High Food Prices Boost Pakistan's Rural Economy
1. It is transferring the additional new income of about Rs. 300 billion in the current fiscal year alone to the ruling party's power base of landowners in small towns and villages, from those working in the urban industrial and service sectors.
2. It has driven up food prices dramatically for all Pakistanis, particularly hurting the poor people the most.
3. It has reduced government tax revenues because the agricultural income is not taxed by either the federal or the provincial governments, and resulted in growing budget deficits.
4. It has significantly increased demand for consumer and industrial goods and services in the rural areas.
5. It has forced the State Bank of Pakistan to maintain a tight monetray policy which is drying up the much-needed credit for the industries and the average consumers alike.
6. It's likely to slow rural-to-urban migration and relieve pressure on major cities and their inadequate infrastructure.
In 2008, the government pushed the procurement price of wheat up from Rs. 625 per 40 kg to Rs. 950 per 40 kg. This action immediately triggered inflationary pressures that have continued to persist as food accounts for just over 40% of Pakistan's consumer price index. According to State Bank of Pakistan (SBP) analysis, cumulative price of wheat surged by 120 per cent since 2008, far higher than the 40 per cent between 2003 and 2007. it is also many times greater than the international market price increase of 22 per cent for wheat in the same period. Similarly, sugar prices have surged 184 per cent higher since 2008, compared with 46 per cent increase during 2003-07.
The transfer of additional Rs. 300 billion to Pakistan's agriculture sector during the current fiscal year 2010-2011 by higher prices of agriculture produce and direct flood compensation to 1.6 million affected families at the rate of one hundred thousands rupees each will boost economic confidence in the countryside. It will generate rural demand for consumer items including consumer durables such as fans, TVs, motorcycles, cars, refrigerators, etc.
The big feudal landowners have been the biggest beneficiaries of the PPP's gift of high crop prices. However, the policy has helped small farmers as well, as shown by a recent survey reported by The Nation newspaper. The survey of 300 farmers in Sind's Sukkur district was conducted by Sukkur Institute of Business Administration for the State Bank of Pakistan (SBP). It has highlighted the following about district's rural economy:
1. In Sukkur district, majority of the farmers are subsistence farmers. 31 percent of them own less than 5 acres of land, and another 34 percent own up to 12.5 acres of land.
2. They spend an average of Rs. 1,611 a month on their children's education, with some of them spending up to Rs. 12,000 a month.
3. Wheat, rice, cotton and sugarcane are the major crops being cultivated by 93 per cent, 58 percent, 37 percent and 12 percent of the respondent farmers in that order.
4. 24 percent of them are also growing fruits including dates, mangoes and bananas.
5. 22 percent of the respondent own livestock.
6. About half (49 percent) use privately purchased seeds for wheat cultivation, 33 perecent use their own retained seed and 18 perecent use the seed purchased from Public Sector Seed Corporations.
7. On average, a farmer uses 96.73 Kg chemical fertilizer per acre with the maximum and minimum of 350 Kg and 40 Kg respectively. The average per acre cost of wheat production is Rs. 10,670.
8. All 300 farmers are using tractors for cultivation and preparing land for crops, and some are using tractors for fetching their crop produce to market.
Already, the upside of the government policy is that Pakistan's rural economy is being spurred by high crop prices that may help the GDP growth this year and next. Increased farm incomes are whetting the rural households' appetite for industrial and consumer goods in 2011 and beyond.
A key indicator of growing rural economy is the double digit increase in the sale of tractors. Millat Tractors Limited, the largest supplier of tractors in Pakistan, had record sales of 41,500 tractors in the calendar year 2010, an increase of nearly 11% over 37,537 tractors sold in 2009. Of these 41,500 tractors, a record 5000 tractors were sold in the month of Dec, 2010 alone, acording to The Nation newspaper. Millat sold 10,000 units under Benazir Tractor Scheme and 5,000 units under the Sindh government tractor scheme in the last fiscal year. Another 10,000 units were sold as part of the Punjab government scheme, 70 per cent of the units were sold, according to Dawn News.
Earlier, the sales of Fiat and Massey Ferguson tractors grew to 1,632 and 3,194 units in September 2010 from 537 and 3,100 in August 2010. The overall sales of these tractors rose to 13,931 during July-September 2010 as compared to 12,690 units in the same period of 2009, according to Dawn news.
Over 50 per cent of the motorcycles and 40-45 per cent of cars in Pakistan are purchased by people living in rural areas. Total car sales in July-September 2010(including Suzuki Bolan) rose by 12 per cent to 30,030 units as compared to 26,812 units in the same period of 2009, according to Pakistan Automotive Manufactureres Association PAMA). Furqan Punjani of Topline Securities said car sales are expected to reach 154,000 units by the end of June 2011.
In addition to rising demand for cars and tractors, there is also an upward trend in two-wheeler sales. The cumulative sales of motorcycles in July-September 2010 rose to 126,701 units from 105,862 units in the same period of 2009.
While it is good to see Pakistan's rural farm economy perk up, it is also important to recognize that the overall national economic outlook can not improve significantly unless the growing budget deficits and rising inflation are brought under control. And this will require the ruling feudal elite to pitch in by paying their fair share of income tax on their rising farm incomes. It is time for them to lead by example.
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