Aamer Hayat Bhandara is convinced that current administration’s efforts to rescue Pakistan’s economy from the predicament it is in are centered on improving the farming sector.
In light of the recently announced agricultural policy in the federal budget for the fiscal year 2023–2024, BR Research spoke with Punjabi farmer Aamer Hayat Bhandara, who is convinced that the current administration’s efforts to rescue Pakistan’s economy from the predicament it is in are centered on improving the farming sector.
BR Research (BRR): Take us through the process followed to elicit input regarding agricultural policy for this year’s budget making exercise, and whether recommendations by farming experts such as yourself were incorporated in the final proposals?
Aamer Hayat Bhandara (AHB): To ensure sound agricultural policy inclusion in the budget, the federal government approached experts through federal secretary of ministry for Food Security& Research (MNFS&R). The secretary shared proposals drafted by the government for evaluation while also requesting the panel of experts to share its own recommendations.
To our surprise, the prime minister and relevant cabinet members held a very detailed discussion not only on our proposals, but also made time to listen to presentations on challenges faced by the sector. The federal government’s commitment to agricultural reform, improving productivity, and farmer uplift is a very encouraging sign for the stakeholders.
I had the opportunity to share multiple recommendations during these sessions. I believe quality output is dependent on access to quality input. Therefore, I laid emphasis on developing R&D expertise at the local level on ensuring availability of quality seeds at prices significantly less than the superior imported variety.
I n addition to access to quality seeds, farmers also need fertilizers well within their severely constrained limit on investment. My recommendation is to decrease the spread of investment by eliminating the pressure of fertilizer purchase bundling. Currently, purchase of DAP is bundled with purchase of subsidized urea, regardless of farmer requirement.
Fertilizer subsidy benefit is enjoyed by commercial large-scale players instead of millions of small-scale farmers in dire need. To ensure effectiveness, track and trace system should be enforced as the one currently being used by the Punjab Government to track dispatch of sugar from sugar mills to dealers.
To ensure efficient use of resources, the use of solar technology for tube wells connected to green meters, along with net metering, is critical. The energy produced can be utilized by WAPDA, reducing country’s dependence on imported oil for power generation.
For better focus on agricultural development across all major crops, it is important to leverage multinational companies’ interest and investment. The improvement we’ve witnessed across rice and maize has been a consequence in part of the private sector’s interest and spending across these crops.
To address concerns regarding agility and value addition from the rural economy, I communicated my belief on strengthening the value chains across the farming system. Specifically, focus is warranted in enhancing the rural sector’s storage and packaging capability. Cold storage facilities utilizing solar panels can help prevent post-harvest losses.
This avoidable loss will attract more agro-based processing units which will enable better control over inflation (more than one crop availability), create employment opportunities, strengthening the overall economic and social fabric of rural geographies. To encourage private sector investment in cold storage, tax exemptions on machine parts will be beneficial.
These exemptions are already built into the budget proposals with respect to farm process mechanization and automation. For small farmers, a bulk of which represent agricultural output in Pakistan, this facility can help reduce risk, increase output, and improve ability to invest in better quality seeds and fertilizers thereby creating a self-fulfilling cycle of growth.
BRR: The federal budget has allocated Rs. 15 billion for fertilizer-specific subsidies. Do you believe these subsidies are ineffective and do not reach or benefit the majority of the farming community?
AHB: The support extended by the government is limited to urea. The government is invested in the provision of urea to the extent of spending on imports, in addition to subsidizing gas provision to fertilizer plants.
A subsidy on DAP is not being offered and, in my opinion, it is a good decision since the benefit is not being enjoyed by small-scale farmers. I am a strong advocate of fertilizer subsidy; however, the dissemination of the same is being poorly managed by provincial governments.
The federal government allocates the subsidy, upon which the controlled price for urea is fixed at Rs. 2,500 per bag. Yet, the fertilizer is available in the market across a range of Rs 2,500-3,200 per bag.The average price in most markets is Rs 3,000.
The difference between the government fixed rate and the market average price is a result of poor administration at provincial level. Therefore, in addition to an attractive fertilizer subsidy, I strongly recommend implementation of the track and trace system.
The subsidy is critical because it enables fair prices for consumers and a benefit for farmers that helps them invest in quality inputs, and therefore, allows a stability in the final price of output such as wheat, rice, and other grains.
The international market rate of urea is close to Rs 9,000 per bag, but the provision of the same through federal sponsored subsidy at Rs. 3000 or less along with increases in support price enable better investment in inputs by farmers. In the case of potatoes or maize, for instance, the relaxation on exports has also resulted in earnings in foreign currency enabling an even better economic return and overall welfare of the economy.
BRR: Please elaborate on whether duties, concessions, and exemptions on imported inputs such as bovine semen, hybrid seeds, combine harvesters, and rice planters etc were discussed in the meetings leading up to the agricultural policy in budget?
The exemptions mentioned by the finance minister such as rice seed planter, and bovine semen appear to have been in place for at least the past two years. Similarly, for completely built units of tractors, duty has been increased from 10-12 percent to 15 percent yet for high end hybrid cars, the same has been brought down to zero. Do you believe such policy priorities represent an agricultural centric approach at the heart of budget design?
AHB: Reduction in duties was discussed with the perspective of short term and long-term interventions. In my view, the most beneficial short-term solution involves provision of high-quality imported seeds to increase crop productivity.
Seeds for almost all vegetables and other major crops are already imported. For instance, if the duty on corn seeds is removed it will improve productivity immediately, provided that dealer behavior is regulated, and the benefit is passed on to farmers.
The budget rightfully talks about exemptions on import of rice transplanters, dryers and combine harvester. Cheaper access to mechanization will result in improved productivity and decrease post-harvest loss enabling shorter crop cycles and more time to adequately seed the crop in successive cycles.
The most imported tractors are used mostly by large-scale landowners. It is possible the duty has been increased on large engine sizes, because it does not adversely affect most small-scale, medium-hold, and progressive farmers with landholding of less than 100 acres.
BRR: Could you identify other concessions, exemptions, and taxes affecting expenditure or revenue side associated with agricultural policy in the budget that you believe should have been considered but have not been made part of the final budget proposals?
AHB: I believe there should have been a focus on water productivity, precision-agriculture, digitalization, and access to technology. The current budget, due to the extreme macro-economic challenges faces by the country, has been unable to focus on these proposals, However, it must be emphasized that the assemblies will only remain in power for less than two months.
Longer-term initiatives and interventions are definitely part of the current government’s policy focus and shall be brought into effect if the current set up returns to power post-elections.
BRR: Macro-economic challenges faced by the country have reignited the debate surrounding imposition of tax on farm income. A tax on farm income has been left out of budget proposals despite the difficulties faced in the financing of the budget deficit.
Many commentators believe that leaving the agriculture sector out of the tax net allows unscrupulous elements to launder undeclared income and evade taxation. What is your view on the subject?
AHB: I am a strong advocate of taxing farm income, because I believe that if a farmer is making money, then he should document his earnings and pay some percentage of that as tax. The documentation also enables a farmer to better understand his expenses and revenues.
Although some farming associations are still opposed the idea, taxing farm income will enable documentation of the sector, which I believe will help farmers unlock credit lines from the banking system, which is currently unwilling to extend credit to a market segment that effectively operates in the semi-formal or grey zone.
That does not mean, however, that farmers are earning abnormal profits, or that taxing agri income will yield significant revenues for the government. Farming is a very-low profit business, and even a fair implementation of taxation will yield insignificant contribution to the treasury.
Originally published at Business Recorder