Potential role of agriculture and agro-industry 
By Dr. Mahmood Ahmad

There is so much talk of possible large-scale Chinese investment being planned to support developing national economic corridor that would open door of economic fortunes for the country.

Yes it might be an economic game changer if we position ourselves with appropriate investment decisions to make most out of these opportunities if and when they come.

In the past our record has been so poor to miss these opportunities by promoting either self-interest or regional political economy than that of what is good for the national.

Of many examples, two are highlighted.

Firstly, we missed the opportunities to produce cheap and environmentally friendly energy by not investing in medium to large size dams and store extra water during peak flows. India increased its total dam capacity from 166 in 1990 to 224 Km^3 in 2005 and during the same period Pakistan capacity remained at 27 Km^3.

Secondly during post-WTO quota abolition regime for cotton exports, we did not bring the needed reforms to prepare the sector for new competitive regime with the result we failed not only to produce sizable raw cotton, but also to add value in comparison to Bangladesh and India.

The available data indicates that in year 1990 India and Pakistan were producing almost equal amount of seed cotton around 33 million tons, in the year 2013 Pakistan is producing around 40 million ton and India production has increased to 122 million tons, three times more than us.

Further, we produce this cotton using valuable irrigation water where in India most of it is produced under rained conditions. Again we missed the opportunity of providing the right policy environments for strategic commodity like cotton.

The new economic opportunity or so-called new growth trigger is being discussed without profound research or facts as to which sectors or sub-sectors provide better returns on investments and to address the problems of poverty alleviation and improved livelihood for large section of population living in the rural areas and in the past neglected provinces.

A case is being made in this brief note that developing agriculture and ago-based industry through identification of potential areas and adopting a cluster approach in the proposed corridors provides a prudent investment options and opportunities.

The prospects for continued growth in demand for value-added food and agricultural products provides an incentive for increased focus on agro-industries development within the context of economic growth, food security and poverty-fighting strategies.

The corridor development should not be looked as a passage provided to those economies that are well developed and are quite competitive to trade and take larger share of the expected benefits.

Rather it also is looked as an opportunity to provide backbone and supporting infrastructure to Pakistan's agriculture and agro-processing industry, which has the potential to grow.

Promoting rural economy in high potential areas would result in fast track rural economic growth as it carries forward and backward linkages, have high multiplier effects in terms of job creation and value addition.

Because of the generally perishable and bulky characteristics of agricultural products, many agro-industrial plants and smaller-scale agro-processing enterprises tend to be located close to their major sources of raw materials.

Consequently, their immediate socioeconomic impacts tend to be exerted in rural areas (FAO). Further it is suggested to equally direct these efforts to rural economies especially in Balochistan and KPK for a shared prosperity.

If we look at successful agriculture and rural development growth models - four common features are present.

Firstly, the countries/regions have to carry natural comparative advantage with suitable land and soils, appropriate climatic conditions and a reliable supply of water.

All four provinces provide natural resource base to support a very diversified production base with seasonal window of opportunity. 

Secondly, agriculture and rural development needs an adequate access to agriculture-supporting infrastructure, among others, two are important, linking farm and non-farmer sector to markets through agriculture or feeder roads and, in drier climates like Pakistan, irrigation powered by reliable energy sources (grid electricity) at competitive prices.

The case is made that sizable investment have been made on mega projects for developing backbone infrastructure but investment on last mile infrastructure (feeder roads, irrigation management) has to be given equal priority.

Thirdly, in order to translate above comparative to competitive advantage, there is need to develop clusters of commercially viable farming, processing and service firms located in specific geographical areas.

By achieving economies of scale the clusters can help to drive down production and marketing costs for all actors in the value chain.

As mentioned above the rural economies carry huge comparative advantage in producing high value commodities but this comparative advantage has not fully being translated into competitive advantage due to lack of good farming and marketing practices meeting international standards.

To address the issue an innovative approach is needed in developing appropriate infrastructure and its financing to spur the rural growth.

Finally, there is a clear and specific government policy dedicated to actively supporting sustainable agriculture and recognizing the important role the private sector has to play to implement such a policy.

The agriculture and rural growth centers and corridor model is a way of addressing and channeling large volumes of private investment and enabling high potential agricultural regions to become internationally competitive. The most common way to achieve this is through:

-- Identification of areas with high agricultural potential and reasonable access to existing backbone infrastructure such as ports, roads, railways and inland waterways.

-- Analysis of the constraints on commercial agriculture and how these can be ad dressed. A value chain approach is often proposed to look at the constraints all along the value chain.

-- Making small farmers and enterprises inclusive, provision of support to the commercial agriculture sector through new types of financing mechanism, on the condition that smallholder and emergent farmers/entrepreneur are included and benefits from potential increase in income and livelihood.

-- Designing an appropriate business model to develop reforms in our outdated markets. Global experience indicates that nucleus plus out grower model ensures better incentive to small farmers than our traditional model which revolves around middle man (arhti) and processors who dominate financing the small farmers at very high cost, and this model does carry any demonstration effects.

-- Realizing that role of public sector is important, recognition of the important roles of different public- and private sector players in successful implementation of the Agricultural Growth Centers and Corridor development.

The proposed corridor development -- elements of possible actions needed as we move along

-- Logistic of supply chain: that plans, implements and controls efficient and effective flow and storage of goods, services and related information from the point-of-origin to the point-of-consumption in order to meet customer requirements.

-- Cool Chain System including pack houses, cold storage and refers: especially to market and transport perishable goods like horticulture, dairy, fishery and pharmaceutical products.

-- Feeder roads and markets: in the past larger emphasis placed on building costly motorways and ring roads, whereas the rural feeder road network away from the main road are often in a very poor shape and a major constraint in providing market access to small farmers and rural enterprises.

-- Energy and Water availability: Reliable water and energy supply is critical for agriculture and rural development to run irrigation systems, processing facilities, cold storage units and so on. A conducive water and energy and investment policy need to put in place to provide sustainable supply at least-cost.

-- Policy Environments: The goal of a rural and agriculture growth strategy/policy may not necessarily to maximize the growth of production in any particular sub-sector/commodity but to create the necessary, and sufficient conditions for the rural economy to adjust to a more competitive environment.

Rural development and agriculture corridor - a broader framework

In Pakistan, the idea of developing economic corridor is at the conceptual levels. A strategy needs to be put in place to develop an indicative program of development to sequencing and coordination. At this stage the need is to:

1. Developing a consensus on alternative routes being planned, with clear and transparent priorities and time lines. At this stage little details are available on the mix of intended investment plan. Make sure the proposal is inclusive of areas deprived of past investment opportunities to uplift social and economic development.

2. Picking first the "low-hanging fruit" in order to achieve quick paybacks by improving local rural economies in these potential economic corridors (see figure below). Pakistan being agriculture-based economy is well placed to position itself to improve the competitive of the sector in developing a modern and commercial agriculture. Picture based on rural growth model highlighting the needed building blocks in developing at selected points agriculture and rural growth centers/ corridor in Pakistan.

3. Once backbone and supportive infrastructure being developed, stage is set to establish special economic zones investment from private sector from local and Chinese firms can develop a competitive industry.

Such a strategy would not only support developing a competitive and sustainable commercial agriculture but also create a sound industrial base operating under low labor costs, a factor to be instrumental in bringing FDI from manufacturers looking for a low-cost locations to build products for exports to emerging markets in the region and beyond.

4. Propose to organize a series of workshops at national and provincial levels to educate the decision makers and society at large and to bringing awareness about the benefits of agriculture and rural growth corridor within the umbrella of national corridor.

February 2015
Source: Business Recorder