PAKISTAN

Increasing Agricultural Productivity for

Inclusive Growth

Madhur GautamAgriculture Global Practice

The World Bank

(Based on Ahmed and Gautam 2013: “Agriculture and Water Policy: Toward Sustainable Inclusive Growth.” The World Bank)

1

Structural Transformation

Declining share of ag. in GDP: 46% in 1960 => 26% in 2000 => 21% in 2010

Socio-economically and politically important: employment; exports

2

0.3

0.35

0.4

0.45

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000

Shar

e o

f e

mp

loym

en

t in

agr

icu

ltu

re

GDP per capita (constant PPP)

Predicted cross-country path

2006

1980

1980

Pakistan

Large, med. farm

1.9%

Small farm20.1%

Landless farmers

9.7%

Rural agric laborer11.8%

Rural non-farm

39.0%

Urban17.5%

Source: Hazell et al (2011) Source: IFPRI (2012)

Labor Employment Patterns Distribution of Poverty

3

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

Urban Poor(37.0)

Non-Farm Poor(38.0)

Ag Wage Labor(48.0)

Non-Farm Non-Poor (66.2)

Small-DryFarms (67.0)

Urban Non-Poor (158.8)

Med-LargeFarms (241.7)

Livestock Industry Services Crop

Source of Growth Matters for Poverty

Note: Figures in parentheses are base year level of per capita household income in thousands of Rupees.

Source: Ahmed and Gautam (2013), using IFPRI (2012) model simulation results

Impact of Alternative Growth Scenarios on Per Capita Incomes by Household Category

Sub-par Agricultural Performance

4

2.6 T/ha

1.8 T/ha

55 T/ha

50 T/ha

2.9 T/ha

2.1 T/ha

2 T/ha

0.8 T/ha

145 T/ha

80 T/ha4 T/ha

1.7 T/ha

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Wheat Cotton Sugarcane(Sindh)

Sugarcane(Punjab)

Maize Rice

National Average Gap

Source: Planning Commission (2009) Source: IFPRI (2012)

•Focus on crops, not livestock/fisheries (55% Sector GDP).

•Concern: decelerating growth in agricultural output since 1990s

•Notably though volatility has reduced

•Significant unexploited potential for further gains

•Substantial yield gaps for major crops

Yield GapsAgricultural Growth and Volatility

0.00

1.00

2.00

3.00

4.00

5.00

6.00

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

10 Yr Trend Growth Rate Growth Volatility

Issue 1: Sluggish Productivity Growth

• Limited land with declining TFP growth rate

– Currently lowest TFP growth rate among comparators such as BD, CH, IN, SL

• Impressive historical growth in crop yields due to investment in

research (NARS)

– Estimated IRR on research investments range 57 - 65%, in form of GR techs

• Reviving TFP growth requires re-invigorating agric. Research system

5

-1

0

1

2

3

4

5

6

1961-1970 1971-1980 1981-1990 1991-2000 2001-2009

Irrig New land Input/Area TFP

Output Decomposition

Source: Fuglie (2012)

Declining Intensity of R&D Expenditures

6

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

0.55

0.6

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Bangladesh India Nepal Pakistan Sri Lanka

• Severe technical and human capacity constraints

– Public investment in research has been on the decline (0.21% Ag GDP)

– Insufficient qualified staff, inadequate incentives

• Inefficiencies generated by the complex institutional environment

• 111 agencies involved in ag R&D, of which, 37 were federal agencies, 98

were provincial agencies, and 13 private sector entities.

Agricultural R&D Spending as Share of GDP

Source: ASTI (2012)

Issue 2: Water Use Inefficiencies

7

0.60

0.65

0.70

0.75

0.80

0.85

0.90

0.95

1.00

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Pakistan - Irrigated Area/Cropland Pakistan - Irrigated Area/Harvested Area

• Semi-arid conditions make water absolutely essential for agric.

– 95% area irrigated, highest irrigation intensity in the world

• Convergence of IA/CA with IA/HA important for successful

harvests – reduction in output growth volatility

• But huge inefficiencies threaten continuing contributions to growth

Source: Ahmed and Gautam (2013) using data from Fuglie (2012)

Irr. Area as Share of Cropped and Harvested Area

10690 83

5841

16

7

25

17

0

20

40

60

80

100

120

Main andbranch canals

Distributariesand Minors

Watercourses Fields Crop Use

MA

F

Seepage Losses in Irrigation System

Source: Yu et al (2012)

Loss: 61%

Climate Change: Raises Threats to Sustainability

8

Impact of Investments to Mitigate Climate Change Impacts

Source: Yu et al (2012)

• Biggest impacts on households outside agriculture (higher prices)

• Canal Efficiency will help mitigate impacts, but new storage largely helps

in energy supply

• Best bet to mitigate impact of climate change: yield increases

Main Constraints: Institutional Issues

• Water availability & irrigation access critical for agricultural

productivity growth

• Average farmers’ access to water limited by constraints of water

allocation system.

