‘Pakistan needs to move away from its national fixation with four crops’

An interview with Dr Sohail Jehangir Malik, Chairman Innovative Development Strategies, USA

Dr. Sohail Jehangir Malik is a reputed name in developmental policy circles, both in Pakistan and internationally. A prolific researcher, his career spans over 44 years and covers themes as wide as agricultural policy; public sector resource mobilisation; budget development for provincial PRSPs; technology choice and employment; biodiversity and conservation; poverty analysis; rural finance; food security and nutrition; and social safety nets.

An econometrician by training, he has extensive experience contributing to Pakistan’s pro-poor developmental policy design in non-official capacity. However, his later engagements have primarily been with multi-lateral agencies in various capacities. These include leading multi-country research teams for IFPRI, USAID, WWF, World Bank, WTO, among others. He also has over fifty research publications to his name.

He is currently based out of Washington DC as the Chairman of Innovative Development Strategies, a private-sector consultancy organisation, which studies development strategies focused specifically on agricultural and rural development.

Dr. Sohail is known for his frank, no hold barred views, which have the unique exception of being rooted in evidence. BR Research was able to catch up with this prolific author on his recent visit to Pakistan last week for a short but crisp conversation.

Below are the edited excerpts:

BR Research: Let’s start with the most valuable agricultural economic resource: land. You have written extensively about land fragmentation. Depending on the definition, over 80 percent of farmers are classified as small hold, with average land-owning size in this segment of less than one hectare. Do you believe Pakistan needs an exercise in land consolidation in order to achieve scale in farming?

Dr. Sohail Jehangir Malik: During the colonial times, land consolidation was a regular exercise; just the same way as agricultural census is nowadays. Contiguous lands were often consolidated into one parcel, as the administration at the time believed that the holding size needs to be able to sustain subsistence. That has not happened since the 1960s.

So, we are facing a real challenge today. Within the private sector, we see examples of entrepreneurial minded farmers coming with innovative strategies to address the gap; albeit on local level. For example, Jehangir K. Tareen has reversed the fragmentation by contracting lots of small plots, laser leveled them and then utilised the land for cultivation specific to his industrial needs. But since land consolidation has a bad rap due to feudal connotations, one may also consider the alternatives. Land holdings as small as one or two acres can be very productive if used to cultivate high value crops such as vegetables and fruits; for which growers do not necessarily require scale.

Therefore, we need to move away from the national fixation with four crops. These are not only very low return, but also require very low level of skill and technology intensity. Growers do not grow higher value crops because they lack requisite skills.

BRR: But surely growers in rural economy also have an institutional appreciation of this distortion. We must consider their incentive structure: smaller the landholding size, the greater the propensity to grow grains. Due to commoditisation, the four crops have a thickly traded market (liquidity factor), but also do not perish as easily as vegetables.

SJM: That’s true. Because smaller farmers are highly risk averse, and understandably so. Like you said, vegetables are perishable and lack homogenous markets; there is no aggregating function. For example, Bangladesh has Thana markets, which are basically platforms where farmers from one village bring their produce; it is sorted and then aggregated by quality grades.

Similarly, cooperatives are another example. In India, Amul dairy has been a classic case study in aggregation of a commodity good, which has proven to be extremely successful. Sadly, in Pakistan, we view agriculture with a tunnel vision – yes, large holding sizes offer scale; but they are not the only way to add value.

BRR: Let’s focus on cooperatives for a moment. There has been extensive study on the lack of success the model has received in Pakistan. One such study pointed out that behaviourally, growers have a low-trust mind-set, which explains why farmers have been less receptive to the principle. Do you agree?

SJM: That’s possible. But more than that, cooperatives were abused as a vehicle for rent seeking. Cooperative members were unable to benefit from the model, whereas the leaders made money on their expense. For example, back in the 1980s, one powerful political family from Gujarat extracted billions of rupees from rural Pakistan through the cooperative societies’ movement.

Cooperatives were basically used as means to disburse government’s favour. A true cooperative is one formed on the basis of common commercial interests, with equal participation, backed by full force of law. Unfortunately, as a society we are inimical to the idea of rule of law. It is the same reason why we see market failure in effective price discovery and commensurate compensation to the growers for the level of risk they take. Farmers receive no security of contract, nor any mechanism exists for contract enforcement. As a result, they have no choice but to remain localised, and small in scale, largely following sole proprietorship structure.

Moreover, factors such as baradari become more powerful than economic self-interests of individuals, especially in rural economy. We find instances of growers choosing to sell produce within baradari at a discount from market, often at exploitative rates – but refusing to collaborate with those outside their circle. Thus, there is also the added factor of attitudes and literacy.

BRR: Let’s talk about major crops now. Declining cotton production and yield over the past ten years has become a generic cry raised ad nauseam. Often, it is attributed to shift of cotton belt to alternate cash crops such as sugarcane. But farmers’ incentives in shifting to alternate crop is not analysed. Cotton production and yield declined after repeated crop failures, which some attribute to low quality Bt. cotton seeds. Do you agree?

