Pakistan's Agricultural Paradox: Generous Subsidies, Poor Productivity

The Paradox: Subsidies Up, Productivity Stagnant

Pakistan's agriculture sector presents a puzzle. Despite its centrality to the economy, generous public subsidies, and substantial natural endowments — the Indus River system, fertile plains, diverse climate zones — the sector's productivity has largely stagnated for more than two decades.

Agriculture contributes 23.4% of Pakistan's gross domestic product as of 2023.^[1] This share has remained remarkably stable, fluctuating between 20% and 25% since 1990, peaking at 25.4% in 2000 before declining to around 20% in the late 2000s and recovering to its current level. The sector employs approximately 37% of the total workforce, down from over 42% a decade earlier.^[2]

According to World Bank analysis, the combined agricultural subsidies from Punjab and Sindh provinces alone amount to US$2.2-2.7 billion annually.^[6] These subsidies flow primarily to water, fertilizer, and electricity for irrigation.

Yet agricultural growth has slowed dramatically. The sector averaged growth rates above 4% per year during the Green Revolution era (1970-2000), but growth has fallen below 3% in the decades since.^[6]

The result is a troubling divergence from regional peers. While South Asian countries have made substantial gains in agricultural productivity, Pakistan has fallen behind.

The Productivity Gap

Labor Productivity: Pakistan vs. South Asia

The most striking evidence of Pakistan's agricultural underperformance comes from labor productivity data. Agricultural value added per worker measures how much output each farm worker generates.

Between 1991 and 2019, Pakistan's agricultural labor productivity grew at approximately 0.35% per year. Over the same period, South Asia as a whole achieved productivity growth of approximately 2.6% per year — more than seven times faster.^[3]

In absolute terms, Pakistan's agricultural value added per worker was approximately US$2,660 (constant 2015 dollars) in 2019, compared to US$1,690 for South Asia as a whole. This shows that Pakistani agriculture is not necessarily less productive than the regional average in absolute terms — the regional figure is pulled down by India's enormous agricultural workforce. The concern is the trend: Pakistan's productivity is barely growing, while the region's productivity is improving rapidly.^[4]

Over 28 years (1991-2019), Pakistan's productivity increased by just 10%, while South Asian productivity more than doubled, increasing by 105%.^[3] In 1991, Pakistan's agricultural workers were nearly three times as productive as the regional average. By 2019, the gap had shrunk to 1.6 times, with South Asian productivity catching up rapidly.

Cereal Yields: Progress but Still Lagging

Pakistan has made genuine progress on crop yields. Cereal yields increased from approximately 1,960 kg per hectare in 1993 to 3,463 kg per hectare in 2022 — a 77% improvement.^[5]

However, other countries have improved faster. As of 2022:

• Bangladesh achieved cereal yields of 5,005 kg/ha, 45% higher than Pakistan.^[5]
• India reached 3,589 kg/ha, modestly higher than Pakistan.^[5]
• The South Asian regional average was 3,705 kg/ha.^[5]

World Bank analysis suggests that Pakistan's crop yields remain 1.5 to 4.2 times below their potential — the yields achievable under optimal conditions with current technology.^[6] This gap represents foregone output that could improve farmer incomes and food security.

The Total Factor Productivity Decline

At first glance, rising yields seem like good news. But examining how those gains were achieved reveals a troubling pattern. Pakistan's farmers increased output primarily through intensification: applying more fertilizer, investing more capital, and devoting more labor per hectare. Without corresponding improvements in efficiency, each additional unit of output required nearly as many additional inputs. The sector was running harder just to stay in place.

This pattern becomes clearer when we examine total factor productivity (TFP), which measures how efficiently all inputs are converted into output. According to research by Burki and colleagues using district-level data across 90 districts from 1993 to 2019, crop TFP in Pakistan contracted at approximately 1.2% per year on average.^[7] In other words, the agricultural sector required more inputs each year to produce the same amount of output.

This finding carries significant implications. If TFP is declining, then yield gains are being purchased at rising cost. Farmers must spend more on fertilizer, water, labor, and other inputs for each additional kilogram of output. This pattern cannot continue indefinitely — it erodes farm profitability and makes Pakistan's agriculture increasingly uncompetitive.

Provincial Divergence: Punjab and Sindh vs. KP and Balochistan

National averages mask significant provincial variation. Research suggests that Punjab and Sindh, the country's agricultural heartlands, achieved modest TFP gains of approximately 0.3-0.4% annually between 1993 and 2019.^[8] These provinces benefit from extensive canal irrigation networks, better market access, and more developed agricultural infrastructure.

Khyber Pakhtunkhwa and Balochistan tell a different story. TFP in these provinces reportedly declined by 1.0-1.4% annually over the same period.^[8] These regions face greater challenges: more reliance on rain-fed agriculture, less developed infrastructure, and smaller average farm sizes.

The geographic productivity divide suggests that Pakistan's agricultural challenge is not uniform. Policies that work in Punjab's irrigated plains may have limited relevance for smallholders in Balochistan's arid highlands.

The Farm Size Divide

Perhaps the most striking finding from recent research concerns the productivity gap between farms of different sizes. Studies of farm-level data in Punjab suggest that large crop farms may be at least 8-9 times more productive than small farms in total factor productivity terms.^[9]

Land ownership in Pakistan is highly concentrated. According to World Bank analysis citing Agricultural Census data, 2% of farmers own 45% of cultivated land. Meanwhile, farmers with holdings under 12.5 acres represent approximately 90% of the farming community.^[6]

This finding has significant implications. If large farms are dramatically more productive, why does land not flow toward them? Several factors may explain this misallocation:

Credit market failures. Small farmers often lack access to formal credit, making it difficult to expand operations or invest in productivity-enhancing technologies. Large farmers, with more collateral, can secure financing more easily.

