PRODUCTION AND PRODUCTION OF CROPS: AN ANALYSIS

         

Abstract	This paper attempts to estimate the effect of RGST on fertilizer and other inputs on the cost of production of major crops like wheat, rice, cotton and sugarcane. The rise in fertilizer price through RGST would affect the production of crops to be sown in 2011-12. Empirically it has been estimated that a 1 percent rise in the fertilizer price would reduce crop production by 0.127 percent. Meaning, thereby that the production of wheat, rice, cotton and sugarcane would be reduced by 0.518, 0.133, 0.045 and 1.098 million tonnes. Their respective value at current international prices is estimated at $ 168, 80, 32 and 47 million. Total production loss in these crops would be $ 326 million. The reduction in production would cause imports which would be burden on national exchequer. The reduction estimation does not include vegetables, fruit other important crops like maize. Inclusion of these crops would further expand the value of crop losses due to imposition of RGST.
		Masood Bakhtiar Siddiqui Chairman, API

            Agriculture inputs and implements are concessionary items on which GST was not applicable. Due to widening budgetary deficit Federal Government imposed RGST of 17 percent on fertilizers, seed, pesticides, insecticides, tractors and its implements etc. in an attempt to reduce the budgetary deficit. Imposition of RGST has variable impact on different crops.

A.        Impact on Agriculture Machinery, POL and Electricity

            Process of producing crops includes land preparation, seed and sowing operations, irrigation, weeding, interculture and plant protection, application of fertilizers and manures. All these operations require specific inputs. Land is prepared through tractor operations using specific implements. Tractors and its implements have been withdrawn from the concessionary facility (GST exemption). Tractors are operated on diesel. POL prices are revised every fortnight. Generally they are on the rise in sympathy with rising international prices. Moreover, from Ist July 2009 onwards diesel prices are being set above the petrol prices quite contrary to the existing price trend. It is, therefore, a continuous source of rise in COP of crops. Seed is an other major input in crop production. Other inputs used in crop husbandry are for the growth, sustenance and improvement of crop. Now seed has been placed under RGST. In irrigated agriculture, canal and tubewell are the major sources of irrigation. Tubewells are operated on diesel as well as on electricity. Most tubewells are diesel operated. Their operating cost is rising due to rise in diesel prices. Electricity driven tubewells, although lesser in number are also on the rise due to frequent rise in electricity charges. Now every unit of electricity consumed is subject to 2 percent excise duty. Weeding, interculture and plant protection are done manually, with tractor and through application of chemicals and sprays. Wages are rising due to inflation, tractor operation charges are dependendent upon diesel price and pesticides, weedicides, insecticides are now covered under the net of RGST. Fertilizer is the key input in irrigated agriculture. Its prices are on the rise in sympathy with rise in its international prices. Now it has been subject to 17 percent RGST. This paper attempts to capture the impact of RGST on prices of fertilizer and weedicides/insecticides etc. in the COP of major crops i.e. wheat, rice (paddy) cotton and sugarcane*. The analyses of the impact of RGST is given in Table-1.

           

·                     API’s policy analysis papers workout complete changes in the COP of specific crops at the time of its submission to MINFA.

Table-1:

Impact of Imposition of RGST on Cost of Production of Major Crops

Crop	Share of Inputs*	RGST**	Impact on COP
1	3	4	5=(3x4)/100
	--------- Per cent -------
Cotton	26.16
Punjab	26.62	18.36	4.89
Sindh	24.35	18.36	4.47
Punjab	16.73
Basmati	14.96	18.02	2.7
Irri	21.6	18.02	3.89
Sindh
Irri	20.32	18.02	3.66
Sugarcane	10.87
Punjab	10.13	19.21	1.95
Sindh	13.03	19.72	2.57
KPK	10.07	19.55	1.97
Wheat	21.18
Punjab	20.89	18.02	3.76
Sindh	23.07	18.02	4.15
Total	20.44

Notes:  *          Inputs include seed, fertilizers and pesticides, insecticides etc.

**        Markup on investment has been applied on RGST and Excise Duty according to the duration of the specific crop

Source:           Policy Analysis Papers for specific crops

B.        Cotton

            Cotton is planted on about 3 million hectares. Its share in cropped area is 12.5 percent. About three-fourth of the cotton crop is planted in the Punjab and one fourth in Sindh. However, some cotton area is also planted in Balochistan and KPK. In the Punjab share of specific inputs in the total COP is about 27 percent. The impact of RGST on these inputs on the total COP is about 4.9 percent (Table-1). About 4.5 percent impact has been worked out for the cotton crop of Sindh. Therefore, collective impact on total crop is assessed at 4.8 percent. In 2010-11 cotton growers reaped wind fall profits as market prices sky rocketed due to short crop size and there was yawning gap of more than 3 million bales between the domestic production and demand of the textile industry.

