Sharmin Arif and Ijaz Nabi
Many media reports and opinion columns treat the China-Pakistan Economic Corridor (CPEC) as a cure-all. The reality is more complex. The benefit we get from CPEC depends on how much effort we put into using the opportunity. This point was stressed at a recent panel, “What CPEC means for agriculture” hosted by the Consortium for Development Policy Research (CDPR) on November 10th. Following are key points from the discussion.
Why CPEC opens an opportunity in agriculture
CPEC, as elaborated by panelist Hasaan Khawar, policy analyst and CDPR Fellow, is part of a larger economic and strategic initiative whereby China seeks to connect its economy to Europe, Africa and the Middle East through land and sea routes. CPEC is one of the six such routes which connects China to Pakistan through two routes linked to our sea ports: the eastern route and the western route. Clearly, China knows what it is doing and is here to invest, but Pakistan needs to respond to create the conditions to maximize returns from investments for both economies.
There are seven areas of cooperation for benefiting from the routes, and agriculture is one of them. China’s plan is mainly to invest in our agriculture inputs – specifically fertilizers – as well as in post-harvest infrastructure. Such cooperation in agriculture between China and Pakistan poses challenges and opportunities.
A forthcoming study by International Growth Centre (IGC), cited at the discussion, highlighted that China has become the world’s largest food market with 1.3 billion consumers, and it’s worth $1 trillion. In ten years, it is expected to reach $1.5 trillion. China is undergoing rapid urbanization which is depleting both labor for agriculture and land for growing enough food for its citizens. It has recently struck 80 deals in international food markets worth $12 billion. The U.S., Australia and Brazil have increased their agriculture exports to China three-folds. Russia, recognizing its geographical advantage of being located closer to China, has overtaken the U.S. as the largest wheat exporter to China.
Pakistan, China’s neighbor in the southwest, has yet to take advantage of the opportunity in agricultural trade with China. This is despite the fact that multinational corporations are racing to set up operations in countries close to China for exporting perishable goods in the shortest time and lowest costs. This is unfathomable, as Pakistan is seated on fertile plains, making agriculture a natural source of business for Pakistan’s economy.
CPEC is a wake-up call for Pakistan to energize its agriculture sector through exports. The overall agricultural export basket of Pakistan is mostly reliant on cotton textiles, comprising 70 to 80 percent of total exports. Of that – leaving out cotton and livestock – agri-exports to China account for a negligible portion of other products. Pakistan’s share in the Chinese ballooning market for agriculture imports remains miniscule and will continue to shrink unless addressed effectively.
CPEC will reduce the logistics costs of trade in agriculture products with China. But this will not automatically translate into greater exports for Pakistan. This is because not only does our agriculture sector need to be revamped to improve product quality, but at the micro-level, farmers need to be given better access to formal credit for investing in expensive inputs. Pakistan needs to utilize all available tools to attract foreign businesses. The private sector must accelerate efforts to negotiate new deals with international food companies for export opportunities.
What will it take?
Panelist Arif Nadeem, head of the Pakistan Agricultural Coalition (PAC) and former Secretary of Agriculture, Government of Punjab, pointed out that irrigation costs are a massive 40 to 50 percent of the total production costs of Pakistani farmers. Furthermore, ground water quality has deteriorated sharply, negatively affecting yields. These irrigation challenges need to be addressed, including an overt focus on wheat and sugar cane production, which wastes water resources that can be used for other, more economically viable crops, such as oil seeds, which require much less water for irrigation and lesser input costs. In short, Pakistan’s agriculture needs an overhaul focusing on comparative advantage based on its land and water resources. Additionally, the latest irrigation technologies need to be adopted to produce more crops per drop of water.
Pakistan’s agriculture needs to become part of an eco-system comprising key players from the public and private sectors to help farmers grow high quality produce which can be stored in warehouses that come with crop insurance. Farmers should be able to use their crops as collateral for getting short-term loans from banks for sustaining their investment cycles. This should be accompanied by commodity exchange systems to ensure that farmers don’t have to undergo distress sales, which adversely affect profitability.
The federal government has to improve market access to China. This requires an examination of tariff and non-tariff barriers to trade with China. Currently, the federal government is re-negotiating the Free Trade Agreement with China. However, even though the tariff for seedless citrus fruit is favorable, Pakistan has not shifted toward its production and therefore has not taken advantage of the opportunity. Furthermore, despite the fact that China’s rice imports are mostly non-basmati, there is still significant room to increase exports of basmati rice to China. The major impediment here is the non-favorable tariff regime. No preferential tariff is applicable on any rice category in Pakistan, rendering it non-competitive. Tariff and non-tariff barriers also affect other product categories such as fruit juices and vegetables, which hinder Pakistan’s exports to China.
Pakistan’s agriculture must respond to Chinese food consumption habits, which will entail a move from traditional products to high-value products. The government is making efforts to achieve this and is emphasizing the importance of shifting from cereal production to horticulture, as China’s growing urban population demands more fresh produce such as fruits and vegetables.
The government needs to allow market forces to determine prices for farmers’ produce and eradicate exploitation by middlemen who control access to information. Commodity exchange programs for farmers need to be set up that link multiple sellers to multiple buyers and implement alternate marketing mechanisms to save the farmers from distress sales.
Moderator Naved Hamid concluded the discussion by emphasizing that for Pakistan’s agriculture to benefit from CPEC, the federal government must reduce the tariff and non-tariff barriers to improve access to the rapidly growing Chinese market of agriculture produce. The provincial governments must play their part and improve farmer access to modern inputs and market information and encourage arrangements that collateralize agriculture produce, provide crop insurance and reduce distress sales by farmers. China has its own interests in mind, and unless we can meet their needs through a better managed farming sector, we will not be in a position to demand their technology or investment for developing our agriculture sector.
Sharmin Arif is a communications assistant at the Consortium for Development Policy Research.
Ijaz Nabi is Chairman of the Board of the Consortium for Development Policy Research and Pakistan Country Director at the International Growth Centre.