Food Security in Pakistan: Challenges and Policy Choices on October

January 10, 2010

Talks & Interviews

Sartaj Aziz

Mr. Sartaj Aziz, Vice Chancellor Beaconhouse National University and former Finance Minister was invited as a Distinguished Guest Speaker by the CPPG to launch its Fall Seminar Series 2009-10. He delivered a talk on Food Security in Pakistan: Challenges and Policy Choices on October 19, 2009.

Mr. Aziz opened his remarks by outlining three categories of Food Security; the International, National and the Individual. According to him, the term Food Security was first used in the Food and Agriculture Organization (FAO) report in March 1973 with the backdrop of what came to be called “The Big Grain Robbery”. Since the 2nd World War, America had produced surpluses to the tune of 60- 65 million tons and food price had remained stable. Total world grain consumption (wheat, rice & maize) had been 1,250 million tons. In 1972, the world production fell by 33 million tons and the Russians purchased half – 28 million tons of the outstanding stock through several small transactions getting American State subsidies. Within six months the food prices had doubled rousing a concern that developing countries would not be able to afford grain. This led FAO to caution that at the international level the “World Food Security is threatened by the large purchases and the absence of stock in the face of growing demand and falling production”. The second category National Food Security evaluated food security for a particular nation state. Despite ensuring food security at the international and national level, it was still possible that people may not be food secure. This prompted the 1996 World Food Summit to define Food Security; “When all people, at all times, have physical and economic access to sufficient, safe, and nutritious food to meet their dietary needs and food reference for an active and healthy life”.

Given this context, Mr. Aziz argued that no other area of public policy had so many facets as Food Security and thus it was important to look at the interrelationship of different dimensions. The Task Force on Food Security, which he headed, had explored and investigated the issues of food security comprehensively. The Task Force recommended that Pakistan must adopt a food security strategy comprising of the following four components:

1. Ensure adequate food supply through an average agricultural growth rate of at least 4% (more than population) per annum in the next decade.

2. Evolve an efficient and adequate system of food procurement, storage and distribution to ensure food availability at affordable prices throughout the year in all parts of the country. Price fluctuations and remote areas being of special concern.

3. Improve poor households’ access to food by adopting a pro-poor growth strategy and providing non-farm employment on a substantial scale thus making sure that poor people’s incomes could compensate for increase in food price.

4. Build a transparent and well managed system of safety nets to provide income support to very poor households as there are always 10-12% households who’ll need income support.

The assessment of these elements was incorporated in the Task Force created Food Security Index, which comprised of food availability (production & import), food prices, income and growth. Food Security Index had improved from 1990-99 deteriorating later. It was recommended that the Agriculture Policy Institute (API) of the Ministry of Food and Agriculture adopt a formal system of food security including monitoring on a regular basis and reporting through submission of a quarterly or biannual report to the Economic Coordination Council so as to pre-empt or manage crises. This would limit the government from making mistakes, as it did in 2007 when rather than a wheat estimate of 23.5 million tons (production numbers were padded before the budget to show increased growth rate), actual production was 21m+ leading the government to export 0.5m tons at $200/ton and later importing 1.5m tons at $500/ton.

: Food Security Index

For Aziz, a major policy issue was the deteriorating Agricultural Terms of Trade (TOT – Rate of increase in value of output compared to the rate of increase in input and basic needs costs). In the 80s & 90s, the agricultural TOT improved and support price of wheat went up by 140% compared to 67% price increase of fertilizer but for the next eight years support price went up only by 45% while all other prices increased higher. Still no one noticed because API did not calculate or report the quarterly TOT index while impact of day to day policies including that of energy and petroleum on agriculture was not assessed because of a lack of change sensitivity and connectivity in the overall system. Policies affecting food security cover a very wide range and unless these were consistent and mutually supportive, the objectives of food security could not be achieved.

: Agriculture Terms of Trade

He argued that the agriculture sector would respond only if its TOT improved. Though the government had taken recent policy actions to remove bias against agriculture by taking such steps; (a) raising wheat procurement price by 52% to Rs. 950 per 40 kgs; (b) removing sale tax on fertilizer and pesticides in the 2008-09 budget; (c) providing Rs. 32 billion subsidy on phosphatic fertilizer; (d) increasing agricultural credit target by 62% to Rs. 250 billion in 2008-09 budget; (e) introducing Benazir Card for agricultural inputs leading to a big supply response in both wheat and rice. Yet these measures were not enough. He pointed out that had government followed Task Force’s recommended price of Rs. 900, the current price would have been Rs. 1-1.5 per kg less and this year, the government would have had the space to adjust. But even with production of 25m tons, low income groups did not have food security. Mr. Aziz highlighted some of the other recommendations including monitoring of TOT on a six monthly basis by the API, fixing agricultural credit target of Rs. 360 billion in 2009-10, enhancing capacity of the food wing of Ministry of Food, Agriculture and Livestock (MINFAL), API and provincial agricultural research and extension systems, early passage of Seed Act Amendment Bill and Plant Breeders Rights Bill which had been sitting in parliament for two years, and most importantly giving administrative & financial autonomy to research institutes and agricultural universities.