C.        Paddy (Rice)

            Rice is sown on 2.8 million hectares. Its share in total cropped area is 11.7 percent. About 92 percent area is shared by Punjab and Sindh (Punjab 68 + Sindh 24) and KPK and Balochistan account for 2 and 6 percent, respectively. Rice (paddy) is our cash crop. Major rice crops of the country are basmati and IRRI. Both are exported in the world market. In 2009-10 country earned about US $ 3.5 billion from rice exports out of total exports of US $ 19.3 billion, an export share of 18.3 percent. In the Punjab on basmati crop share of inputs, on which RGST has been imposed, in the total COP is 15 percent. The Impact of which on total COP is worked out at 2.7 percent. The share of inputs on IRRI crops in the Punjab and Sindh is estimated at 20 to 22 percent. Its impact on COP is assessed at 3.9 to 3.7 percent (Table-1). The over all impact on the total crop is assessed at 3.4 percent. The growers can only bear the rising COP if the gains obtained at export front are shared with him. Other wise rising costs of inputs would affect the production and productivity of both basmati and IRRI crops which would ultimately affect our exports. 

D.        Sugarcane

            Sugarcane is grown on about one million hectares occupying 4.5 percent cropped area. It is grown in the Punjab, Sindh and KPK. These provinces contribute 68, 21 and 11 percent in area and 68, 23 and 9 percent in production. It is the basic raw material of the sugar industry which consumes about 75 percent of the crop. The rest of the crop is used for seed, feed and Gur making. Fluctuations, in crop production, share in cane crushed by the mills and sucrose levels due to weather conditions affect sugar production levels in the country resulting in un-affordable prices by the consumers. The share of inputs on which RGST has been imposed in the total COP of sugarcane is calculated at 10.1, 13.0 and 10.1 percent for the Punjab, Sindh and KPK. The impact on their COP’s is worked out at 2.0, 2.6 and 2.0 percent. Overall impact at country level crop is assessed at 2.2 percent. The impact of RGST and excise duty would work as a double edge weapon for sugar sector as on the one hand cost of production of sugarcane will go up and on the other hand concessionary excise duty on sugar has been withdrawn. As a result price of sugar would bear two fold increase. PSMA has proposed cost of production of sugar at Rs 55 per Kg for the imposition of RGST.

E.        Wheat

            Wheat is grown on about 9 million hectares, occupying about 37 percent of cropped area. Punjab and Sindh share 75 and 12 percent in area and 76 and 15 percent in production. Wheat is the major staple food and pillar of food security of the country. Government procured 9.2 and 6.7 million tonnes from 2008-09 and 2009-10 crops at support price of Rs 950/40 kg. Imposition of RGST on fertilizer would disturb wheat and fertilizer parity. Now 17 percent more wheat units would be required to buy one unit of fertilizer. The share of inputs on which taxation measures have been imposed in the total COP of wheat is 21 and 23 percent for the Punjab and Sindh (Table-1). The impact of taxes is worked out at 3.8 and 4.2 percent while the over all impact is assessed at 4.0 percent. It has been empirically estimated that increase in support price of wheat fuels inflation in the economy. A 10 percent rise in support price would result in 2 percent inflation in the CPI therefore, government should try other options instead increasing support price. One option may be to exercise focused and well targetted supply of subsidized fertilizer to marginal and small farmers. Subsidy on fertilizer should not be free for all like air and water large farmers can absorb the price hike in inputs while small/marginal farmers are in vulnerable position they can not.

F.         Impact on Production due to RGST on Fertilizer

            It has been empirically estimated that 1 percent change in fertilizer price in real terms causes 0.1266 per cent change in production of food grain. This estimate can be used to prepare impact on crop production after the imposition of RGST on fertilizer. RGST on fertilizer is imposed at the rate of 17 percent. If fertilizer price is raised by 17 percent then its impact on production is worked out at 2.15 percent. The impact on 4 major crops is given in Table-2.

Table-2:          Impact of Imposition of RGST on Crop Production

Crop	Production* (million tonnes)	Impact ** (million tonnes)	International price $/Tonne	Value of Impact ($ in million)
Wheat	24.115	0.518	325	168.35
Rice (Total)	6.178	0.133	600	79.60
Cotton
Lint	2.072	0.045	400	16.00
Cotton oil	0.539	0.012	1300	15.60
Sugarcane	51.052	1.098
Mill Usage	38.285	0.823
Sugar	3.637	0.078	600	46.60
Total				326.15

*      2008-09 to 2010-11 average.

**    Reduction in production.

***      The above analysis holds of other things remaining the same. The  impact would change with changes in the dependent factors.

