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The impact of Budget 2009 on agriculture.

Role of Government in Agriculture.

In Pakistan, agriculture, which account 22 percent of GDP and provides more than 50 percent of jobs, has a special role to play in growth, poverty reproduction, and environmental protection.

In recent years, agricultural output growth has varied. Although livestock sub-sector has experienced a robust rate of growth, the overall long-term trend shows a decline in growth rate, especially in crop agriculture. For example, average Growth rate of agriculture during 2000-06 is almost one percentage point lower than the growth rate in 1990s.

With limited chance of increasing land and water resources, future growth has to come largely from diversification in line with market demand and productivity increase, which will require major changes in systems, policies, and institutions for agriculture. And the most important change required is redefinition of the role of Government in agriculture, which would be crucial in making agriculture competitive in the global market.

1. Change Required in Rural Infrastructure:

The Government has a role in development of infrastructure, especially rural infrastructure for agricultural growth. In this area, the Government has undertaken a major programme of lining of watercourses to improve water delivery, in addition to programme for better water management. Another significant public sector programme is farm-to-village road construction, which would improve the distribution of inputs and the marketability of outputs, especially high-value agricultural products. The programmes are going to be financed partly by saving from the rationalization of public expenditures.

2. Reduce Rural Poverty:

The Government's role in agriculture is going to be influenced by its mandate to reduce rural poverty. In a labour-abundant economy such as Pakistan, subsidies on capital (heavy machinery such as combine harvesters) are inappropriate because they distort factor markets and lead to labour displacement. It is, therefore, important that the government pursues a policy of removing subsidies to mechanization that displace labour without increasing output significantly.

3. Protecting Environment:

The Government has a role in protecting the environment. The Government is particularly placing more emphasis on natural resource management problems in agriculture. Environment and natural resources management problems are often associated with market failure and require public regulation. Increased pesticide use has created growing resistance among pests and destroyed natural predators. The Government is therefore, putting a major emphasis on integrated pest management (IPM) techniques that is effective against pest problems as well is more environmentally friendly.

4. Government Subsidies on Agriculture Situation:

Pakistan has a very well organized agricultural system and a lot of development is going on. Government subsidies play a key role in transforming the rural economy and in bringing about a positive impact on farmers income, especially in the irrigated land such as Punjab. Government of Pakistan uses procurement/support prices to encourage domestic production of wheat, and to maintain adequate buffer stocks.

Wheat production in Pakistan is concentrated in Punjab with 80% share in total production while the rest is being shared by Sind (11%), NWFP (6%) and Balochistan (3%). The Federal Committee on Agriculture (FCA) has set the wheat production target at 25 million tonnes for 2008-09, against local consumption of 24 million tonnes. In Punjab, the target of wheat yield has been set at 20 million tones suggested to provide Rs. 20 billion subsidy on wheat to bring the flour price to Rs. 25/kg for new crop. So the Minimum Guaranteed Price (GMP) of Rs 950/40 kg for the new crop would increase.

Some countries that produce higher wheat than what they can eat (due to difference in diet) need to sell off this excess wheat in the international market at even half the production cost, which in a way is loss. The equilibrium market price of wheat in Pakistan, is somewhere between the importable and the exportable price and stays in this small range. Therefore, in reality wheat can neither be exported nor imported without an element of subsidy.

5. Improving Agriculture Marketing:

It is the responsibility of the government to stabilize prices, protect growers and consumers so that vulnerable segments in the economy are protected from market players who are ready to take advantage of loopholes in the system. This aim is, however, difficult to realize. Recently, the government failed in its attempt to protect consumers from unexplained shortages and increase in price of flour when wheat was being harvested. It tried to support growers when prices of paddy plunged below support price but again failed in its objective. And the paddy growers are likely to suffer loss an estimated of Rs. 41 billion in Sind alone.

Agricultural Economy Disasters

It is estimated that approximately 35 percent of agricultural production is wasted because of the lack of storage, pre-post harvest technology, temperature-controlled storages and transportation, know-how etc. On this count, the estimated losses are at Rs 800 billion. With these huge losses, the investment available for the agricultural sector shrinks. Lack of investment lowers the average crop yields, which are one of the lowest in the world. The agricultural economy suffers from different shocks.

* The first shock is the lack of transparent and effective institutional support and government intervention; The second is the loss of wastag

* The third is lack of adequate investment and

* The fourth is abysmally low national yields.

* There is need for an efficient, productive, and pro-active marketing government department to tackle these issues properly.

