The Road to Industrial Progress Begins with Agriculture

Guest Post by Ali B.

Everyday we read something about Pakistan’s economic growth statistics, some flattering and others not so much. Most of it is concentrated around the macroeconomic reforms by the current regime and thus is all about policy. Yes, the policy has resulted in exponential growth over the past few years but it has also resulted in inflation, excess inequity and other problems that most people see as teething issues with rapid growth. What has gone unnoticed, though, at least in the mainstream media, is what is missing from our growth statistics and why this could come back to bite all of us, especially those making rosy projections of the Pakistani economy.

So, as my title implies, I am trying to refocus attention on the woes of the agricultural sector in Pakistan.

Why is agriculture important?

The obvious answer is that agriculture is still among our biggest single industries and much of our export depends directly or indirectly on this sector. But the importance of agriculture goes beyond that: almost every period of large-scale modernization and industrialization of an economy has been preceded by immense improvements in the agricultural sector of that economy. Two examples come to mind: First, the so-called Industrial Revolution ( Great Britain) was preceded by an increase in agricultural efficiency due to new farming techniques and methods; Second, the growth of China’s industrial base post-1970’s was preceded by an extensive growth in the efficiency and total production of its agricultural sector.

But beyond these examples, what does growth in production and efficiency in agriculture do? At the most basic level, it frees up labour to be employed in other more productive industries, creates more food for everyone (resulting in either self-sufficiency or greater exports), the greater food supply supports the movement of labour into other industries without the need for drastic family planning (statistically, fertility rates among the agri-employed is greater than among the non-agri-employed which should in the medium-to-long-run reduce population growth rate) and so on.

What does this imply about our country’s current growth and the prospects for continued growth?

If one were to look at agri-statistics from 2001 onwards (http://www.statpak.gov.pk/depts/fbs/statistics/agri_indicators/agri_indicators.html#Production), the prospects do not look great. Yes, one might say that we have already gone through the period of improvement in our agriculture prior to 2001 which is why we are having such success in the industrial sector but comparing our yields (per hectare as well as per unit of labour employed) to other countries shows that this cannot be true. The statistics post-2001 (linked to above) show that yields per hectare of the major crops have fluctuated with only a few crops showing definite upward trends (though none of those trends are very great).

This among other reasons, is why foreign organizations continue to maintain (see CIA Factbook if nothing else for this) that the prospect of growth in the medium-to-long-run is uncertain. This is also why despite our exponential growth over the past few years, we continue to import staple food such as wheat and sugar even though these are our primary agricultural products. Thus, for Pakistan to really see sustainable growth, instead of growth spurts every few years followed by regressions, the country needs to re-evaluate its priorities.

What exactly is wrong and what can be done about it?

First the things that are often cited as being wrong with our agricultural sector and which would be expected in a country of our background and economic standing: inefficient land-holdings (as rich landowners have no incentives to produce efficiently), absentee land lords (again cause for inefficiency), wastage of resources (especially water and labour) and unpredictability of production.

Considering the political climate in our country, I don’t know how much can be changed but following are a few things that Pakistan could start with:

– Implementation of water-saving techniques

    o Improvement in the current canal systems

    o Reduction in leakages (and stealing)

    o Implementation of new techniques for irrigation

      > Drip irrigation – a technique that is not overly expensive and has been used in other countries/regions where there is a shortage of water. It involves pipes with holes being installed along or under the crop rows and has been known to reduce water waste by at least 25% compared to techniques currently used in Pakistan. The best part about this is that it does not need government approval or implementation, though their promotion would definitely help

      > Spray irrigation – more suitable for regions with greater access to water, but still uses less water than used by current techniques used in Pakistan

– Implementation of land-saving techniques

    o Instead of focusing on getting more land that is not classified as arable, get farmers to plant on lands that are otherwise wasted because there is no motive when landowners already have plenty of farmland under cultivation

    o Subsidize natural (or chemical) fertilizers especially for land that is feared to go dry due to over-cultivation.

– Allow greater access to technology – learn a lesson from India: Tata Consulting has an agricultural consulting division that helps farmers (for a fee) to decide on what crops to plant, where to sell them, etc. All of these recommendations use econometric/statistical models and agricultural research so that what the farmers plant will get the best output (not just in yield from their land but in profits considering local and international markets). This could potentially be a great project for some graduates from our agricultural and business universities to start working on.

I will end this article by touching upon what most probably expected to be touched upon sooner: the feudal and landholding system of Pakistan. Though this is assumed to have negative consequences for the economy, my own readings shows mixed results (case in point: England had a feudal system way past its Industrial Revolution). Due to this and the political difficulty of changing this over night, I personally don’t think we should worry about the system per se, but rather its implications that is, if a farmer under the feudal system is efficient, it does no harm. However, if this is not the case, create a policy to affect inefficient producers instead of having blanket policies to redistribute land to small landowners because too often these redistributions polices have been either ineffective (due to the political connections of those it needs to affect the most) or known to have negative effects due to adverse incentives for growth in holdings of efficient farmers.

