Agriculture in developing countries has for decades been neglected in financing operations from governments and international investors. The perspective of having to increase global agricultural production by 70 percent between now and 2050, the spread of hunger since the 1990s and the occurrence of two major food crises in the 2000s have emphasized the need of placing agriculture at the core of priorities for governments and the international community. In fact, recent studies have highlighted the gains to be expected from agricultural growth in developing countries, in terms of food security and poverty reduction as well as global economic growth. An IFPRI recently released new study on Pakistan, which is excerpted below1
, is confirming this. An acceleration of agricultural activities will have a more positive impact on Pakistan’s economic growth, on poverty reduction and food security than speeding up the same degree of growth in the non-farm sector. This corroborates that expanding agriculture and its related agribusinesses represents the cornerstone of any economic development. It is thus essential that all nations increase and encourage investment in agriculture, and that the international community promotes a constructive global framework for the sustainable development of agriculture throughout the world. This will inevitably entail regulating of agricultural markets to guarantee stable and lucrative prices to farmers.
momagri Editorial Board
Pakistan’s new Framework for Economic Growth (Pakistan, Planning Commission 2011) emphasizes a need to increase productivity through improving quality of governance, developing vibrant markets, promoting creative cities, and energizing youth and communities. The emphasis is not on physical (“brick and mortar”) investments, but on institutions, soft investments including education and health, and easing constraints to growth such as inadequate market development and inefficient government. Nonetheless, even though much of the focus is on institutions and policies that cut across the entire economy, the Framework does identify major productivity gaps in the agricultural, industrial, and service sectors. Reducing these gaps, and thereby increasing sectoral productivity, could result in substantially accelerated economic growth.
Increases in sectoral productivity imply major shifts in economic structure and the distribution of incomes across space and across households, particularly if productivity gains are not equal across sectors. Indeed, Pakistan already has been experiencing such shifts over the past several decades. As in most other countries that have experienced sustained economic growth, the share of agriculture in total output (value-added) in Pakistan’s economy has fallen over time, from 41 percent in the 1960s, to 25 percent in the 1990s, to 21.5 percent in 2010–11. Concurrently, the shares of industry and services have increased to 25.2 and 53.3 percent, respectively. It is important to note, however, that this decline in agriculture’s share has occurred in spite of significant growth in agricultural output. Real agricultural GDP increased by 4.4 percent from 1990 to 2000 and by 3.4 percent from 2000 to 2010, (1.9 and 1.2 percent, respectively, in per capita terms).
Looking forward, public investments and policies under the Framework for Economic Growth are expected to lead to substantial gains in productivity for industry and services in Pakistan’s economy. Assuming these productivity gains are achieved, what are the implications for overall economic growth and welfare of various household groups? Equally relevant is the question of what would be the additional gains if substantial productivity growth in the agricultural sector (for which productivity growth has slowed in recent years) is also achieved. This issue of accelerating agricultural growth is particularly important given the large percentage of Pakistan’s poor that reside in rural areas.
This paper examines these issues using a computable general equilibrium (CGE) model based on a newly constructed Social Accounting Matrix of the Pakistan economy for 2007–08. The simulations presented here show the effects of increased exogenous total factor productivity growth in various sectors of the Pakistan economy. […]
Increased productivity in the non-agricultural sector has been a potent source of growth in the past decade and further gains in productivity would have positive effects on growth and household incomes. Computable General Equilibrium (CGE) model simulations using a new 2008 Social Accounting Matrix (SAM) for Pakistan show that achieving high productivity growth targets broadly consistent with the Framework for Economic Growth would imply a 9.3 percent per year gains in average household income (compared to trend growth in household incomes of 5.8 percent). Average incomes of the urban non-poor would rise by 10.3 percent, compared with 6.1 percent in the historical growth rate scenario. Farmers’ average incomes would also rise sharply (11.7 percent for medium-large farmers as compared to 5.9 percent in the historical growth rate scenario). These household gains result in large part because of substantial increases in the real prices of livestock and crops (10.6 and 3.8 percent, as compared to 1.8 percent and -0.5 percent in in the historical growth rate scenario). However, major poor household groups, particularly agricultural wage laborers and the rural non-farm poor, would see only relatively small gains in average real incomes, by an additional 1.2 to 1.9 percentage points relative to the historical growth rate scenario.
Accelerating agricultural growth as well would result in even greater overall economic growth with an additional 2.6 percent gain in average household income. Moreover, accelerated agricultural growth has a large positive effect on real incomes of poor household groups, raising average real incomes of agricultural wage laborers and the rural non-farm poor by an additional 4.0 to 4.5 percent as agricultural growth spurs rural non-farm output and incomes. Real food prices also decline in this scenario, benefitting food-deficit urban poor and poor rural non-farm households.
Further analysis is needed to assess better dynamic aspects of growth, including rural-urban migration and possible positive agglomeration effects on productivity in urban centers. Nonetheless, the results presented in this paper strongly suggest that while productivity growth concentrated in non-agricultural sectors has substantial benefits in terms of increased total output and incomes, agricultural productivity growth remains essential for rapidly reducing poverty in Pakistan. Thus, developing agricultural and rural labor markets (as part of efforts to develop markets) and increasing the efficiency of government institutions involved in raising crop and livestock productivity have the potential to ensure that accelerated economic growth in Pakistan results in major welfare benefits for the poor.
1Dario Debowicz, Paul Dorosh, Sherman Robinson and Syed Hamza Haider, 2012. “Implications of Productivity Growth in Pakistan: An Economy-Wide Analysis”. IFPRI PSSP Working Paper No. 002, September 2012. Washington, DC: International Food Policy Research Institute (www.ifpri.org). The original document is available from http://www.ifpri.org/publication/implications-productivity-growth-pakistan