Impact of Government Policies on Pakistan's Agriculture

Agriculture remains a cornerstone of Pakistan’s economy, contributing 22.9% to the Gross Domestic Product (GDP) and employing approximately 37.4% of the labor force (Pakistan Economic Survey 2023). The sector plays a crucial role in ensuring food security, supplying raw materials to industries, and generating export revenues. Major agricultural products include wheat, rice, sugarcane, maize, and cotton, which collectively account for a significant share of Pakistan’s agricultural output. However, despite its importance, the sector faces persistent challenges, including climate change, water scarcity, poor access to technology, inefficient supply chains, and fluctuating global commodity prices.

To mitigate these challenges and stimulate agricultural productivity, the government has introduced various policy measures, including subsidies on fertilizers, trade regulations, taxation policies, and investments in agricultural research and development (R&D). Initiatives such as the Kissan Package, smart subsidies for inputs, and irrigation infrastructure development aim to boost farm productivity and support small-scale farmers. Additionally, trade policies regulating import tariffs and export restrictions influence domestic prices and farmer profitability. However, while these policies are designed to enhance productivity and market stability, their effectiveness varies. Issues such as market distortions, inefficiencies in subsidy distribution, over-reliance on government support, and environmental concerns often arise as unintended consequences.

This article critically evaluates the direct and indirect impacts of government policies on agricultural output in Pakistan, assessing their strengths and weaknesses. It examines how financial incentives, regulatory frameworks, and institutional interventions influence farm productivity, rural livelihoods, and overall food security. By analyzing both successful and problematic policy interventions, this study aims to provide practical recommendations for improving agricultural policies, ensuring that Pakistan’s agricultural sector remains resilient, competitive, and sustainable in the face of evolving economic and environmental challenges.

Types of Government Policies in Agriculture

Government policies play a crucial role in shaping the agricultural sector by influencing production costs, market competitiveness, technological advancements, and sustainability. In Pakistan, a combination of subsidies, taxation policies, trade regulations, research investments, and environmental policies impacts the overall performance of agriculture, affecting millions of farmers and consumers alike. However, the effectiveness of these policies varies, often benefiting large-scale producers while leaving smallholders struggling with accessibility and financial constraints.

The government of Pakistan allocates significant subsidies to support agricultural inputs such as fertilizers, seeds, irrigation, and machinery. In 2023, the federal government provided PKR 30 billion in agricultural subsidies to lower input costs and enhance productivity. However, research indicates that these subsidies disproportionately benefit large-scale farmers, while smallholders face bureaucratic challenges in accessing these benefits. Furthermore, over-reliance on subsidies can create market distortions, discourage private-sector investment, and lead to inefficiencies in resource allocation. Instead of blanket subsidies, targeted financial assistance and smart subsidy programs tailored for small farmers could enhance productivity without distorting market dynamics.

Tax policies significantly influence the profitability of agricultural enterprises. While agricultural income is exempt from direct taxation, high indirect taxes on essential inputs such as diesel, fertilizers, and pesticides increase production costs. The 2023-24 budget introduced a 10% sales tax on fertilizers, substantially raising costs for small farmers. These high costs discourage investments in modern farming techniques and reduce profit margins. A more balanced taxation framework that reduces input taxes while ensuring revenue generation can incentivize agricultural expansion and improve farmer livelihoods.

Trade policies and market regulations directly impact Pakistan’s agricultural exports and imports, shaping farm profitability and supply chain stability. Pakistan is a leading exporter of rice, wheat, citrus fruits, and mangoes, but fluctuating tariff structures and non-tariff barriers create uncertainty for farmers. In 2022, the government imposed a restriction on wheat exports to stabilize domestic supply, yet this negatively impacted farmers who had anticipated higher global prices. Similarly, high import tariffs on agricultural machinery and advanced technology hinder modernization efforts, making it difficult for farmers to adopt precision farming techniques and climate-resilient equipment. Trade policies must balance food security with farmer profitability, ensuring global competitiveness while protecting domestic interests.

Investment in agricultural research and technology is crucial for enhancing productivity, improving climate resilience, and ensuring food security. Institutions such as the Pakistan Agricultural Research Council (PARC) and provincial agricultural universities develop high-yield, drought-resistant, and disease-tolerant crop varieties. However, Pakistan’s agricultural R&D spending remains below 0.5% of GDP, significantly lower than the 1-2% benchmark recommended by the FAO for developing nations. Increased funding for agricultural research, coupled with farmer education programs, is essential for long-term sustainability and technological advancement in the sector.

Sustainability and environmental policies are gaining recognition as essential tools for ensuring long-term agricultural viability and combating climate change. The National Climate Change Policy 2021 emphasizes water conservation, soil health, and climate-smart agricultural practices. While programs such as the 10 Billion Tree Tsunami initiative have improved afforestation and carbon sequestration, policy enforcement remains weak, and lack of incentives discourages farmers from adopting eco-friendly practices. Introducing financial incentives for organic farming, crop diversification, and soil conservation can encourage sustainable land management and reduce environmental degradation in Pakistan’s agricultural heartlands.