G.        Overall Impact

            The impact of RGST on fertilizer would be highest on wheat, valued at $ 168.35 million, fallowed by rice at $ 79.6 million, sugar at $ 46.6 million and cotton at $ 31.6 million. The impact on four major crops to be produced in 2011-12 is estimated at $ 326.15 million which works out to about Rs 28 billion. At the time of imposition of RGST on fertilizer it was assessed to generate revenue of Rs 25 billion. The simple analysis brings to fore that losses would be more than gains. Due to short crop production increased imports of cotton, oil and sugar would further add to the losses. However, so far RGST has not been imposed, and adhere options, such as indirect taxation on agriculture inputs are being explored.

H.        Conclusions

1.                  Revenue is estimated at Rs 25 billion.

2.                  Production losses due to RGST on fertilizer are assessed at Rs 28 billion.

3.                  Increased imports due to loss in production would add to losses.

4.                  Losses on vegetables, fruits, and maize crop would be additional

5.                  Relationship on increased use of fertilizer on food grain production be made.

6.                  Relationship on increase in real price of fertilizer on fertilizer use be established.

7.                  Government should introduce focused subsidy on fertilizer to small and marginal farmers.

References

1. Wheat Policy Analysis various issues API, Islamabad
2. Rice (Paddy) Policy Analysis various issues API, Islamabad
3. Cotton Policy Analysis various issues API, Islamabad
4. Sugarcane Policy Analysis various issues API, Islamabad
5. Economic Survey 2009-10, Finance Division, Government of Pakistan, Islamabad
6. Agricultural Statistics 2008-09, MINFA, Islamabad
7. Daily ‘Dawn’ various issues, Islamabad.
8. Fertilizer growth, imbalances and subsidies, Trends and implications, National Centre for Agriculture Economic and Policy Research
9. Fertilizer Review 2009-10, NDFC, Planning Division, Islamabad
10. Pakistan Agriculture: A description of Pakistan’s Economy, MINFA, Islamabad

THE IMPACT OF INFORMAL ECONOMY WITH SPECIFIC REFERENCE TO AGRICULTURE POLICY ISSUES

By

Mussadaq Mohammad Khan, Former Chairman, API

1.         Abstract

            The article deals with the informal economy of the country. It points out informal economy areas where the government should intervene and collect revenue by converting the activity into formal economy. This step ultimately will increase the tax to GDP ratio which is on the lower side.

2.         Introduction

i)          The purpose of writing this article is to highlight the main issues, effecting the income of farmers. It draws a framework in qualitative terms to bring the informal sector, into a formal regime, to generate revenue.

ii)         To begin with wheat crop; it covers about 9 million hectares area and produces 24 million tonnes wheat. The stocks available with Pakistan Agricultural Storage & Supplies Corporation (PASSCO), the provincial governments and the private sector comes to over 5 million tonnes. Since Pakistan has a porous borders; it is mostly smuggled to Afghanistan, Indian held Kashmir. It also goes to the Rajistan (India) because of very high prices. It may be taken into consideration, that the milled wheat also travels upto Central Asian Republics through North of Afghanistan. Resultantly, this informal sector through exchange of goods, such as spices, beef and other minor crop produce enters Pakistan. The main reason is price determination for which the stock holders in the private sector benefit. Since they act in a zero rated regime, the public agencies over the past, could not deal with this across border inflows and outflows of goods and services. Ostensibly, it is due to lack of facilitation provided to the informal sector, into the tax base, with very nominal export taxes. The remedy can be to allow exports and provide them with some fiscal incentive at the time of dispatch of goods. The same applies to rice and cotton, ready made garments and knitwear. Sugarcane however is confined to sugar products and cane sugar and that too comes under informal regime. As far as tobacco in concerned the Afghan market looks for low priced brands, and in turn dispatch branded European, American and Japanees brands. In Kabul, I have witnessed local stores of our utility store.

3.         Informal Trade from Sindh and Northern Areas

From Karachi side informal trade takes place through sea routs to Dubai and Arab States and through cross border informal trade with India. Launches usually are used to transport vegetables like potato, onion etc. to Dubai. The land trade with India is usually of dry dates which  are  used  in religious rights of Hindus. Pakistan receives cows

and buffaloes in return. Similarly on Northern side of Pakistan a narrow border with Russia exists on high mountains where wheat trade takes place and in return USSR people send Marco Polo sheep.

4.         Wheat Informal Trade

Wheat informal trade is a regular feature of Pak Afghan Boarder. Afghanistan is generally food deficit country. Afghans consume Pakistani wheat weather they are living in their own country or staying in Pakistan as migrant. Although Pakistan has very stringent security measures at boarder. In the presence, Military, Para-military, Rangers, Scouts, Border Security Force wheat smuggling is a usual phenomena because vehicles provide illegal gratification to the concerned staff serving over there and the vehicle passes every hurdle to reach the planned destination.

