Credit Needs of Agriculture

• Muhammad Rasheed
• Asif Maqbool
• Naeem Qasim

It is a very uphill task to assess the cash and credit requirements of the agriculture sector. The state Bank of Pakistan takes keen interest in providing credit facilities for agriculture, both through the development of credit institutions as well as through providing credit lines to the development banks and incentives to Commercial Banks.

Prior to 1972, Commercial bank’s lending to agriculture was nominal. Bulk of the credit to this sector was being provided by the Agricultural Development Bank of Pakistan (now ZTBL). With the introduction of Banking Reforms in 1972, several institutional and policy changes were made with the objective of more equitable distribution of bank credit among various sectors and groups. Agriculture sector was also a beneficiary of these policy reforms.

In exercise of the powers vested in the State Bank of Pakistan, under section 25 of Banking Companies Ordinance 1962, effective from 1^st December 1972 an Agricultural Loans Scheme was introduced. In the absence of adequately developed specialized institutions for this sector, commercial banks, with their large network of branches, were inducted in mandatory agricultural financing under this Scheme.

Agricultural Credit Estimates

The targets of agricultural loans were set by the National Credit Consultative Council(NCCC) and were based on the recommendations of the Agricultural Credit Advisory Committee( ACAC), ACAC was set up in 1972 to assess credit requirements of the agriculture sector in order to assist the NCCC in preparation of the Annual Credit Plan and to consider the ways and means for improving the disbursal and recovery of agricultural credit together with suggesting measures for the strengthening of institutional credit.

The ACAC, with the assistance of Committee of experts appointed by it, evolved a methodology for the preparation of estimates of agricultural credit requirements. First devised in 1973-74, the methodology was subsequently revised in 1978-79, 1983-84, 1989 and lately in 2001. Cash requirements of production loans were estimated on the basis of total acreage of land under various crops and the cost of inputs for each crop in each province, and the estimated personal savings of various categories of farmers in terms of size of holdings. On the basis of recommendations, made by committee of experts in its revised methodology report 2001, the ACAC approved that the effective demand for bank credit as percentage of total cash requirements of seeds, fertilizers and pesticides would be 95%, 60% and 40% for small, medium and large farms respectively.

The basic elements of the methodology devised to assess the annual cash and credit requirements of agriculture sector were,

• Production and investment targets should be used for working out the cash and credit requirements to purchase needed inputs and investment goods.
• Small and medium farmers needed more credit and due weight should be given to them.
• Farm size should be the determining factor for estimating cash and credit needs for variable inputs

Estimation of Credit requirements of different crops

The prices of agricultural inputs have substantially increased, therefore, there is a dire need to revise the present indicative per acre credit limit of major, minor crops including non-farm sector i.e. livestock, fisheries, orchards etc to meet the genuine credit needs of the farming community. For this purpose, cost of production of major and minor crops and non-farm agricultural sector is needed deciding the limits of agricultural credit requirements.

Credit plays a vital role to ensure use of recommended dosage of inputs fro crops. The attempt has been made to estimate the cost of production of major and minor crops and some important orchard trees. For this purpose, cost of production estimated by Ahmad et al. (1993) was extrapolated to 2005 by using inflation rate and market rates were also used to estimate the cost of various inputs using quantities given by Ahmad et al. (1993).

1. Credit requirements of Wheat crop                                       (Amounts in Rupees per acre)

Cost	Amount
Cost on wheat  seed	450.25
Cost for land preparation	859.46
Cost of fertilizer	1585.55
Irrigation cost	591.59
Labor cost	2581.67
Total cost	6068.52

Credit needs of small farmers= 95%

0.95*6068.52= 5765.094 Rs/acre

Credit needs of medium farmers= 60%

0.60* 6068.52= 3641.112 Rs/acre

Credit needs of large farmers= 40%

0.40* 6068.52=2427.408 Rs/acre

2 .Credit requirements of Rice crop                                         (Amounts in Rupees per acre)

Cost	Amount
Land preparation	1739.43
Cost on seed	205.18
fertilizers	1208.26
Pesticides/insecticides/weedicides	344.24
Irrigation cost	2364.66
Labor cost	1666.51
Total cost	7528.28

Credit needs for small farmers= 95%

0.95* 7528.28= 7151.866 Rs. /acre

Credit needs of medium farmers= 60%

0.60* 7528.28= 4516.968 Rs. /acre

Credit needs of large farmers= 40%

0.40* 7528.28= 3011.312 Rs. /acre

3 .Credit requirements of Cotton crop                              (Amounts in Rupees per acre)

Cost	Amount
Land preparation	1042.98
Seeds	180.10
fertilizer	2145.23
Pesticides/weedicides	3529.02
Cost of irrigation	887.38
Labor cost	2104.32
Total cost	9889.03

Credit needs of small farmers= 95%

0.95* 9889.03= 9394.578 Rs/acre

Credit needs of medium farmers= 60%

0.60* 9889.03= 5933.418 Rs/acre

Credit needs of large farmers= 40%

0.40* 9889.03= 3955.612 Rs/acre