SJM: I agree with the assertion that Bt. cotton seeds were introduced without stewardship. The biggest problem facing cotton growers is that the only seeds available on the market are low quality choices lacking proper certifications.

Bt. seeds were brought from India through unofficial channels. Some even allege that the seeds were brought from Australia; however, I think that the latter would at least maintain some quality controls. In any case, local seed companies applied pressures to have the seeds registered as their own variants. Even though new varieties require up to eight years of testing and trial run, we saw instances where varieties were registered in less than two years’ time. But seed quality is only one factor in declining cotton production. The other problem is in the value chain, as the cotton textile industry is highly monopolistic and rent seeking in its approach. It forces a price regime onto producers, which the latter must comply with. Low-value addition in garments is also another factor.

BRR: Does that mean that in order to improve returns for cotton growers, indicative price mechanism for cotton should be introduced along the lines of wheat and sugarcane?

SJM: An effort was made to introduce support price for cotton during Musharraf era, but it was scrapped by the same people who are running the show today at the centre. At that time, the federal secretary had had London spot prices for cotton uploaded on the web. In response, textile players rebelled, nearly costing the poor fellow his job.

Having said that, the debate about indicative price mechanism applies not just to cotton but to all crops. Therefore, the answer should be based on cogent analysis and not on ulterior motives to curry favour with one support group or the other.

BRR: In case of sugarcane, we saw double digit increase in cultivation due to introduction of support price. On the other hand, farmers persistently complain that they not only have to face delays but also fail to receive government set minimum rates. Despite these challenges, growers do not feel deterred from increasing area under cane cultivation, often at the expense of cotton. How do you explain the apparent contradiction?

SJM: I agree with farmers’ position on both accounts: it is no contradiction. Only influential farmers with large land holdings manage to extract government set rates, as is the case with wheat as well. Others, especially small farmers, lack the bargaining power to get even the minimum price.

BRR: You drew comparison with wheat; but don’t the dynamics differ from sugarcane? By most estimates, over 60 percent of wheat stays on-farm, because traded wheat is only procured by PASSCO which has historically not procured more than 10 million tons in one year, compared to average 25 million tons domestic production.

SJM: That impression is incorrect. What you are referring to as on-farm consumption eventually makes it way to the marketplace. After all, farmers do not grind the flour themselves. Except obviously once PASSCO furnishes its targeted stock, private buyers refuse to pay the government set rate. Because the producers lack bargaining power, only choices available to them is to either buy at traders’ offer rate or risk letting their grain stock go to waste.

This is not to say that traders are across the board exploitative. The problem is that the support price is prohibitively unrealistic and is meant to benefit large producers only. In contrast, smaller producers usually grow wheat more or less equal to their personal demand level.

When the government increases support price levels, it is usually to benefit the 26 percent of growers that I define as ‘net sellers’ of agricultural produce. The rest fulfill their needs from the marketplace anyway.

BRR: Returning to the abysmal levels of cotton production. Do you agree that crop zoning could be one way of addressing this problem?

SJM: I fully agree. Although in principle, I am against zoning because it inhibits free movement of prices. But in Pakistan, various geographical regions have land and soil of highly variable quality, often not suitable for most crops. Thus, until we address the basic problems, crop zoning may be the way to go.

BRR: One reason why sugarcane cultivation is fast taking over traditionally cotton growing areas may be that the buyer, namely sugar mills are often large-sized and claim to incentivise and provide farmers with high quality seed-variants and encourage best agronomic practices. For example, compared to over thousand cotton gins, there are only ninety sugar mills.

SJM: The fragmentation of ginning segment into large number of players is not deniable. However, one must look at the issue holistically. More than consolidation, the cotton ginning segment needs up gradation of technology for cleaning of fibre etc.

Having said that, cotton ginners faces a monopolistic buyer, namely yarn manufacturers. The spinners set the price, and squeeze ginners off the entire margin. Sugar producer on the other hand owns the entire value chain beyond plantation, and in turn squeeze the farmer, and often the government as well in the form of subsidy on exports.

BRR: But is it possible to explain the phenomenal growth in cane cultivation if farmer is being squeezed?

SJM: Yes, because one needs to look at the opportunity cost. What alternatives does the farmer have? It is either a crop that as heavily exposed to volatility in weather; or one which with a higher chance of payment fulfillment, even if with a delay or discount.

One must also appreciate that farmers lack the access to the type of analyses we are discussing here. Whether a certain cash crop may be better suited to a given geographic region due to its favourable climatic conditions or proximity to an industrial unit is subject to broad based comparative analysis. Farmer on the other hand is only able to make decisions based on past experience. Once the sowing period is past, farmer lacks the capacity to change crop midcycle, even if there is a change in market fundamentals, such as price, demand or supply glut.