5.         Informal Domestic Economy

Cottage industry having a few on job workers are located in the out skirts of big and small cities. They are not registered and they do not pay any tax or revenue to the government. These small industries generally include shoe making, gur making, garment stitching and embroidery, clay utensils, card board making etc. Their workers are generally low paid and they don’t fallow government regulations and provide old age benefits and medical facilities to their staff etc.

6.         Afghan Transit Trade

Afghanistan is land locked country. It has no sea port. Government of Pakistan has facilitated their imports through Karachi port. Imported consignments reach Kabul via road link from Karachi to Afghan boarder. Imported items are consumables ranging from edibles, garments, electronic items, crockery, toys and many more. If we have a close look to the Afghan population. It is war hit population and war hit economy. It is very difficult for a large portion of population to live beyond basic necessities of life. For a population who can not make either its livelihood properly. How can it think of luxuries and comforts of life on regular basis? The fact of the matter is that certain strong businessmen comprising of both Afghans and Pakistani’s are involved in these luxurious imports. The imports are made through the facility of Afghan Transit Trade. The imported items seldom remain in country of import they just cross the boarder. These items are frequently available in Bara markets of Pakistan. Most important is Hyatabad market in Peshawar. So frequent is the trade that Bara markets are now spread all over the big cities of Pakistan. Government should have second thought and reconsider the Afghan transit trade agreement. The items under the agreement should be closely restricted so that the agreement should not hit our trade and our economy should not be deprived of the revenue through this mal-practice.

7.         Informal Trade in Balochistan

i)                    Balochistan shares it boarders with Afghanistan and Iran. From the Afghan boarder trade of Sunder Khani Grapes, Qandahre Pomegranate and other dry fruits is made through Chaman area. Wheat and wheat straw are the major source of smuggling to Afghanistan. Usually there is dearth of wheat straw in Balochistan as it is frequently smuggled from there to the interior of the neighbouring country. Smuggling of fertilizer has also been reported.

ii)         Iran has imposed heavy duty on import of rice. To get rid of the heavy import duty exporters of rice from Pakistan easily adopt informal channels to export rice to Iran. Carpets, garments, edibles and petrol are usually smuggled from Iran. Quetta market is flooded with these items.

8.         Gur Making and its Trade in KPK

KPK is an important sugarcane producing province having sugar industry which absorbs its supplies. But gur making in the province is on the rise which deprives industry from its raw material. Gur making is a profitable business as gur sells higher than price of sugar. Gur is smuggled frequently to Afghanistan and on ward neighbouring states. Where it is used for making alcohol and other edible uses. This trade deprives government from its revenue.

9.         Required Intervention/Conclusion

i)                    Once Dr. Mehbob-ul-Haq Ex-Finance Minister of Pakistan estimated that the size of informal economy is at least of the size of GDP. Since then informal economy has expanded to alarming proportions. The tax collection in the country is not upto the mark which is evident from the fact that the tax to GDP ratio is only 50 percent than that of tax to GDP ratio in India.

ii)         The tax collecting arm of the government should have a clear cut strategy to cope with informal economy.

iii)        The Government without delay must focus on this aspect for bringing the informal sector into the formal sector, with a minimum front loading.

IMPACT OF AGRICULTURE POLICIES ON YIELD OF CROPS: PAK PUNJAB VS INDIAN PUNJAB

By

Masood Bakhtiar Siddiqui, Chairman, API

1.    Abstract

            Comparison of Crop Yields in Pak Punjab and Indian Punjab highlights significantly higher yields of food grains in Indian Punjab. Agriculture Policies in two segments of Punjab indicate that in Punjab (Pakistan) imposition of RGST on agriculture inputs and implements may be withdrawn. Moreover fertilizer and electricity for tubewells may be further subsidized. Greater subvention may be provided in Agriculture Credit and Agriculture Insurance be developed on scientific lines

2.         Introduction

            Punjab was one of the agrarian provinces in British India. Partition of the sub-continent took place in 1947 and Pakistan and India came into being. Punjab province was divided between India and Pakistan according to an agreed distribution plan. The geographical area of the Punjab was about 26 million hectares of which 21 million hectares were allocated to Pakistan and 5 million hectares to India. Meaning thereby that in the distribution of Punjab, the share of Pakistan was 80 percent, and that of India was 20 percent.

            The significance of agricultural development in the two parts of Punjab is of paramount importance in the food security of the two countries. The land of the province is fertile having most developed canal irrigation system. The irrigation system is supplemented by tube wells and widespread rains during the rainy season.