Discussing the various dimensions of food security, he began with increasing food production through an informed growth strategy with key elements of bridging the yield gap, diversifying towards high value crops improving nutritional value of intake, expanding R&D investment in agriculture, improving post-harvest handling, livestock sector development and improved water use efficiency.

To bridge the yield gap from 40 to 70%, certified seed coverage of 10-15% had to be increased which required a legal framework for seed multiplication- the approval of Seed Act, fulfilling seed requirements of deficit provinces and public private partnership (PPP) in seed multiplication as public sector Seed Corporation could not deliver a complex hybrid seed. For balanced use of fertilizer, which stood at 1:7 phosphate nitrogen ratio for wheat because of respective price, the ratio needed to be 1:3; and while progovernment provided subsidy of 50% on fertilizer seed band placement drills for uniform spacing allowing effective application of water and fertilizer, the coverage area of 5% needed to be increased to 60-70%. Additionally subsidy on deep tillage implements and sprayers, acceleration of farm mechanization, development of high yielding cotton varieties and approval of Plant Breeders’ Rights Bill was also needed.

To diversify towards high value crops, cultivated area under high value crops (fruits, vegetables, pulses and oilseeds) needed to be doubled in the next five years. This required enhancing credit allocations for horticulture for example giving special allocation to plastic tunnels; establishing post-harvest systems (harvesting, storage, transport, marketing) and cold chains through public private partnership to decrease wastage as higher value crops were more perishable eg. Milk, the highest value product had a life of 10 hours. Understandably only 6-7% of milk was processed in Pakistan while farmers were forced to convert the rest. He argued that recently established cold chains macro stores were useful because they bought directly from farmers giving them a higher price but their numbers needed to be increased; modern markets should be developed in all major cities allowing ordinary people to sell their produce as currently markets in most cities such as Gujranwala & Jhang were unhygienic and underdeveloped; and to stem the manipulation of prices by market committees in cities hurting both the farmer as well as the consumer, the Marketing Act which had been sitting in the Punjab Assembly for 2 years needed to be passed. Additionally market information was needed allowing farmers to find the best market price for their produce, as had been done in India through cooperatives’ use of computers to find the best market price.

Making a case for expanding R&D investment, he argued that R&D investments had returns of 50-100% but the expenditure on agriculture R&D was only 0.24% of value added compared to 0.40% in Bangladesh and 0.50% in India. What we spent went mostly into salaries without enough actual research production and its translation from station to field. Thus a well-funded and adequately staffed provincial research system with a proper incentive structure rewarding breakthroughs and an autonomous agriculture university system for self-prioritization was needed. Aziz was critical of the outmoded extension system and pleaded for the use of electronic media for transferring results of research to farmers. Giving the example of an extension message based British drama where two farmer brothers, one efficient and the other disinterested, he argued that an illiterate farmer could learn from TV provided the programming was interesting, which was possible through the collaboration of media and extension personnel.

“… a well-funded and adequately staffed provincial research system with a proper incentive structure rewarding breakthroughs and an autonomous agriculture university system for self-prioritization was needed.”

He drew attention towards the neglected but vital Livestock sector, which contributed 52% of the agricultural value added (higher than crops), 11% of GDP and 8% of exports. More importantly, it targeted female oriented poverty reduction and improved family’s nutrition. But because of small-scale, poor quality feed & fodders, inadequate veterinary health and extension coverage, inferior feeding practices and overgrazing, livestock’s potential was unfulfilled. He suggested universal veterinary coverage, a national program of artificial insemination, setting up of dairy co-operatives to market milk, improved credit outreach through micro-finance and setting up of a Range Land Management Agency to ensure that range needs were properly met.

