More than two-thirds of Pakistanis live in rural areas, of which about 68 percent are employed in agriculture (40 percent of total labor force). The agriculture sector accounts for about 22 percent of the national GDP and has enjoyed steady growth for almost three decades, substantially contributing to poverty reduction during the 1970s and 80s.
However, recent trend of agriculture incomes is far less encouraging and rural poverty was back to 38.9 percent by 2002, the same level where it was at the beginning of the 1990s. This has occurred despite generally favorable policies on prices and markets, and a relatively liberalized environment. While consecutive droughts have certainly played a detrimental role in the performance of the sector, it also faces significant structural constraints that hinder the sector’s contribution to economic growth and poverty reduction.
ISSUES & CHALLENGES
Poorly functioning factor markets and constrained access to assets limit opportunities for rural growth and poverty reduction. More than 60 percent of poor rural households are not farm households, with no access to land or water. 38 percent of small landowning farmers are also poor. Incomes from non-farm activities, including agricultural products processing, trade, construction, and transport services already account for 63 percent of total rural incomes. Well-functioning factor markets to facilitate access to assets (land, capital, water) and linkages with non farm sector are crucial for the growth.
Inequality and land concentration: The agriculture sector is characterized by strong inequality in the distribution of assets, particularly land and water. About 2 percent of the households control more than 45 percent of the land area. Large farmers have also captured the subsidies in water and agriculture, as well as the benefits of agricultural growth. Agriculture credit schemes have also mostly... [continues]
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