            Indian Punjab encompasses only 1.5 percent geographical area and 3 percent of its cropped area. Its share in cereal production is 13 per cent. Its cereal productively is 4 tonnes/ha which is almost double than that of country level productivity of cereals. About 85 percent of the geographical area of Punjab is farmed compared to 46 percent of the country as a whole. Rice and wheat are major cereal crops of the province which occupy about 95 percent of the irrigated area.

            The part of Punjab available with Pakistan shares 76 percent area of the country and 71 percent of the cropped area. Punjab’s share in cereal production stands at 73 percent. Cereal productivity in Punjab is 2.54 tonnes/ha which is marginally up by 0.07 tonnes/ha when compared with country level productivity. Wheat and rice occupy about 50 percent irrigated area. Farming occupies 60 percent area of the province.

            Salient features of agriculture of the two Punjabs are placed in Table-1. These include geographical area, farming area, cropped area, net area sown and irrigated. Wheat, rice, cereals and food grains area. The yield data given in the table also refers to these crops.

            Table-1 indicates that farming area and cropping intensity far exceeds in two  parts  of  Punjab.  Moreover,  there  is  marked difference between the yields of

Table-1: Comparison of Agriculture Parameters: Pakistani and Indian Punjab

Parameters	Pak Punjab	Indian Punjab
	Million hectares
Geographical area	20.63	5.04
Net area sown	10.98	4.24
Cropped area	16.73	8.07
Net irrigated area	14.57	4.04
Cropping Intensity (%)	152	190
Farming area (%)	60	85
Wheat area	3.08	3.47
Rice area	1.78	2.64
Cereals area	9.24	6.28
Food grains area	10.42	6.35
Yields	Kgs/hectare
Wheat	2775	4179
Rice	1779	3858
Cereals	2537	4003
Food grains	2335	3700

Note:               All Statistics relate to 2006-07.

Source:           Agriculture Statistics of Pakistan and India.

wheat, rice, cereals and food grains. Here we have the opportunity to go through agriculture policies being followed in two segments of Punjab which have resulted in significant difference in per hectare yield of various crops. Both input and output policies have their due role in elevating yields.

3.         Fertilizer

            Balanced use of fertilizer is instrumental in raising crop yields. Proper soil testing and applying doses of fertilizers on the basis of soil testing improves yield of crops per unit of land. Generally the recommended ratio of N, P and K is 4:2:1. From this norm we can estimate the balanced use of fertilizer over time and space. An indicator of imbalance is given by the equation (Mehta 2007).

                        1 = [{(N_a-N_n)² + (P_a-P_n)² + (K_a-K_n)²}/3]^0.5

Where

                        1 =       Measures of deviation from the norms

a  =      Subscript ‘a’ stands for actual and

n  =      Subscript ‘n’ stands for norm

            If the N, P and K are used in the recommended ratio then I = 0. If the entire amount of fertilizer is in the form of K then I = 0.49. Meaning thereby 0 means perfect balance and 49 percent means extreme imbalance.

            Fertilizer consumption separately for nitrogen, phosphate and potash for Punjab (India), and Punjab (Pakistan) are placed in Table-2. An indicator of imbalance has been calculated for each of these regions. This table provides us a complete picture of fertilizer use efficiency/inefficiency between two Punjabs.

            The comparison of fertilizer use per hectare brings to fore that over all and nutrient specific fertilizer use in India is more than in Pakistan. India (Punjab) consumes 47 percent more fertilizer. As far as balanced use of fertilizer is concern Indian application is close to balanced use while in Pakistan (Punjab) it approaches to extreme side of imbalance.

Table-2:          Fertilizer Consumption

Nutrients	Punjab(India)	Punjab (Pakistan)
	------- 000 tonnes -------
Nitrogen	1299	1785
Phosphate	353	684
Potash	39	31
Total	1691	2500
	------- Kgs/ha -------
Nitrogen	161	107
Phosphate	44	41
Potash	15	2
Total	220	150
Consumption ratio	11:3:1	54:21:1
Index of imbalance	3.9	30.5

Source:           Agricultural Statistics of Pakistan and India.

            A close positive association exists world wide between level of fertilizer application and crop productivity. For example the overall rate of N+P+K application in India (Punjab) is 47 percent higher than Pakistan (Punjab) and the wheat yield in India is also 51 percent higher than in Pakistan (4179 kg/ha vs 2775 kg/ha). For cereals as a whole it is 58 percent higher than in Pakistan (4003 kg/ha vs 2537 kg/ha).

            In India comparison of three Northern States (Behar, Punjab and Uttar Pradesh) with fairly similar soil and climatic conditions brings to fore close association between the level of fertilizer use and crop yields. In case of cereals yield in Behar and UP is 43 and 63 percent that of Punjab and the average rate of fertilizer consumption in Behar and UP as a percentage of Punjab is also close to yield gap i.e. 46 percent and 66 percent, respectively.

