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For 25 years, agricultural growth has been a key source of the growth in Pakistan's GDP, but the momentum may be running out. Key problems include a crisis in irrigation and the government's overextended role in agriculture. An example of inappropriate government intervention is the provision of subsidies that do not help farmers, either because of rent seeking and inefficiency or because the subsidy (for wheat, for example) helps consumers at the expense of producers. Government spending must shift to a new focus --- on public goods and market failures.A key source of the impressive growth in Pakistan's GDP (6 percent annually for two decades) has been the agriculture sector, which grew about 3.6 percent a year for 25 years. Faruqee analyzes whether such a growth rate is sustainable.In different periods, growth has come from different sources: from a seed, fertilizer, and irrigation package in the 1960s, from intensification of water and fertilizer use in the 1970s, and from improvement of crop management and incentives in the 1980s. In the past 10 years, cotton has been a main source of growth.The momentum for growth may be ending. Total cultivable land and irrigation cannot increase significantly. At best, water resources can expand by 10 percent, and only at great cost. And there have been problems with cotton in recent years.Future growth must come mainly from increases in productivity, achieved by allocating resources to crops for which the country has a comparative advantage, improving the technical efficiency of inputs for each major crop, and increasing cropping intensity. But increasing productivity means changing major agricultural systems, policies, and institutions, including: Poor incentive policies, which have led to inappropriate use of land and hence to problems of soil erosion and land degradation. Poor distribution of land resources and inadequate systems of land tenure. At one extreme are very large estates of absentee landlords, and at the other, very small, ill-equipped peasant farms. Insecurity of tenure creates disincentives for investing in land. Persistent problems with irrigation, essential on more than three fourths of agricultural land in Pakistan. Weak human resources and infrastructure. Direct government intervention in agricultural markets, which, although recently diminished, still distorts markets. Subsidized imports of wheat and price controls on cotton exports reflect a persisting bias against cotton and wheat, while sugarcane is heavily protected. The protection of domestic industry distorts sectoral prices. Government policy also distorts the market for such vital inputs as seeds and fertilizer. Serious problems in the credit market exacerbate other problems arising from policy distortions.This paper --- a product of the Agricultural Operations Division, South Asia, Country Department I --- is part of a larger effort in the department to analyze the major issues facing Pakistan's agriculture sector and to suggest a strategy to improve its performance. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Fayana Willie, room MC10346, extension 82262 (33 pages)
