The decade of the 1990s signifies a watershed in Pakistan's economic history. As overall GDP growth has slowed down, and unemployment and poverty increased, the underlying factors rooted in the institutional structure of Pakistan's economy, have become manifest. Nowhere is this more evident than in the rural sector. Here a slow down in output growth of the major crops has been associated with declining factor productivity and increased instability of output growth. The moment of decline in growth of yields per acre of major crops gives cause for concern. It has come at a time when the extensive margin in the crop sector has been reached, and further growth will have to depend on increasing the efficiency of input use.

Due to their weaker resource position, small farmers are likely to suffer greater adverse impact of declining factor productivity and output instability compared to large farmers. Yet, our estimates suggest that it is precisely in the small farm sector that there is a relatively greater potential for employment generation. Consequently, slower and more unstable growth may be accompanied by a tendency for increasing inequality in income distribution together with growing poverty and unemployment. It may be time, therefore, to address the structural weaknesses of institutions in the rural sector that underlie these trends.

In this article the pattern of output growth and employment in the crop sector will be briefly examined to indicate the need to focus policy on the institutional constraints to actualizing the yield potential. Such a policy acquires an urgency in view of evidence that the extensive margin has been reached. Future growth would have to rely on increasing the efficiency of input use where institutional support plays a greater role than in increasing irrigated-cropped acreage, which fueled agriculture growth in the past.

Agriculture Growth: Past Pattern and Present Potential

The level and pattern of output growth in the crop sector during the 1990's when viewed in a longer-term perspective suggest the emergence of institutional constraints to sustainability. The average annual growth rate of major crops declined from 3.34 percent during the 1980s to 2.38 percent during the 1990s. At the same time, the frequency of negative growth in some of the major crops during the last 17 years has been significantly higher than in the preceding two decades. If we consider wheat, which is by far the largest of the major crops (over 30 percent value added in major crops), we find that average annual growth rates have been steadily declining since the onset of the "Green Revolution": From the high point of 7.42 percent in the 1960's to 2.33 percent in the 1990's. Underlying the decline in the growth of wheat output is a steady decline in the growth of wheat yield per hectare: From 4.38 percent in the decade of 1960's to 1.81 percent in the 1990's. The frequency of years in which an absolute decline in wheat yield per hectare was 7 in the period 1980 to 1997, compared to 5 in the preceding two decades.

Under conditions of declining input productivity, when higher input use/acre is required to maintain yields, small farmers with fewer resources are likely to suffer a greater than average decline in yields, compared to large farmers. At the same time, due to lack of savings to fall back on, they are relatively more vulnerable to bad harvests under conditions of unstable growth. Consequently, slower and more unstable growth may be accompanied by a tendency for growing inequality in rural income distribution, poverty and unemployment. This is why it is important to initiate policies (discussed in this Report) to counteract these tendencies in both the farm and off-farm sectors of agriculture.

Underlying the phenomenon of a gradual deceleration of growth and increased frequency of negative growth years may be the emergence of a number of institutional constraints, the major ones being (i) reduced water availability due to deterioration in the canal irrigation system, (ii) poor quality of seeds, inadequate and poorly targeted agriculture research and extension services, (iii) degradation of soils due to depleting soil nutrients and soil erosion associated with improper agricultural practices. (Each of these constraints will be discussed in Section 2).

My research for the ILO employment study shows that currently in the major crops together with fodder and pulses a total of 1361 million person days of employment annually exists. (This figure is quite close to the employment demand projection of 1312 million person days for the year 2000, that we made in 1989, based on 1972 data, for the ILO/ARTEP). Given crop production cycles (where farmers are employed 200 days of the year), the annual employment demand for 5.4 million persons per year currently exists in the crop sector.

I have estimated the person days of employment required in selected crops at current levels of cropped acreage in the irrigated and unirrigated areas respectively by size class of farm. The figures suggest that farms below 25 acres in size are generating more than twice as much employment than large size farms in the case of wheat, basmati, cotton and fodder. The employment differential between small and large farms is even higher in the case of HYV rice (three times higher) and maize (5 times higher). The employment differential in the case of pulses, however, is lower (1.5 times). These estimates suggest that if the yield and output potential of the small farm sector could be actualized, a relatively larger increase in employment creation would occur than in the case of large farms.

A potential exists for increased employment demand that can be generated if the current yield potential of two major crops (wheat and HYV rice), could be realized through improved agricultural practices, vigorous seeds at current levels of technology and increased water availability through higher delivery efficiency of irrigation. The estimates indicate however that an employment potential of only about 16 million person days annually (about 80,600 persons employed for the whole agricultural year) exists in the crop sector for wheat and HYV rice. However, for farms below 25 acres substantially more employment could be generated through the realization of the yield potential of these crops compared to large farms. These figures suggest that if policies for increasing the yield per acre of major crops were to focus on the small farm sector, a faster and more equitable growth with higher employment generation could be achieved in the crop sector.

Given the limited potential for increasing employment in the crop sector compared to the size of the unemployed rural labour force, the brunt of the burden of increasing rural employment generation would have to be borne by the non-crop sector. This would include livestock development especially milk production, food processing, off-farm micro enterprises and industrial clusters in rural areas consisting of small scale units in the fields of light engineering, automotive, electrical and construction.

If a village level institutional support mechanism could be established to enable small farmers to achieve increased water application in the root zone of the crops, application of composite fertilizers in congruence with field specific soil nutrient requirements and better quality seeds, a yield increase of 30 percent in wheat and 50 percent in HYV rice could be achieved within a relatively short period. This implies an additional annual employment potential of about 16 million person days in wheat and rice alone. Substantially higher increases in output and employment could be achieved with improved agricultural practices, replenishment of humus in topsoil, breeding and diffusion of more vigorous seed varieties, and a rehabilitation of the canal irrigation system.