Macro Bites

Macro Bite # 6

4 min read

At Macro Pakistani, we believe there is a need to explain the real story behind breaking news. But we also believe, the real story should look nice. After much debate, we have settled on a new color template for charts and are working on making them interactive next. Let us know what you think by sharing your thoughts on our social media links below or by replying to this email.

Why has the performance of agriculture in Pakistan lagged behind?

If you are an urban dweller like me, you might not know what makes up agriculture in Pakistan:

Important Crops make up 24% of the sector and include wheat, maize, rice, sugarcane and cotton.

Other Crops make up 12% and include every other crop grown in Pakistan e.g. pulses.

Cotton ginning makes up 2% and is the process through which cottonseeds and the fiber used for textiles are separated

Livestock makes up 58% of the sector and has historically been the largest contributor to agriculture in Pakistan.

Forestry & Fishery are the other small sectors that make up 2% each of the sector.

Roti, Kapra aur Makaan

We will talk about Makaan (housing) later but continuing with agriculture in Pakistan, which is a key input into Roti and Kapra, let’s talk about the structural issues with productivity which we started discussing in the last post.

Source: Pakistan Bureau of Statistics (PBS); MP Analysis

We also discussed last time how most of the increase in agriculture came from an increase in price. Notice the numbers on the right side of the bars – since 2014, agriculture has increased by 8% in nominal terms while the GDP deflator has increased by 6%. This means real growth was roughly 2% while price increases were around 6%, which explains why the blue line almost completely explains the growth in the bars over the years.

We reap what we sow

The important crops mentioned above use up over 70% of the land and this has increased only slightly in the last two decades. However, what is grown on these lands has changed significantly.

Note: Change calculated between 2001 and 2019; Source: Pakistan Bureau of Statistics (PBS); MP Analysis

Wheat takes up the lion’s share and has grown steadily while cotton has been deprioritized. We will explore later what the impact of this has been on exports and more generally, on the overall economy, but for now, notice what has taken up its place instead. Our farmers have allocated more and more land to maize, rice and sugar. Inquiry reports will soon be part of our staple diet, and Macro Pakistani will also deep dive into them later so let’s park this for now.

Sugar, rice, not everything nice

As you would have probably guessed, since agricultural productivity has been stagnant, Pakistan is not topping the charts for yield performance across these crops.

Note: Cotton yield shown is for seed cotton; Source: Agricultural Statistics of Pakistan 2017-18

If you compare Pakistan’s yields to global benchmarks, you will realize that we are consistently less than 50% as productive as farmers in other countries. Now, the obvious excuses are Pakistan is not a developed country like the US and France, which have larger farms that can accommodate mechanization. Countries in Latin America like Guatemala and Brazil are blessed with rain and rely less on irrigation. China has a higher rate of corporate farming… the list will go on.

China-Pakistan Everything Corridor

Source: FAO; Census of Agriculture 2010

It is true that Pakistan has smaller land holdings than developed countries do but take the case of China to understand why that is not a good enough excuse. While Pakistan has an average farm size of 2.6 ha, China’s average is 0.7 ha! China has been able to improve its productivity fourfold in the last 25 years by allowing consolidation of highly fragmented farm operations into larger-scale units. This helped alleviate inefficient use of resources such as chemicals and allowed for provision of credit and crop insurance programs. Read the full article below for more details on what China did and how Pakistan can learn from their experience.

However, let’s also understand that as productivity increases in agriculture and less labor is required, workers (especially the younger generation) will move to urban areas for better job opportunities. A wide scale industrialization program with necessary vocational skills training will be required in tandem to absorb the migrating workforce. Pakistan’s industrial sector, particularly manufacturing, has also been facing structural issues which we will discuss next time.

Read the full article in the link below

Why has the performance of agriculture in Pakistan lagged behind?

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Faiz Ahmed

MBA Candidate at Harvard Business School with prior experience at Bain & Company, International Finance Corporation and State Bank of Pakistan. He is also the Founder of Macro Pakistani.

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