            Adequate and balanced use of fertilizer which is strongly associated with crop yields is dependent upon a lot of factors. Urea (Rs 508) and DAP (Rs 1148) fertilizer prices are highly subsidized in India while in Pakistan urea prices have increased by 120 percent and that of DAP by 240 percent (Annex-1).  Both countries subsidize fertilizer to promote its use. The average per hectare fertilizer subsidy in India and Pakistan during the last five years is Rs 3403 and Rs 896 respectively. Meaning thereby that Pakistani farmer is receiving only about a quarter of the subsidy what the Indian farmer is getting (Annex-II). In the budget 2011-12 government of Pakistan has imposed 16 percent Reform General Sales Tax (RGST) on fertilizers, pesticides and agriculture implements which were previously duty free. This would further detoriate the relationship between yields of crop and fertilizer application.

            In the Standing Committee Meetings of Agriculture Policy Institute the grower members of the Committee express their serious reservations over short supply of fertilizers during sowing and growth period of crops. Black marketing of fertilizers, under weighment and other malpractices in fertilizer trade are hampering crop sector. The wrong doing in the fertilizer sector be checked and soil testing be popularized before application of fertilizer to pickup the yield level of crops.

            Response rates needed for a value cost ratio (VCR) of 3 for wheat in India and Pakistan at current input and output prices are given in Table-3.

Table-3:          Economic Returns from Fertilizer Use at Current Input and Output Prices

Country	Kgs of wheat needed to pay for 1 kg		Response rate needed for VCR of 3
	N	P	N	P
India	1.05	1.62	3.15	4.81
Pakistan	1.36	4.28	4.08	12.84

Sources:          1.         Fertilizer Review NDFC 2010.

2.                  Agricultural Statistics of India.

            The response rate needed to have a VCR of 3 far exceeds in case of Punjab (Pakistan). In case of phosphatic fertilizers it is about three times high. This situation simply reflects how much privileged the Indian farmer is as compared to Pakistani farmer as he is receiving much needed fertilizer subsidy at a higher rate. The imposition of RGST on fertilizer would further worsen the relationship for Pakistani farmer.

4.         Agriculture Credit

            Credit is the life line of agriculture. Farmer takes credit for the cultivation of crops, pays it back after harvesting them. He again takes credit for the husbandry of next crop and pays it back after selling the mature crop. The system continues, agriculture progresses and the government through provision of institutional credit plays an important role in sustaining agriculture.

            In Pakistan ZTBL, five Commercial Banks, Fourteen designated Private Banks and PPCBL extend agriculture credit to the farming sector. ZTBL provides subvention in credit interest while the other banks charge the market rate. ZTBL’s interest rate is from 8 to 9 percent. Pakistan Credit Advisory Committee (PCAC) of State Bank of Pakistan sets, monitors and evaluates agriculture credit disbursement.

            In India agriculture credit is disbursed through four main sources which include Cooperatives, State Governments, Scheduled Commercial Banks (SCB) and Regional Rural Banks (RRB). They have variety of agriculture credit schemes including collateral free credit. Under this scheme credit is disbursed to farmers group and each one of them is held responsible for the repayment. They also have Kissan Credit Card scheme as well. The interest rate on agricultural loans ranges from 8 to 9 percent. Average short term interest rate is around 6 percent.

            The comparison of credit disbursement per cropped hectare is placed in Table-4.

Table-4:          Disbursement of Agriculture Credit per Hectare: 2005-06 to 2009-10

Year	Pakistan	India	Pak credit as percent of Indian credit
	Rs/cropped hectare
2005-06	6519	10100	65
2006-07	10091	13700	74
2007-08	12474	15800	79
2008-09	13739	17320	79
2009-10	14630	-
Average (2005-06 to 2008-09)	10706	14230	75

Source: Calculated from Economic Surveys of Pakistan and India.

            Table-4 mentions that on average Pakistani farmer is getting only 75 percent of Institutional credit what his Indian counter part is getting on cropped hectare basis that too on higher interest rate. In Pakistan the situation has improved over time as the disbursement per hectare has increased from 65 to 79 percent during last five years. The share of ZTBL in total institutional credit may be kept at 50 percent for the benefit of the farming community.

5.         Irrigation

            Both parts of Punjab enjoy world’s largest canal irrigation system facility. In Pakistan Indus and its distributaries supply surface water at an historic average of 104 MAF per annum through 40000 mile long canals and 130000 water courses. Annual water requirement at canal head could range from 135-170 MAF. Existing irrigations mechanism has reportedly working on 40-45 percent efficiency.

            Irrigation water charges were introduced in the subcontinent in 1873. From then on they are being revised and updated over time and space. Farmers receiving water from publically built projects rarely pay more than 20 percent of water real cost and often much less. According to one estimate the irrigation subsidies on a world wide basis are $ 33 billion per year. If full cost of environmental damage, human resettlement from dam cites and increased water born diseases from irrigation projects were factored in, the total subsidy would be much higher. Prevalent crop specific canal water rates are given in Table-5.