These policy areas collectively shape Pakistan’s agricultural output, but challenges such as policy misalignment, inadequate enforcement, and inefficient resource allocation persist. A more integrated policy approach, ensuring targeted subsidies, tax reforms, research investments, and sustainability measures, is essential for achieving long-term agricultural productivity and food security in Pakistan.

Challenges in Implementing Agricultural Policies

Despite well-intentioned government policies aimed at supporting Pakistan’s agricultural sector, multiple challenges hinder their effective implementation. Market distortions caused by over-subsidization lead to artificial price controls, discouraging investment in innovation and sustainable practices. Blanket subsidies often benefit large-scale farmers while smallholders, who make up 89% of Pakistan’s farming population, struggle to access financial support. Instead of fostering competitiveness, subsidies sometimes reduce incentives for efficiency and productivity improvements.

Policy inconsistencies also create uncertainty, making long-term agricultural investments riskier. Frequent shifts in trade regulations, taxation policies, and subsidy structures make it difficult for farmers and agribusinesses to plan effectively. For example, sudden changes in wheat export bans disrupt market expectations, leaving farmers vulnerable to fluctuating prices and reduced profits.

Financial constraints further weaken the intended benefits of agricultural policies. Limited budget allocations and delayed subsidy payments prevent farmers from timely purchasing inputs like seeds, fertilizers, and pesticides, ultimately impacting crop yields and food security.

Moreover, environmental trade-offs remain a pressing issue. Policies prioritizing maximum yield often overlook long-term soil degradation, water scarcity, and biodiversity loss. With 90% of Pakistan’s water usage dedicated to agriculture, inefficient irrigation practices exacerbate water shortages.

Lastly, resource inequality disproportionately affects small farmers, limiting their access to credit, modern technology, and extension services compared to large agribusinesses. Addressing these issues requires better policy alignment, financial transparency, and targeted support for smallholder farmers to ensure inclusive and sustainable agricultural development.

Recommendations for Policy Improvement

To enhance the effectiveness of government policies in improving agricultural productivity, a comprehensive and targeted approach is necessary. Targeted subsidy programs should focus on direct cash transfers to smallholder farmers through digital platforms like Easypaisa and JazzCash, ensuring equitable resource distribution and minimizing corruption. Current subsidy structures often benefit large agribusinesses, leaving small farmers at a disadvantage.

Balanced taxation policies should reduce indirect taxes on farm inputs such as fertilizers, diesel, and pesticides, while implementing progressive taxation on large agribusinesses to ensure fair revenue generation. This would alleviate financial pressure on small farmers while maintaining government revenue streams.

Market-oriented trade policies should aim for strategic food reserves to stabilize prices, selectively regulate export bans to protect local markets, and negotiate trade agreements that ensure competitive pricing while protecting domestic farmers. Inconsistent trade policies, such as abrupt wheat export bans, create market uncertainty and harm farmers.

Investment in agricultural research and development (R&D) should be increased to at least 1% of GDP, aligning with global best practices. Public-private partnerships can drive technology transfer and innovation in climate-resilient agriculture.

Infrastructure development must include rural road expansion, cold storage facilities, and improved irrigation systems to reduce post-harvest losses and enhance market access.

Finally, sustainability incentives should reward farmers adopting water conservation techniques, crop diversification, and eco-friendly pest control methods, ensuring long-term agricultural resilience and environmental protection.

Conclusion

Government policies play a crucial role in shaping Pakistan’s agricultural output, influencing food security, farmer livelihoods, and economic stability. While initiatives such as subsidies, trade regulations, taxation policies, and R&D investments have contributed to productivity growth, their effectiveness remains inconsistent due to implementation challenges, market inefficiencies, and policy misalignment.

Agricultural subsidies have helped lower input costs, yet they disproportionately benefit large-scale farmers, while smallholders face barriers to access. Similarly, high indirect taxes on essential farm inputs raise production costs, discouraging small farmers from adopting modern technologies. Trade policies, particularly export bans and import tariffs, often create uncertainty, reducing farmers’ market competitiveness. Meanwhile, Pakistan’s agricultural R&D spending remains below 0.5% of GDP, limiting the development of climate-resilient crops and sustainable farming techniques.

Despite these challenges, targeted reforms can enhance agricultural productivity and rural prosperity. Smart subsidies, balanced taxation policies, investment in research and infrastructure, and climate-smart agricultural practices are essential for long-term sustainability. Strengthening digital financial inclusion and public-private partnerships can further empower farmers and enhance market efficiency.

By adopting evidence-based policies, Pakistan can foster an agricultural sector that is more resilient, competitive, and sustainable, ensuring long-term food security and economic growth for rural communities.

Please note that the views expressed in this article are of the author and do not necessarily reflect the views or policies of any organization.

The writer is affiliated with the Department of Agricultural Economics, Faculty of Social Sciences, Sindh Agriculture University Tandojam Sindh, Pakistan and can be reached at satudentsau036@gmail.com

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