Land market rigidities. Legal and social barriers to land transactions may prevent productive consolidation. Fragmented inheritance patterns further subdivide holdings over generations.

Policy distortions. Government procurement programs for wheat and support prices for sugarcane may inadvertently favor larger operations that can better navigate bureaucratic requirements and absorb payment delays.

According to one decomposition analysis, approximately 69% of the aggregate decline in crop productivity may be attributable to reallocation, meaning resources shifted from more productive to less productive farms over time.^[7] If correct, this suggests that improving aggregate productivity requires not just raising productivity on individual farms, but also facilitating the flow of resources toward more productive uses.

Locked Into Low-Value Crops

One reason for Pakistan's productivity stagnation is the sector's concentration in a few traditional crops that consume most resources but generate relatively little value per unit of land and water.

According to World Bank analysis, four crops occupy 85% of Pakistan's cultivated land:^[6]

• Wheat: 48% of cultivated area
• Rice: 15%
• Cotton: 15%
• Sugarcane: 7%

These same crops receive the lion's share of subsidies. Wheat and rice together receive approximately 75% of fertilizer and water subsidies.^[6] Sugarcane and rice together consume approximately 50% of irrigation water.^[6]

Meanwhile, higher-value activities — fruits, vegetables, dairy, meat — receive comparatively little public investment despite their potential for exports and rural income growth.

The Livestock Transformation

While crop productivity stagnated, Pakistan's livestock sector grew substantially. According to Pakistan Economic Survey data, livestock contributed approximately 60-62% of agricultural GDP in recent years.^[12] This represents a significant shift from decades past, when crops dominated agricultural output.

Yet livestock receives less than 1% of public agricultural investment.^[6] This subsector is particularly important for smallholders, who use livestock as savings, nutrition, and draft power. The livestock sector's expansion offers opportunities, but it also has its own productivity challenges, including low milk yields compared to regional peers and limited processing infrastructure.

The Water Crisis

Pakistan's agricultural water use is among the least efficient in the world. According to World Bank analysis, Pakistan produces approximately 130 grams of crop output per cubic meter of water. For comparison:^[6]

Country	Water Productivity
Pakistan	130 g/m3
India	390 g/m3
China	800 g/m3
USA	1,560 g/m3

This places Pakistan among the worst 10% of countries globally for agricultural water productivity.^[6]

Several factors contribute to this inefficiency:

Irrigation pricing: Farmers pay far below the actual cost of delivering water. In Sindh, cost recovery for irrigation operations and maintenance is only 6% (a 94% shortfall). In Punjab, recovery is 25-30% (a 70-75% shortfall).^[6] Without price signals reflecting water scarcity, there is little incentive to conserve.

Land degradation: More than 35% of Pakistan's irrigated land is now waterlogged due to poor drainage. Approximately 30% of irrigated land is highly saline, rendering it unfit for many crops.^[6]

Groundwater depletion: As surface water has become scarcer, farmers have turned to groundwater. Approximately 90% of private tube wells in Punjab run on diesel, making them expensive to operate and contributing to groundwater depletion.^[6]

Who Benefits? The Subsidy Targeting Problem

Pakistan's agricultural subsidies flow disproportionately to those who need them least.

Because subsidies are largely tied to acreage — more land means more subsidized water, fertilizer, and electricity — they flow primarily to large farmers. The same pattern appears in other fiscal subsidies: World Bank analysis of energy and other subsidies found that the poorest households receive only 3% of benefits, while the richest receive 50%.^[6]

The productivity gap compounds this inequality. Large farms are at least nine times more productive per acre than small farms.^[6][9] This reflects their better access to inputs, credit, technology, and markets — advantages that subsidies reinforce rather than correct.

The Research Collapse

Pakistan's public investment in agricultural research has declined sharply.

Agricultural research spending fell from 0.37% of agricultural GDP in 1996 to just 0.12% in 2016.^[6] For comparison, India, Bangladesh, and Sri Lanka invest between 0.3% and 0.6% of agricultural GDP in research.^[6]

This decline has consequences. Without continued research investment, farmers lack access to improved seed varieties suited to local conditions, pest and disease management techniques, and practices adapted to changing climate conditions.

The research that does occur focuses heavily on grains, leaving gaps in knowledge for high-value horticulture, livestock, and climate adaptation.

Climate Vulnerability

Pakistan's agriculture sector is acutely vulnerable to climate change, and current policies provide limited adaptation support.

Research suggests that temperature increases of 0.5-2 degrees Celsius could reduce crop yields by 8-10%.^[10] The effects would not be uniform across crops. Cotton appears particularly sensitive to humidity changes; one study suggests a 10% increase in humidity could reduce cotton yields by approximately 8%.^[10]

According to World Bank analysis, climate change could decrease crop yields by 14% to 50% depending on the scenario and crop.^[6] At the same time, irrigation water demand may increase by 10 to 25 billion cubic meters as higher temperatures increase evaporation.^[6]

Pakistan has already experienced severe climate-related agricultural losses. The 2010 floods destroyed 2.4 million hectares of crops, causing estimated losses of $5.1 billion.^[11] The 2022 floods caused even more extensive damage, destroying crops across millions of hectares, killing livestock, and disrupting agricultural livelihoods for millions of households.

The current policy mix — which subsidizes water-intensive crops, underprices water, and underinvests in research — does little to prepare the sector for these challenges.