure providing exemption or reduction from custom duty and import surcharge on imported machinery and provision of enhanced concessions to certain agro-industries covering debt equity ratio to 80:20 and cheaper credit will be meaningful if a strong confidence and faith among private entrepreneur is developed and practices regularised in terms of policy envisaged. The idea to set up a separate bank to finance rural agro-based small scale industry will be meaningful only when delivery of credit is made more of supervisory rather than of collateralized nature. Formerly on being not taken agricultural credit in its true perspective has given birth to influential class with no skill and business experience leading to misutilization greatly, specially in agro-based industries. However, in case in establishing agro-industries the experience gained in the past, is kept in view then there no reason why success is not attained in coming over problems like unemployed and under employed rural areas whereas, because of push factor outmigration is taking place at massive scale.

The Pakistan villages hold the key to her future. At the time of independence the rural mass had thought that it would make it possible for them to bring about social and economic development through raising the standard of living and reducing inequalities, perpetuated over long centuries of foreign rule. It is through establishment of agro-industries in rural sector alone that agriculture can prosperous because of creation of effective demand of produce.
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Title Annotation:advantage of applying ADB agricultural projects to Pakistan
Author:Khan, Rao Abdul Rauf
Publication:Economic Review
Date:Nov 1, 1992
Previous Article:Human resource development in Pakistan.
Next Article:Exploring the avenues.

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