In addition to spending Rs. 2.94 billion on wheat subsidies, the government allocated Rs. 16.5 billion between 2019–20 and 2023–2024 to increase national wheat productivity.
In its Country Climate and Development Report (CCDR) for Pakistan for 2022, the World Bank suggested gradually phasing down and reallocating agriculture subsidies on wheat support, fertilizer production and distribution, and electricity tube wells toward agriculture research, rural development, and enhancing climate resilience.
In addition to spending Rs. 2.94 billion on wheat subsidies, the government allocated Rs. 16.5 billion between 2019–20 and 2023–2024 to increase national wheat productivity.
By the end of the fiscal year, Punjab’s commodity debt is anticipated to amount to Rs. 950 billion. Additionally, between 2018 and 22 the government gave LNG-based urea production facilities Rs. 70.4 billion, and during the current fiscal year it gave urea imports Rs. 30 billion in subsidies.
Although it decreased by 2.5 percent due to heatwaves last year and increased by 4.5 percent this year due to moderate weather and water that was stored in the soil from last year’s floods, wheat productivity has largely remained constant and is dependent on climatic factors.
Despite the billions in agriculture subsidies, the price of urea increased from Rs. 1,500 in 2018 to Rs. 2,565 in 2023.
The World Bank criticised agriculture subsidies for being ineffective, concentrating on the subsistence farming of small landowners, and taxing available resources.
Commercial banks, millers, and large landowners profit from the purchase of wheat. The bank recommended focusing resources on productivity and encouraging varied, nutrient-dense diets with an increase in vegetables and fruits.
Mariam Sara Altaf, a spokeswoman for the World Bank, made it clear that Pakistan should modernise the wheat value chain to increase its competitiveness and lessen its financial burden. This will encourage crop and livestock diversification while easing the financial strain on the current system.
With a focus on small farmers, climate resilience, and infrastructure development, the current wheat support program could be repurposed because it lacks productivity gains. It could also be used to repurpose resources for public services and affordable food.
Speaking of the subsidies for the fertiliser industry, she said, “It is the perfect example of how more targeted support for smallholder farmers could replace untargeted public support.”
She noted that by decreasing their economic advantage as a result of the distorting wheat subsidy policy, it will encourage medium and large farmers to diversify into higher-value crops, but she also emphasised that any policy shift in fertiliser subsidies will need to be coupled with social protection measures and better-targeted support, such as fertiliser vouchers, to avoid shocks and ensure household self-sufficiency.
Since 2013, Pakistan has been a net importer of wheat, with the majority of farmers growing wheat as a result of rising support prices. Eliminating wheat support would reduce the population and jeopardise national food security.
Due to cheaper petrol availability, domestic urea prices are less than half of those on the global market. The majority of urea plants cannot afford the high prices, so eliminating subsidies is not an option for them.
Aamer Hayat Bhandara, co-founder of Think Tank Agriculture Republic, said that wheat subsidies ensure national food security and are crucial for supporting small and medium landowners. He added that an abrupt withdrawal could financially ruin farming communities.
The farmer’s productivity is too low, he claimed, and the support is the closest thing farmers have to financial and social security. Despite his personal opposition to the subsidies, he agreed that they should not be offered if farmer productivity is comparable to that of other nations in the region.
Additionally, he noted that, unlike other industries, the money that goes to farmers is spent throughout the economy rather than being trapped in real estate. Regarding urea subsidies, he suggested deregulating the fertiliser industry because it is rarely sold at the advertised price anyhow.
Due to flooding brought on by climate change, the production of cotton and rice was significantly reduced in 2022–2023 while mango production fell by 50% in 2017. Future decreases in the production of maize and rice are anticipated, which will drive up investment in climate-smart technologies.
Pakistan received $200 million from the World Bank for the development of Climate Smart Agriculture (CSA), but without increased private sector involvement, lasting and noticeable change is only a pipe dream. Pakistan needs to invest much more in developing climate-resilient cultivars and early warning weather systems.
In order to assist farmers in implementing climate-smart practices, Mariam Sara Altaf from the World Bank continued, “There is an urgent need to redirect public spending from ineffective subsidies and price support toward investments in agriculture research and extension.”
She emphasized the need for a gradual reduction of distortive market interventions to attract private investments. Supporting wheat sector reforms could reduce the state’s excessive borrowing for commodity procurement, which crowds out private credit.
Current subsidy regimes are inequitable due to structural inefficiency, particularly in Southern Punjab and Interior Sindh. Raising social awareness and educational standards in rural populations is crucial for implementing these initiatives effectively.
A classic chicken-and-egg issue, meaningful reforms can only be implemented with the support of those who benefit the status quo (good luck getting that), and few people from the bottom can enter decision-making circles without these reforms.
In agreement, Mariam said, “Agri-food sector transformation and sustainable change are dependent on raising social awareness and grassroots empowerment. In order to forge a consensus to revisit the public support programme, wide stakeholder consultations are necessary, especially with farmers, landowners, professional organisations, and the private sector.
She continued, “Farmer groups, water users associations, and community support organizations are essential to achieving demand-driven local economic development, and all World Bank projects include interventions to support such groups for capacity building, coordination on on-farm irrigation issues, and access to resources for community-managed infrastructure improvement.”
The team is finalizing a report on Rural Transformation in Pakistan, focusing on community-driven development and local governance. The despicable living standards in remote areas of Punjab and Sindh are often highlighted in media stories, which are often underwater during floods or under droughts and diseases. This has led to audience switching channels.
According to Aamer Hayat Bhandara, “the better path towards rural development is to enable crops-related SMEs near villages, which will provide job opportunities, create a skilled workforce, and also fix the supply chain losses and the transportation costs to farmers.
If the government is able to accomplish this, it will not only be able to cut out the middlemen and greatly increase the economic benefits to farmers, but it will also be able to stop the flow of people seeking out the already overcrowded and poorly managed urban centres’ opportunities.
The most sustainable way to end the financial burden of subsidies is to reduce production costs, increase productivity, and create a strategy that targets small landowners more effectively than the Kisaan card. If we don’t, despite a much larger population, we’ll still be providing the same subsidies in ten years with similar or worse results.
Agriculture that is climate resilient demands investment from businesses that grow particular crops. Industries should help farmers and create climate support initiatives, paying for them with savings from the privatisation of the wheat market and the elimination of subsidies for large landowners.
Agricultural producers, exporters, manufacturers, and the government are all at risk as a result of climate change, which offers a rare opportunity to unify the broken agriculture sector. The discussion of public spending and the redesign of subsidies will just get started.