Financing agriculture

ByRameez Ansari

An entrepreneur

Dated

January 2, 2023

Financing agriculture

Rameez Ansari comments upon an essential matter

It is quite ironical to observe that Pakistan though is rated amongst countries richly endowed with Financing agriculture yet it has failed to feed its own people. The country has reached this sorry state of affairs after having achieved autarky many decades before and was known to be a food exporting countries for quite long. There are plenty of reasons for this tragic reversal and one of the key reasons is the debilitated condition Pakistan’s agricultural sector finds itself in. The immediate impact of the failure of Pakistani agricultural sector to provide foodstuff is the large amount of foreign exchange spent on importing foodstuffs estimated to be $9 billion out of the total import portfolio of $80 billion coming up to more than ten per cent of the entire portfolio. The official planners assigned the task of managing agriculture are now trying to take cover behind the recent unexpected flooding that has inundated almost 40 per cent of the arable land calculated to be 15 million acres and has resulted in widespread water-logging and salinity but this is certainly an attempt to cover up the mistakes and gross negligence that they have exhibited in this respect.

In the current situation it is mentioned that Pakistan’s capacity to produce for its teeming millions depends on its irrigation and drainage infrastructure and for this reason Pakistan has already borrowed billions of dollars over the years from international lenders for irrigation and drainage. But it is well known that all such efforts including salinity control projects in 1960s and the Left Bank Outfall Drain and Right Bank Outfall Drain projects of the 1980s and 1990s have not worked. The issue has now focused on the crucial sector of agri-finance that remains below par, and whatever has been provided so far is highly inadequate. Recently, the coalition government has undertaken to provide Rs.1.8 trillion in farm loans but keeping in view this vast amount of agri- finance will likely not be disbursed to farmers but mostly to the middlemen with a sizeable chunk of its going to the multinationals. In these circumstances it is imperative for the government and State Bank of Pakistan to ensure giving a regulatory target to disbursing banks that requires them to disburse at least half of the agri-finance target directly to the farmers.

The crucial aspect of agricultural development is grossly neglected as could be borne out by the figures pointing out that out of more than 90 per cent of farm loans are offered for production with only 10 per cent given for agricultural development. The lack of financing in this respect is responsible for keeping Pakistani agriculture under-exploited, low on productivity, high on wastages, slow-progressing and least prepared for future challenges. It is pointed out that the development and commercialisation of agriculture requires financial services that can support larger agriculture investments and agriculture-related infrastructure that require long-term funding, a greater inclusion of youth and women in agriculture and advancements in technology. These factors bring to fore the abject requirement of overhauling the agricultural financing in the country and unless this overhaul is not undertaken it would be a folly to expect any kind of turnaround for this very vital sector.

It is pointed out that Pakistan has long been making efforts to restructure its agricultural finance regime the gradual spread of microfinance institutions as well as warehouse receipt financing. The State Bank of Pakistan has specified development agri-finance as medium and long-term loans that banks offer in all sub-sectors of agriculture implying for major and minor crops, livestock, dairy, poultry, fisheries and forestry. Short-term loans of six months to one year are offered to the entire agriculture sector mostly for meeting their working capital needs but medium- to long-term loans of three- to five-year maturity are advanced to enable agriculturists to undertake projects that can help improve productivity and cut wastages. It is due to this reason that the need to evaluate the lending volumes provided for agricultural development has become a relevant issue as it is the essential yardstick required to gauge the extent Pakistan agriculture is prepared to meet future challenges such as national food security and environmental protection.

People concerned with agri-finance point out that the central bank is required to assign sub-targets of agricultural development loans to banks as a certain percentage of overall agricultural lending targets. The central bank may also push banks for greater agricultural development lending to small and medium-size individual growers as well. Sub-targets for agricultural development loans can also be set for banks for making agricultural loans in livestock, fisheries and poultry sub-sectors. Moreover, banks should seek help from provincial governments in creating awareness among farmers and devising a mechanism for aligning agricultural development loans with the overall national food security targets. It is also suggested that the government should not hesitate to seek assistance from the major Pakistani agri-businesses, particularly fertiliser and other agri-input companies along with inviting them to gradually take over the management of the irrigation and drainage sector. TW

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