Table-5:          Water Rates (Rs/Acre)

Crop	Punjab	Sindh
Wheat	50	53.30
Rice	85	88.78
Cotton	85	93.09
Sugarcane	250	181.87

Source:    Agriculture Policy Analysis Papers for respective crops.

            Electricity charges for agriculture tubewells are Rs 5.31 per unit in Punjab (Pak) while in Indian Punjab electricity is provided free of cost to the agriculture tubewells. In other provinces it is charged @ 20% of the operating cost. In Pakistan sales tax would be levied on electricity bills for tubewells. The overall per unit rate for agriculture tubewells would work out Rs 6.16. According to estimate the imposition of sales tax on tubewells bills would cost Rs 6 billion additionally to the farming community in Pakistan.

6.         Agriculture Insurance

            The need to protect farmers from agriculture variability has been continuing concern of agriculture policy. In both India and Pakistan Agriculture Insurance instruments are being used in different forms. India has experienced following agriculture schemes.

1.         First Individual Approach Scheme 1972-78

2.         Pilot Crop Insurance Scheme  1979-84 (PCIS)  

3.         Comprehensive Crop Insurance Scheme 1985-99 (CCIS)

4.         National Agriculture Insurance Scheme 1999-todate (NAIS)

            The premium rates under NAIS applicable on sum insured are as given in Table-6 below:

Table-6:          Premium Rates of Different Crops in India

Crop	Premium (%)
Wheat	1.5
Other Rabi Crops	2.0
Bajra, Oil seed	3.5
Other Kharif Crops	2.5

Source:           State Bank Task Force on Agriculture Insurance.

            In Pakistan Crop Insurance Scheme is still in development stage. ADBP and SBP has made some efforts on Pilot Project basis. In the recent past Crop Loan Insurance Scheme was in operation. Under the scheme the maximum sum insured was Rs 2.0 million and amount of premium was 2% plus applicable levies. The scheme was applicable to loanee farmers only. The premium of small farmers upto 12.5 acres of land was to be paid by the government. Later on this scheme was extended to the agriculture sector as a whole with generalized 2 percent premium.

            Agriculture Insurance in Pakistan is still in infancy in Pakistan.

7.         Tractor and Diesel

            Tractor is instrumental in farm mechanization and stable prices of diesel play an important role in keeping cost of production of crops at moderate level.

            In India tractor prices range between Rs 0.35 million to Rs 0.5 million depending upon horse power. These prices in Pakistani Rupees work out to Rs 0.659 million to 0.941 million. Prices of locally manufactured tractors in Pakistan range between Rs 0.58 million to Rs 1.55 million Annex-III.

            An average Indian tractor costs about Rs 0.08 million. Prima facia it appears that price of Indian tractor is about 10 percent higher than Pakistani tractor. Depreciation of Pakistani Rupee as compared to Indian Rupee may be one of the factors as one Indian Rupee is equal to Pak Rs 1.882. However, after imposition of RGST prices of Pakistani tractors would be higher to the tune of 5 percent.

Cost of diesel per litre in India is Rs 37.75 (Pak Rs 71.05). While in Pakistan it is Pak Rs 92.30 i.e. about 30 percent higher than in India. This difference significantly adds to cost of production of crops. In case of wheat tractor operation charges in total cost of production work out to 12 percent. The overall impact on cost of production of wheat works out to 4 percent.

8.         Seed

            Policy Changes in Agriculture and technological innovations in seed in shaping growth of material plays a vital role in realizing the yield potential of any crop.

            In Pakistan Public Sector is taking care off of all the crops of interest for which certified/improved seed is required. The sector usually work on 20 percent of total seed requirement of crops of interest including wheat, gram, maize, rice, cotton etc. Private Seed Companies are registered under FSC&RD. Distribution of seed in Pakistan in 2011 is given in Table-7.

Table-7:          Distribution of Certified Seed in Pakistan: 2011

Crop	Local	Imported	Total
Wheat	347.9	-	347.9
Cotton	7.2	-	7.2
Paddy	25.6	3.9	29.5
Maize	1.5	4.6	6.1
Pulses	1.1	-	1.1
Oilseeds	0.1	0.6	0.7
Fodders	0.01	4.0	4.0
Vegetables	0.3	5.2	5.5
Potato	0.1	4.2	4.4
Total	383.9	22.6	406.5

Source:           Federal Seed Certification and Registration Department, Pakistan.

            In India public sector meets the seed need of large sections of farmers particularly for self pollinated crops, the private seed companies are supplying in increasing proportion of hybrid seed (Table-8).

