Agri sector growth to fall

Post Source: The News International – January 13, 2010

By Shahid Shah

KARACHI: The State Bank has warned that the current fiscal year would see decline in the growth of the agriculture sector, as farmers were disappointed with crop prices and water scarcity that caused a drop in rice and sugarcane production. “Aggressive wheat sowing by end-November is encouraging as a bumper wheat crop may push up agri growth,” noted the first quarterly report of the State Bank of Pakistan for financial year 2009-10. Performance of FY10 Kharif crops would be weaker than the corresponding period of last year.”

In addition to poor Kharif output, livestock production was also uncertain amid a decline in non-farm agri credit disbursement.The report suggested establishment of a commodity futures market to enhance the crop price setting. “An efficient legal and regulatory framework with crop insurance is an important prerequisite for a properly functional futures market,” said the report.

The bank noted that cotton picking was fast due to increased heat as arrival of the commodity at ginning factories was about 24.2 per cent higher than the preceding year by December 15, 2009.

Area under cultivation of cotton increased by 6 percent, production is likely to remain around last year’s 12.1 million bales against the target of 13.4 million bales. “However, there is a possibility that the stronger ginning arrival indicate a bigger than anticipated crop due to increased usage of early maturing high yield Bt cotton,” the report said.

Due to increased sowing of BT cotton, the crop noted significant increase in Sindh. The decline in area under rice was anticipated due to a decline in international prices and farmers’ disappointment over realized lower prices. Farmers were demanding a more active government intervention in the rice trade to stabilize the prices.

After achieving a record harvest of 63.9 million tons in FY08, domestic sugarcane output dropped for the second consecutive year during FY10. Farmers brought lower area under sugarcane due to continued dissatisfaction on marketing issues with sugar mills.

The bank said any intervention in price mechanism by the government would affect the farmers negatively. “It is likely that sugar mills would offer a lower price than expected by the farmers since mills would like to minimize their input cost given regulatory hurdles in passing on the impact of higher cost,” it said.

Performance of other major kharif crops is also not encouraging in FY10 when compared with the preceding year, said the report.

Agriculture credit disbursement growth during Jul-Oct FY10 slowed to 9.1 percent. Not only was this reduction in sharp contrast with FY09 growth of 16.2 percent, but was also the lowest in the last seven years for any Jul-Oct period.

State Bank noted that due to increased risk and liquidity crunch a fall was recorded in agri-credit by the domestic private banks (DPBs) for the first time since their entry in agri-credit market.

Due to decline in prices of both urea and DAP, fertilizer off-take increased sharply during the first quarter of FY10 against negative growth seen in the same period last year.Indus System River Authority (IRSA) has indicated 31 percent water shortage for rabi against 39 percent shortage last year.

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