Significance of Agriculture Sector

Courtesy: State Bank of Pakistan (SPB)

Research Analyst: Hamadullah Abro

Pakistan is an agrarian economy. Agriculture sector is considered as back bone of Pakistan's economy and economic growth driver. Pakistan is 6th most populated country of the world, with population of 162mn, which has been growing at the rate of at least 2.5% annually. 2/3 of it is living in rural areas and agriculture is their major source of income. Agriculture contributes 21% to GDP and employees 45% total workforce. Besides, it also contributes substantially to Pakistan's export earnings. Hence, it can be inferred that any improvement in this sector will affect positively almost all macro economic indicators of an economy, particularly poverty.

agriculture sector of pakistan

During last five years agriculture sector growth has exhibited mixed trend from negative to strong recovery due to water availability, climate conditions and availability of credit to farmers, which affected our GDP growth. Our economic managers started focusing on services sector to increase its share in GDP. They drafted and implemented policies which attracted tremendous investment in services sector resulting in astounding growth in services sector.

In the last decade transition has been seen, Pakistan has progressed from a purely agriculture based economy to relatively balanced economy dependent on services and other commodity producing sectors. But in recent times it has been . outpaced by rapid growth in non-agricultural sector like services sector which grew at 8% in FY06-07 contributing 60% of GDP (highest share), followed by manufacturing sector which contributed 23% to GDP.

As a result of transition, Pakistan's GDP has been growing at an impressive rate of 7% on average annually but share of agriculture in GDP has been decreasing. Our economic managers ignored this important sector, and consequently agriculture growth showed a dismal trend compared to the growth in service sector for last 5 years which has been increasing greater than agriculture growth. [See Table # 11]

Table #1 (Growth %)
Year GDP% Agriculture% Services%
2000-01 1.69 2.18 3.09
2001-02 3.11 0.1 4.76
2002-03 4.73 4.15 5.22
2033-04 7.48 2.43 5.84
2004-05 8.6 6.66 7.98
2005-06 6.6 1.58 6.27
2006-07 7.02 5 8.55
2007-08 (target) 6.5-7 4.8 -

For our economy, the former is more important than the later. Agriculture is the source of input to major segments like Textile and base of Fertilizer growth, while majority of population is dependent upon the sector directly or indirectly, depicts growth in agriculture sector will certainly alleviate poverty in rural areas, these reasons makes it most important sector in the GDP growth.

Our economic managers announce with delight that they are successful in reducing the poverty level in 5 years from one third to less than one fourth of the population. Our managers substantiate their argument by using obsolete measure Per-capita income, which is regarded as one of the key indicators of economic well being of any country. It simply indicates the average level of prosperity in the country or average standard of living of the people in the country. Per-capita Income grew by 11 percent in FY06-07 to US$925 up from US$833 last year. The per-capita Income in dollar terms has grown at an average rate of 13 percent per annum during the last five years, rising from US$ 586 in 2002-03 to US$ 925 in 2006-07.

However looking around, one can find enough doubtful evidence that there has been no apparent improvement in the poverty profile. If anything is effected, the rich appear to have become richer and the poor poorer, that's why no one is ready to believe on poverty numbers. No one can deny that employment has increased but fact is urban population is benefited from it which is small portion of Pakistani total population. Government has also started several poverty reduction programmes but all schemes are unable to decrease poverty which still stands at 25% of total population (under poverty line) because our national mainstay is on agriculture, poverty can not be lessen unless agricultural sector improvement and growth.

Now the question arises: Why the benefits of impressive growth over the last seven years have not trickled down to the common man? For an answer, we have to look into the sources of impressive growth. Urban and rural classes have different resources, problems and growth drivers, which our economic managers neglected. As a result, the rich has become richer and the poor poorer.

Our economic managers have to give required heed to this sector since it provides the means for the welfare of the common man, growth in it can help us to achieve our exports target to fill the burgeoning current account deficit, decrease our external liabilities and, last but not least, helps in poverty alleviation.

Growth in services sector is like filling hot air in to balloon which can burst at any time since our investment policies are short sighted and focused on short term gains, which could affect our economic growth further in future. So as to sustain robust economic growth, Government has to focus on agriculture sector and try to eliminate the factors which are affecting the productivity of agriculture sector.

In order to achieve macro economic targets set by Government for FY07-08, to meet gap between growing domestic food demand and population growth, to increase foreign exchange earnings and alleviate poverty, Government should ensure availability of irrigation water, increase farm credit disbursement, construct proposed clams for water storage, adequate availability of quality seeds, increase use of fertilizer and pesticides, improve water courses, promote agriculture research, offer reasonable prices to farmers to encourage farmers to improve acreage under production, devise crop protection methods and give agricultural education and training to farmers to improve productivity.