– Access is determined by warabandi system and contingent on land

access/location => often insufficient water by the time it gets to users at the tail

end of distributaries/watercourses.

• The irrigation system is highly inefficient: both in delivery and on-

farm use

– Important to mitigate the potentially large negative climate change impacts

• Financially unsustainable water management system

– Only a quarter of annual O&M costs recovered, with shortfall expected to

increase with rising costs and stagnant Abiana .

– Low collection rate of assessed Abiana low (only 60% of assessed values).

9

Issue 3: Policy Distortions to Trade

10

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0

0.1

0.2

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

RRA NRA Agriculture

• Policy reforms introduced in 1996 reversed starting in 2006

• Continued anti-agricultural domestic policy bias

• Major crops like wheat, rice, sugar and cotton implicitly taxed

Source: Anderson and Nelgen (2012): World Bank Agricultural Distortions website

Nominal and Relative Rates of Assistance to Agriculture

Emerging HVA Exports

11

050

100150200250300350400450500550600650700

Dairy and Eggs Fruits, Vegetables andOilseeds

Fishery Products Meat and Livestock

Mill

ion

s o

f U

SD (

real

20

00

)

2008 2009 2010 2011

• Wheat procurement policies create price distortions

• Negative impact on consumers, heavy fiscal burden

• HVA growing but diversification slow and threatened by protection of LVA

• Acreage share of grains (esp. wheat), increased over time to 60% (40)

• Seed sector weakness also a constraining factor

• Need for reform in the regulatory environment

Source: Ahmed and Gautam (2013) using UN COMTRADE data

Growth in High-Value Agricultural Products from Pakistan

Refocus on Policy Reforms

• Agric. exports account for 11% of exports revenues;

downstream industries account for another 40%

• Policy induced price distortions limit diversification,

exports and growth

• Reversals on trade liberalization since 2006 =>

discretionary & uncertain trade regime => highly variable

output and input prices

– Several reforms reversed for wheat, sugar & fertilizer.

– Expanded use of SROs & new regulatory duties to provide ad

hoc and arbitrary exemptions to products/entities

• Wheat procurement policies fiscally unsustainable and

contribute to unexpected outcomes (e.g. subsidized

exports) with ambiguous welfare impacts

12

Policy Action 1: Improve agricultural productivity

• Initiate NARS reform to improve efficiency & effectiveness

• Undertake an institutional audit and clearly delineate roles/functions/mandates of fed and prov bodies

o Private R&D

o Agri-businesses

13

• Implement the shift from federal to provincial levels

o Staffing levels and composition

o HR reforms

• Increase budget for agricultural research

• Plan & implement long run capacity building program for scientific research capacity

Short Run Long Run

Focus: National agricultural research system reform

Policy Action 2: Improve water use efficiency

• Identify the current state of mechanisms for the water management system

o Develop a plan for devolution of authority to the relevant scale (provincial, FO, WUAs)

o Clarify roles and mandates of each authority

14

Short Run Long Run

• Implement institutional reform – devolve authority to relevant scale

• Provide sufficient federal and provincial resources for transition and capacity building

• Establish third party watchdog to evaluate the reform process and monitor for rent seeking behavior

Focus: Institutional reforms

Policy Action 3: Remove protection variability &

bias against agricultural exports

• Identify timetable for removal of SROs, tariff reduction and uniformity/ harmonization, and removal of alternative instruments (e.g., export taxes)

• Identify WTO compliant instruments that may be appropriate to use, e.g. special safeguard mechanisms

15

Short Run Long Run

• Implement the reforms: remove of SROs, reduce and harmonize tariffs, and dismantle export barriers

Focus: SRO phase out and trade policy simplification

Policy Action 4:

Reduce distortions in domestic grains markets

• Identify minimum volume of public wheat procurement, accounting for both federal & provincial programs.

• Identify floor/ceiling prices to follow world prices

• Identify food insecure groups for social protection programs

16

Short Run Long Run

• Implement rules-based adjustable tariffs to maintain price bands

• Develop & roll out social protection programs for food security with

o clear triggers

o graduation requirements

Focus: Wheat procurement policy

17

Thank you!