Table-8:          Distribution of Certified Seed in India

Year	Production of breeder seed	Production of foundation seed	Distribution of certified seed
	-------------------- 000 tonnes ------------------------
2005-06	6.864	74.0	1267.5
2006-07	7.383	79.6	1550.1
2007-08	8.008	85.0	1620.0

Source:           Agricultural Statistics of India.

9.         Support Prices of Wheat

            Both India and Pakistan has a long history of providing support to domestic farmers by announcing support prices. Wheat support prices both in Pakistan and India from 2005-06 to 2009-10 are given in Table-9.

Table-9:          Support Prices of Wheat in Pakistan and India: 2005-06 to 2009-10

Year	Pakistan	India	Increase/Decrease   in India price (%)
2005-06	415	348	-16
2006-07	425	412	-3
2007-08	625	617	-1
2008-09	950	711	-25
2009-10	950	792	-17

Source:           Economic Survey of Pakistan and India.

            Wheat support prices in India on an average are 14 percent less. This is so because input prices in India are highly subsidized. Higher support prices in Pakistan improved wheat production and stocks. As the prices in the neighbouring countries i.e. India and Afghanistan were low which has discouraged smuggling of wheat from Pakistan.

10.       Conclusions

            The analysis brings to fore that suitable policies to improve yield of crops to have sustainable food security in Pakistan are required. These include:

i)                    Popularize soil testing to have optimum benefit of fertilizer application.

ii)                  Provision of subsidies to Nitrogenous, Potassic and Phosphatic fertilizers to provide their balanced use.

iii)                Fertilizer, other agriculture inputs and implements be exempted from RGST.

iv)                Significant reduction in the charges of electricity for agricultural tubewells be made.

v)                  Institutional credit for agriculture may be enhanced and ZTBL’s share in agriculture credit may be maintained at 50 percent which is currently hovering around 30 percent.

vi)                Agriculture Insurance may be developed on scientific grounds.

vii)              Provision of certified/improved seed be enhanced.

11.       Bibliography

1.                  Agricultural Statistics of Pakistan

2.                  Economic Survey of Pakistan

3.                  Agricultural Statistics of India

4.                  Economic Survey of India

5.                  Indian Punjab Agriculture, Farming outlook 2008

6.                  National Food Security vis-à-vis sustainability of agriculture in high crop productivity. Current Science vol  98 No.1, 10 January 2010

7.                  Policy Brief and Progress in Agriculture Insurance in India, National  Centre for Agriculture Economics and Policy Research.

8.                  The Seed Bill 2010 – A critical Approach NCAP, India

9.                  Fertilizer Growth, Imbalances and Subsidies Trends and Implications, NCAP, India

10.              Fertilizer Review 2009-10, NFDC, Pakistan.

 Annex-I

         Prices of Urea and DAP in Pakistan: 2000-01 to 2009-10

Year	Urea	DAP
	Rs/bag of 50 kg
2000-01	363	669
2001-02	394	710
2002-03	411	765
2003-04	421	913
2004-05	468	1001
2005-06	509	1079
2006-07	527	993
2007-08	581	1931
2008-09	751	2578
2009-10	800	2267

Source:           Agricultural Statistics of Pakistan: 2009-10

Annex-II

Subsidy per Crop Hectare in India and Pakistan:                                                    2005-06 to 2009-10

Year	Subsidy (Pak Rs/ha)		Pak subsidy as percent of Indian subsidy
	India	Pakistan
2005-06	1280	346	27
2006-07	1865	726	39
2007-08	2558	860	34
2008-09	6442	1714	27
2009-10	4868	834	17
Average	3403	896	26

Source:           Economic Survey of Pakistan and India.

Annex-III

Prices of Locally Manufactured Tractors: 2011

Tractors Model (Horse Power)	Price/Unit (Rs)
NH/FIAT- 480S (55 HP)	579,735
NH/FIAT-GHAZI (65 HP)	655,200
NH/FIAT 640 (75 HP)	840,060
NH/FIAT 640S (85 HP)	930,150
NH 55-56 (55 HP)	661,050
NH 60-56 (60 HP)	725,400
MF240 (50 HP)	630,630
MF 260 (60 HP)	700,830
MF 350 (50 HP)	665,730
MF 375S (75 HP)	958,230
MF 385 (85 HP)	1,058,850
MF 385 (4WD) (85 HP)	1,550,250
Universal- 530 (55 HP)	607,230
Universal- 530 (55 HP) Plus	654,030
Universal-533 (55 HP) Plus	654,030
Universal 640 (65 HP)	829,530
Universal 683 (83 HP)	923,130
JD-5055 B (55 HP)	643,500
JD-720 (72 HP)	789,750

Source:  Economic Survey of Pakistan: 2010-11.