Discussing Improved Water Use Efficiency and Development, he argued that Pakistan had 20.6 million acres of culture able wasteland, of which potentially 12 million acres (2million acres through perennial irrigation schemes in mountainous and hilly areas; 5million acres in spate irrigation, rod-kohi, sailaba farming system across Pakistan; 5million acres through barani and khushkaba farming systems) could be developed for agricultural production. The cultivated area had increased by at least 40% because of Mangla and Tarbela. But investment in the water sector in the current decade had declined to 10-11% from an average of 20% of the Public Sector Development Program (PSDP) during 1980–1999 leading to a decline from 1.3% to 0.3% in the annual increase in water availability for agriculture. This was a major cause of agricultural growth slowdown from 4.6% in the 1990s to only 2.8% in 2000–2008.

The second dimension of food procurement, storage and distribution of wheat was important because even with record production, 9 million tons rather than the usual 4-5 million tons of wheat was successfully procured but storage facilities were inadequate leading to wastage. The subsequent challenge was the regular release of wheat quotas to flour mills, combined with a program of subsidized sales at Utility Stores and Sunday Bazars. Providing the historical background, he stated that after the 1965 war, ration cards were distributed to citizens for a particular quantity of wheat flour at a subsidized price but this program had deteriorated by the early 1980s as only 20-25% of the total was drawn by the poor while the rest was pocketed by the flour mill, food department and the ration depot triad. Thus this Rs. 2 billion subsidy was abolished in 1987 and instead the government decided to procure wheat and issue it at a fixed price price throughout the country and year. The new system worked well for twenty years though it required adequate stocks and proper management of inter provincial movement. But because major inter-provincial differences existed between Punjab as a surplus province where millers wanted to export flour rather than wheat, Baluchistan which was dependent and Khyber-Pukhtoonkha which additionally encompassed demand for Afghanistan, leading to inter-provincial differences in prices due to restrictions on cross provincial movement.

“The extent to which one moved away from the market system led to increased difficulties in managing the public policy arena. ”

Sartaz Aziz was emphatic in observing that the difficulties in food procurement, storage and distribution were not easy because of competing interests, so policy consensus and better coordination within ministries and with provincial government was imperative. Instead of smuggling grains, he argued that appropriate policy choices were needed to export wheat to Afghanistan at international prices through official channels to earn foreign exchange. This also required capacity to monitor international price trends because if domestic price was markedly lower than international prices then wheat was bound to be lost to smuggling. Same was true within the country. The extent to which one moved away from the market system led to increased difficulties in managing the public policy arena. If market price was much higher than government price then the beneficiary queue would be too long for the government to manage. While the alternative where even with increased production, if wheat price increased more than the increase in people’s incomes, they would not be able to afford it. Thus expertise in both federal and provincial levels was needed to determine how much could the government move away from the market system before deciding the procurement price, release price and mechanisms to subsidize wheat for the poor.

The third dimension of Food Security related to the person through poverty and hunger. The real cause of hunger was not lack of food but poverty not allowing the poor to buy or produce the needed grains to eat. Thus food security could not be ensured without reduction in poverty, which had to be dealt with simultaneously with food production issues. Providing statistics he stated that 77million people were food insecure in 2008 according to World Food Program while 50 million people lived below the poverty line. The incidence of poverty was 46% in 1980s, decreasing to 28% in 2005 but had risen again to 36% partly because of higher food prices.

Aziz argued that the most important element for poverty reduction was non-farm employment because more than half of rural population did not have land or other assets to produce food. He suggested promotion of nonfarm employment in agro-industry and services through agricultural diversification, skill development and micro credit, especially for livestock. While rejecting selling land to foreigners or following the American agriculture model with large holdings employing only 3% of the population, he argued for Corporate Farming, a professionally managed corporate entity managing large land holdings (10-100K acres) of pooled small farmer land with farmersas share holders. He argued that 75% of all farmers had small holdings of less than 12 acres with a 5+ member family, making it hard for them to buy and apply the right inputs. But if the land was pooled under a professionally managed corporate entity, the corporation could professionally manage the lands, recover actual costs and distribute net returns among share-holders. Additionally the corporation would also give preference to its shareholders for paid labor opportunities. He argued that any state land developed through such measures should be given to small farmers and the poor, and not to army officers or other well to do allottees.

“The real cause of hunger was not lack of food but poverty not allowing the poor to buy or produce the needed grains to eat.”

While accepting well managed safety nets providing relief to vulnerable groups as an important element of the food security strategy, he concentrated on transparency and targeting for program such as the Benazir Income Support Program (BISP) and Punjab Income Support Program providing Rs. 1000 per family, and earlier Zakat and Baitul- Maal providing Rs. 200-300. But it was only a temporary relief, which could not reduce poverty in the long run.

