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Subsidy to benefit rich farmers
By Nasir Jamal
The subsidy for the agriculture sector announced by the
government in the budget for the current fiscal year aims at
increasing farm output but does not attack rural poverty.
Though most view the subsidy on farm inputs as an official
effort to please the powerful feudal lobby in an election
year, they tend to agree that it will have a positive impact
on the farm output and result in a better average yield per
acre.
 Agriculture,
which forms around 21 per cent of the national Gross Domestic
Production (GDP), expanded by slightly over five per cent,
with major crops showing growth of 7.3 per cent in last fiscal
year. The sector is expected to grow by five per cent this
year.
In the budget 2007/08, the government took two major steps to
reduce the growers’ cost of production: It raised the existing
subsidy on DAP fertilisers to Rs470 per bag from Rs400.
Second, it has given 25 per cent discount on the electricity
bills of agriculture tube-wells, to be equally financed by the
federal government and the provinces.
The subsidy on the DAP fertiliser is estimated at Rs17-18
billion. Similarly, the reduction in the electricity bills of
tube-wells is estimated to cost Rs7.50 billion.
Though farmers have received the relief announcement well,
fears persist that it will not be uniformly and fully
transferred to growers, including the smaller ones, by the
market as was the case with the subsidy given on the DAP
fertiliser last year.
The government had announced a subsidy of Rs250 per bag on the
DAP fertilisers last year before the sowing of wheat. The
decision was greeted by almost all farmers’ bodies as it was
hoped, and rightly so, to encourage greater use of DAP
fertiliser and reduce consumption of urea. In the Rabi season
alone, the use of DAP fertiliser, according to AgriForum
Pakistan chairman Ibrahim Mughal, grew by 54 per cent and 20
million bags were used by farmers for wheat crop alone.
Resultantly, the country obtained a record bumper crop of over
23.5 million ton this year.
He says the increased use of phosphatic fertilisers due to
their subsidised rates, the usage of urea has dropped to 90
million bags from the previous 100 million bags a year. “This
means the country can meet its urea requirements from local
production, without any need to import it,” he says.
Farmers, nevertheless, complain that the subsidy was not
passed on to them in toto as importers did not bring out their
stocks in the market owing to rising DAP prices in the
international (especially American) market to around $450 per
ton. “The government had announced a subsidy of Rs250 on a bag
of DAP fertiliser, reducing its price for the growers to
Rs850. But farmers had to pay Rs900-950 for a bag due to its
short supply in the market. As a result, farmers got a subsidy
of Rs100-150 per bag of phosphatic fertiliser. Out of a total
subsidy of Rs13 billion announced on DAP, farmers could
actually receive discount of only Rs8 billion,” says Mughal.
In view of higher international DAP prices, the government
increased the subsidy on it to Rs400 per bag in order to allow
its availability to growers at Rs850. Yet importers were
reluctant to bring out their stocks in the market as needed by
the farmers. “Since the imports were being made from the
United States, where the DAP prices were highest, its actual
retail price rose to Rs1,500 a bag in the domestic market.
Even a subsidy of Rs400 was not enough for importers to sell
their imports at Rs850,” says Mughal.
He says the growers made efforts to convince the government to
look towards China for DAP imports because it is available for
$350 a bag in that country and to ensure that the phosphatic
fertiliser is made available to growers at Rs850-900 per bag.
“The government agreed to raise the subsidy by another Rs70 a
bag to encourage a balanced use of nitrogenous (urea) and
phosphatic (DAP) fertilisers for optimum output. The direct
subsidy given on the DAP fertiliser resulted in an immediate
increase in the production of wheat this year, which has
surged to a record high 23.5 million tons. So if DAP is made
available to growers at Rs850-900 in the coming months, and if
its use rises to 35 million bags from 30 million bags a year,
it will leave a very positive impact on the output of crops.
But if it is not available to farmers on the subsidised rates,
farmers will turn back to urea and production fall,” AgriForum
chairman says.
He says the government will pay Rs17-18 billion on DAP subsidy
during 2007/08 if it is made available at the subsidised rates
throughout the year for Rabi and Khareef crops. “It has
budgeted a sum of Rs13 billion for the subsidy on phosphatic
fertilisers while Rs5 billion is the carryover from the last
year,” he says.
While the subsidy on the phosphatic fertiliser is a general
subsidy, the growers describe 25 per cent discount allowed on
the electricity bills of the tube-wells use for irrigation as
too small. In addition, it will cover only 13 per cent or
130,000 tube-wells around the country as the remaining 870,000
are run by diesel. Farmers want the government to also
subsidise diesel for the agriculture usage, that is, for both
tube-wells and tractors. The government says it already is
providing diesel to the users at cheaper than its
international rates.
Mughal says the actual size of the subsidy on electricity is
not more than 15 per cent. In the past, according to him, the
discount was up to 35 per cent.. “This time the federal
government played a trick on us by pushing upwards the power
rates for agriculture tube-wells by 10 per cent in March, and
then allowing 25 per cent subsidy on it in the budget. Our
electricity bill was first raised to about Rs33 billion from
around Rs30 billion in March and is now reduced to Rs26-27
billion. But I’d still say that it is a good step for the
agriculture production.” Furthermore, he says, it is yet not
clear as to how the provincial governments will pass on their
share of 12.5 per cent in the electricity subsidy.
The government claims that the primary objective of the farm
subsidy is to encourage expansion of the agriculture sector,
which, in turn, will bring prosperity to rural areas, create
jobs, and alleviate poverty. Neither farmers nor economists
agree with it.
“It is not anti-poverty subsidy because a major portion of
rural population is either landless or comprises small
landholders who will not be able to use it at all. A large
part of rural population earns its bread by selling its labour.
At best, it (subsidy) will help raise crop production. It is
an effort to please the powerful aristocracy,” says economist
Dr Faisal Bari. “If the government wants to target rural
poverty, it will have to initiate direct pro-poor programmes
that bear down upon the poor farm workers,” he says.
He agrees that the increase in the farm output helps channel
greater income into the rural economy. But, he insists, the
landless and small landholders do not benefit from income
transfer much, and it does not guarantee reduction in the
rural poverty. “Even the minimum support price fixed by the
government for various crops benefits rich and big farmers
with a holding capacity rather than small growers who are
forced to sell their produce at lower than the minimum
indicated price.”
Mughal also agrees with him, though not totally. “We cannot
say that greater income transfer or subsidies on fertilisers
and electricity can help in poverty reduction in the rural
areas. “If the government really wants to help the small, poor
farmers, it should ensure that they are given access to
cheaper agriculture credit for inputs and sufficient water for
their crops and are helped in marketing their produce at the
minimum support price. Besides, they also need low-cost loans
for the purchase of tractors and other equipment for
mechanical sowing and harvesting for better yields.”
He says banks could disburse only Rs141 billion agriculture
credit in 2006/07, falling short of the central bank target of
Rs160 billion. “The total credit requirement of the country’s
farm sector is between Rs350--500 billion. Whatever is
actually disbursed goes mainly to big farmers, and the small
ones are left at the mercy of middleman for meeting their
credit needs at more than double the bank rates,” he says,
disputing the official claims that at least Rs250 billion had
flown into the rural economy due to bumper wheat crop this
year.
“Unless the government takes steps for fair distribution of
agriculture credit, ensures availability of water to farmers
regardless of the size of their landholding or political
clout, speeds up mechanisation of farming and improves
markets, the rural poverty is not going away,” Mughal says.
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Courtesy: DAWN
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Pakissan.com;
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