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5 thoughts on “The Road to Industrial Progress Begins with Agriculture

  1. Thank you for this post. An interesting connection between industrial progress and agriculture. You argue very well against the common perception that for industry to grow agriculture must take the back seat.

    However, I think the implications of the feudal system are much more important then just agricultural efficiency. There are great vested interests in the landholding system to remain the way it is and it is the same feudals who control the political structure of Pakistan (I am not arguing against feudalism here as that is not the topic of this post though I would personally like to see it wiped away). Since agriculture is the biggest sector in Pakistan I am interested in knowing what you think should be done about taxes? My understanding is that no real taxes on agriculture income are being paid. Don’t you think its better to redistribute these lands so as to break the political stronghold of a few in order to encourage more equal wealth distribution and more taxes?

  2. Taxes on agriculture: Agricultural landlords (mostly feudal lords in Pakistan) to the best of my knowledge do pay taxes: however, the tax is a fixed annual land tax, regardless of income earned. I don’t know the statistics as to how this compares with corporate/personal income taxes but I’m willing to bet it is much less if only because the feudal system has historically provided a greater number of legislators in our system. As such, I am all for re-evaluation of the tax system: in fact like all other taxes I feel it should be progressive (lower tax rates for low-income farmers and higher taxes as the income bracket increases) but I disagree with breaking up these lands and redistributing them for several reasons:
    a. Politically hard to accomplish and even if the laws are changed they might be hard to implement in spirit even if they can be implemented in the word (case in point: last I checked there is an upper limit to how much an individual can own but often this just means the people will find some innovative ways to put it under somebody else’s name: their family members, servants, dead people even)

    b. Could be argued to be better for social equity but would run against the economic interests of our country as we would lose economies of scale

    In fact, redistributing agricultural lands owned by a few is the equivalent of redistributing shares in a company because one or two persons have too much power in the political system because of their hold in said corporation. I’m not sure I would consider that fair. Instead, I feel, what needs to be done is to increase the active participation and education of people involved in the system, as well as proper policing of it (without allowing vested interests to interfere). That is (and this disclaimer should have appeared much earlier), coming from a family that traces its income from what could be called a feudal setup, I’ve seen farmlands that are close to cities with educated workers (and by this I don’t mean literate, I mean people aware of their rights) and I’ve seen others where farmers literally worship their landlords as God’s representative on Earth.

    So my opinion might be coloured by my own upbringing but I truly feel that education of both the landlords and the people they are ‘lords’ over would be a much better alternative over land redistribution. And this opinion I feel is supported by how hard it would be in the first place to displace these agricultural lords over night.

  3. I forgot to mention one thing about the question above, though it might be inferred from what I said, and this refers to whether breaking up the lands would create greater taxes for the state? Under the current tax system whereby tax is paid according to the amount of land owned, breaking up lands and giving them to small landholders will not increase the tax base. Instead the state will receive the same taxes but since the small farmer does not benefit from economies of scale, the tax burden on him would be greater. In effect, this serves as a regressive tax.

  4. While I know little about the fuedal system and such, I fully agree that Pakistan urgently needs to focus on water-saving techniques. Wouldn’t it be awesome if we could start something like this: http://kickstart.org/tech/pumps/

    This company was started in Kenya by a couple of Stanford grads who wanted to have an impact on poverty on Africa but use market forces to do so. They’ve set up a company that manufactures portable, mechanical pumps that farmers can use for microirrigation, and they say that their annual impact is more than 0.6% of Kenya’s GDP. I heard them speak at a conference and their model looked really, really solid. They didn’t believe in throwing money at people to cure poverty (like the international aid agencies traditionally do) and say that one of the key aspects of their model is that people should be willing to invest in a product to really appreciate and use it (which is also why that don’t operate like your traditonal “non-profit” company and work on a for-profit model).

    I’m a hopeless romantic when it comes to innovating new technologies for poverty alleviation. It excites me on a number of different levels.

  5. With regards to the issue of taxing agriculture, the Government did issue an Agricultural Income Tax Ordinance in 2000 and it came into effect in 2001. Furthermore, each province was empowered with the responsibility to tax its own agriculture.

    Unfortunately, even though agriculture contributes 25% to the GDP of the country, the CBR states that the sector contributes only 0.1% to taxation revenue. The primary reason for this is the strong feudal lobby in our parliament and tax administration.

    We are stuck in a bit of a rut actually. Agriculturalists protest against taxation as they feel that they face heavy implicit taxation due to the policy of squeezing the agriculture sector to transfer resources to the industrial sector and urban consumers. The Government however claims that they now provide water and electricity in sufficient amounts to the sector and therefore must be taxed.

    The solution suggested by Kamal is valid and we need local graduates to develop technologies which make the provision of vital resources to the agri sector at a reasonable cost. At the same time, the Government needs to break the hold of the feudals, as they have the major land-holdings, and get them to pay their taxes. At the moment it is the small farmer who is suffering under the burden of the taxes.

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