In conclusion, he stated that Pakistan’s real challenge was Institutional & Organizational Capacity because the government did not have the expertise to prepare large agriculture projects and Agriculture Minister was usually the weakest member of the cabinet with little capacity to get resources. Being an insider on the policy and decision making process in the country he perceptively observed that policy makers invariably worked under the assumption that things got done just by issuing an order. Contrasting with China where, he said, no reform or program was introduced unless the administrative and institutional capacity to implement was first improved. He created an air of optimism by saying that resources were also available in terms of foreign assistance but only if Pakistan could gear itself to prepare 15-20 large programs to implement the suggested four pronged food security strategy.

“… policy makers invariably worked under the assumption that things got done just by issuing an order… Contrasting with China where no reform or program was introduced unless the administrative and institutional capacity to implement was first improved.”

The Question and Answer session was lively and led to several questions. Responding to a query about the formation of Task Force, Aziz stated that the Task Force was setup in May 2008 and comprised of 20 members including various secretaries, head of universities and 5-6 private persons related to agriculture. It was a hard decision to continue with the Task Force when his party’s government was overthrown but he felt that its importance outweighed those concerns and he completed the task without accepting any remuneration. A comprehensive report on agriculture made by the national commission setup by Prime Minister Junejo was still valid. Thus members of the Task Force were requested to submit their proposals followed by completion of the report based on comments and discussions involving just three face to face meetings. But the report had yet to be implemented.

In answering a question regarding international politics of food, he stated that Kissinger’s call for a Food Conference at the 1973 UN conference was world class politics and a call to OPEC countries’ food dependency. Though the American Government had its own strategy, the UN of which he himself was a part was able to neutralize this agenda by propagating a philosophy of self reliance and self sufficiency with the third world, and the Conference adopted a policy for countries to increase their food production while calling for doubling of foreign assistance for agriculture.

In response to a question on the Political Economy of Poverty Reduction, he stated that obstacles to poverty reduction were not economic but primarily political – the poor had unequal access to capital, land or labor markets because of the structure of land ownership, and control of credit and income sources. Because inequality adversely affected both growth sustainability as well as poverty reduction capacity, it was important to build poverty & inequality tackling strategy within the structure of the growth process.

Dwelling upon water and climate change, he said that the inter-governmental panel had suggested serious affects for South Asia because its major source of water came from large snow covers, which were melting at an increasing rate. He argued for research to improve water use efficiency (rather than flood irrigation) while accepting that high water consuming crops such as rice and sugarcane may not be feasible in the future. Key was to develop institutional arrangements, a National Commission on Climate Change based on a model similar to HEC (chairman of minister status not under any particular ministry, manned by professionals where transfers are not random and frequent). While accepting that water diversion to fill the Bagliar Dam by India was an obvious violation, by pointing to its current arbitration in the World Bank, he argued that Indus Basin Treaty was the best thing against an alternative with no constraints. But more important was to improve our own water use efficiency as almost 50% of the water was wasted.

Replying to the question regarding reasons for the rise in food prices, he said that though various arguments including ‘Chinese and Indians have started eating more’, speculation, globalization, conversion of grain to oil (profitable when oil price > $70-80) were given, the fact remained that we were part of the global market subject to gluts and shortages. Thus the objective of the food security policy should be to isolate the country from big jumps and drips while keeping pace with broad trends else the system would come under severe pressure.

Addressing the sensitive issue of government interference in grain prices, he suggested that while in the 1980s, government regulated price for five different crops- wheat, rice, cotton, pulses and sugarcane, the only area left with indicative price intervention was wheat providing farmer a support price if he could not sell for a higher price. He accepted that market be allowed to operate freely while regulating import and export.

“… obstacles to poverty reduction were not economic but primarily political – the poor had unequal access to capital, land or labor markets because of the structure of land ownership, and control of credit and income sources.”

Finally, responding to a question on how prime agriculture land around cities was being converted into housing colonies and industrial area, he argued that the National Commission Report had a complete chapter on land policy and development, in which they had divided the land into four categories: A – prime cultivable, B, C and D classes. With only 25% of land in A class, the commission had recommended that no A class land be given for non-agriculture usage. He argued the need for developing secondary centres of industrial activity to limit growth and congestion of the few large cities where most activity was concentrated. Additionally, cities needed a hinterland of 30-50 miles around them for their high value agricultural needs including fruits, vegetables and milk.