Value of Marketing:

Marketing provides ground to dissect each and every function, tackle problems, create efficiencies, and remove distortions,

Agriculture sector provides a wide variety of products; they can be divided into three broad categories.

* The first category is commodities e.g.: wheat, paddy;

* Second is, horticulture produce such as fruits and vegetables; and

* The third is livestock including dairy and meat.

The products clubbed together in a single category will also help in formulating specialized services, law and regulatory environment.

The marketing requirements in the perspective of a product, place, price, promotion, people (consumers) and performance are different from each other in each category.

The existing agricultural marketing departments are being handled by provinces through the directorate of marketing, which works under the Director General Extension. In Punjab, PAMCO has been created with a limited mandate. In Sindh, they are governed by" Agriculture Produce Market Act of 1939".

Some of the ministries and departments handling marketing functions are as follows:

* Federal ministry of food & agriculture,

* Department of agriculture, government of Sindh,

* Trade and Development Authority of Pakistan (TDAP),

* Pakistan Horticulture Development and

* Export Board; Passco, TCP etc

Medium-term Development Framework (MTDF) 2005-10

In Medium-term Development Framework (MTDF) 2005-10, which enjoins Ministry of Food, Agriculture and Livestock to perform roles such as:

* Enhancing productivity of crops and livestock;

* Promoting efficient use of water,

* Promoting production and export of high value crops and livestock,

* Ensuring availability of credit to small and medium farmers,

* Improving market structure,

* Efficiency of agriculture input distribution,

* Strengthening agriculture and livestock institutions.

Union Budget 2009-10,

In Union Budget 2009-10, target for agriculture credit flow set at US$ 67.14 billion for the year 2009-10. While In 2008-09 agriculture credit flow was at Rs. 287, 000 crore (US$ 59.3 billion).

Investments of Pakistan's Budget Proposal 2009-10 in the Real Sectors of the Economy that is, "Agriculture"

Total outlay of Budget 2009-10 for agriculture is Rs 2.489 trillion (24crore 891ac or US$ 3.11 million) which is distributed in the following aspects:

* Rs.18 billion for Agriculture

* Government allocates Rs. 16709.980 million for Food Agriculture Division

Rs. 60 billion allocated for Water sector.

* 32 small and medium dams, 8 in each province being financed.

* Rs. 12 billion for raising of Mangla Dam project.

* Rs.10 billion allocated for the improvement of water courses

* Rs. 15 billion for canal improvement and rehabilitation of irrigation system.

* Rs. 37 billion allocated for agriculture marketing, storage infrastructure. Rs. 4 billion allocated for launching Benazir Tractor

* scheme for small cultivators in next two years

Rs. 47 billion allocated for water resources management under PSDP for water dams.

Positive Impact of Federal Budget FY10 on Agriculture Sector Federal Budget FY10 announced by the government has been very supportive for agriculture sector with various measures to be taken to improve crop yield, farmers' income and their life style. Agriculture growth target is set at 3.8 per cent for FY10 against target of 1.2 per cent in FY09 but the actual agriculture growth of FY09 stood at 4.7 per cent mainly on the back of higher wheat support price (Rs 950 per 40kg), stable credit off-take and higher tractor off-take. Under Benazir Support Tractor scheme 20,000 tractors with subsidy of Rs 20,000 would be distributed in all four provinces with highest share of Punjab through balloting.

Rs 4 billion have been allocated for the scheme. These favorable agriculture factors are expected to impact positively on the fertilizer sector since higher farmers' income from FY09 is expected to boost purchasing power of farmers which is likely to result in higher fertilizer off-take in FY10 especially that of DAP fertilizer.


Agriculture in Next Budget

The agriculture would be focused in next budget to bring economic stability and alleviate poverty. Government is keenly interested in redressing issues for revival of agriculture and other such sectors of key importance for national economy.

Launching of work on Bhasha dam project would be part of next year's budget as the government wants to construct small and big dams to meet water and energy shortfall in the county.

Pakistan requires new strategies to enhance input efficiency and to maintain and improve the quality of the resource base.

Productivity and sustainability are being enhanced by improvement in crop and resource management research. With that objective in view, the Government has undertaken institutional changes and reforms by making research institutions more autonomous.

Future of Pakistan agriculture depends on how well we can compete successfully in the global market and for that quality control to comply with international norms and standard is crucially important.
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Comment:The impact of Budget 2009 on agriculture.
Author:Ibrahim, Saima
Publication:Economic Review
Geographic Code:9PAKI
Date:Jul 1, 2009
Previous Article:CDGK's Rs.52.360bn budget passed.
Next Article:Dams: "must" and "must not".

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