15th February 2021
Presently, 90% of overall farmers (7.4 million) are categorized as smallholder farmers in Pakistan as they own less than 12.5 acres of land (5 Ha). Smallholder farmers continue to be the backbone of the agriculture sector, contributing to national food security as well as export earnings. However, the benefits they receive from agricultural market economy is marginal which can be enhanced by organizing them under a formal structure i.e., farmer organizations. At present, smallholder farmers in Pakistan lack access to financing, quality farm inputs, extension services, fair access to market and effective representation at appropriate policy forums.
Smallholder farmers struggle to meet their household expenses due to inefficiencies in the current agriculture value chain. Low yield of crop further reduces their eligibility to obtain a loan from a financial institution that requires collateral for loan issuance. The total advances made by banks during FY 2020 is PKR 8,200 billion which indicates that the agriculture financing is 14.81% of the total loan portfolio of the banks. From borrower perspective, agriculture loans were disbursed to 3.1 million borrowers (farm and non-farm sector, SBP FY 2020 agriculture credit disbursement).
Currently, commercial banks are not set up to lend to the marginal farmers (having < 5 acres of land): their documentation requirements and processes, collateral and security criteria and loan appraisals and monitoring system are not geared to serve this segment at affordable lending rates. Moreover, conventional brick and mortar banking system further prohibits the banks from servicing rural clients living in remote areas and providing financial services at scale. In the absence of a relationship between the farmers and the banks, credit needs of the agriculture economy are being met though the informal money lenders (middleman) who provide in-kind financing to smallholder farmers on exorbitant rates and additionally obligate farmers to sell their produce to them at a lower price.
Due to in-kind financing model of informal money lenders, farmers lack the negotiation power and are bound to use inputs that are inferior in quality and inadequate in quantity leading to reduced crop yield. Furthermore, small landholding size of the farmers coupled with small purchase ticket size make them an unattractive market for large input manufacturers due to high transaction cost for servicing this segment. Therefore, smallholder farmers are at a disadvantage of not having direct access to the dealers who are under the network of these manufacturers.
On average, current yield of wheat, cotton, rice, maize and sugarcane is 2.26, 1.87, 2.88, 1.77 and 48.06 tons per hectare, respectively against 6.80, 4.30, 5.20, 9.20 and 300 tons per hectare potential yield of wheat, cotton, rice, maize and sugarcane, respectively, obtained through research. This reflects a yield gap of 67, 57, 45, 81 and 84 % between average and potential yield of wheat, cotton, rice, maize and sugarcane, respectively.
Due to the fragmented nature of agriculture landholdings in Pakistan coupled with large number of farmers residing in remote areas, agriculture extension services are unable to reach them at scale. The result is that farming practices in Pakistan tend not to be based on latest research and there is a low rate of adoption of new techniques, leading to lower crop yields, deteriorating soil quality and inefficient water usage. These factors act as a barrier for smallholder farmers to break free from the cycle of poverty and transition from subsistence to progressive category. Therefore, there is a need to consolidate smallholder farmers under the structure of farmer organizations that are further strengthened by the development of overarching networks at regional, provincial and national level for provision of economic services and championing policy advocacy for their members.
Well-functioning farmer organizations can play a vital role to improve productivity and livelihoods of their members through improved access to various inputs, services, and markets. They allow groups of producers to improve their bargaining power in the market, reduce costs, and capture a larger share of the final value of agricultural production. They do this by pooling capital and resources through cooperative enterprises, so that by working together, each farmer can have access to services, markets, and inputs that they would not be able to access on their own.
Keeping in view the key role of farmer organizations to position themselves as a provider of economic services and champion of policy advocacy for members, IFAD has designed and funded Asia Pacific Farmers’ Programme (APFP). The programme; with an implementation period of 5 years and regional coverage to 29 countries in Asia Pacific, aims to contribute to an enabling environment for rural poverty reduction through instrumental support to rural smallholders and their organizations.
To achieve programme outcomes in Pakistan, Asian Farmer Association for Sustainable Development (AFA) acting as the Regional Implementing Agency for APFP, has formally on-boarded ASF on January 16th 2021 to implement APFP at national level. The programme will be implemented jointly by ASF and its policy engagement partner OPEN; to professionally capacitate farmer organizations for providing sustainable demand-driven services to their members and engage in effective policy dialogue for the improved livelihoods and incomes of smallholder farmers.