An economist is returning to his roots to explore ways to help smallholder family farms to innovate, improve productivity and increase family income.
As a child in rural Pakistan, Dr Shabbir Ahmad loved to walk behind the bullock as they ploughed the fields on the family farm. He remembers the excitement of riding aboard the farm’s own ‘merry-go-round’ – the circular wooden platform which the bullock pulled round and round to separate the wheat from the chaff – and helping his grandfather feed in sugarcane to be crushed in a similar way.
Although Shabbir won scholarships to secondary school and then to one of the most prestigious colleges in Pakistan, he expected that one day he would follow the family tradition and join his relatives in the fields. Little did he know that it would be as an economist and not as a farmer.
During his 20-year academic career, Shabbir has devised new ways to measure business growth and innovation, particularly in agriculture, and has won a number of awards for his work. Now as a Research Fellow at The University of Queensland (UQ) Business School, he is back in the fields in Pakistan, though this time investigating ways to help local farmers to improve productivity and overcome poverty.
Although agriculture accounts for over 20 per cent of Pakistan’s economy and employs 40 per cent of the labour force, productivity is amongst the lowest in the world. The research, which is funded by the Australian Centre for International Agricultural Research (ACIAR) and led by UQ Business School experts Shabbir and Associate Professor John Steen, is looking at how better access to credit, support for women farmers, and other interventions could increase farm yields and family income.
“Poor farm practices, limited investment and slow uptake of innovative practices are hampering farm income and productivity growth for smallholders,” says Shabbir.
“Studies have shown that the use of credit can improve farm productivity and profitability, but smallholders in Pakistan still have limited access. Through our research, we are using econometrics or quantitative methods to analyse the data and understand the issues. It’s exciting to go back and sit with farmers and village elders, and use my skills to find ways to improve their livelihoods.”
In their survey of 900 farmers in the Punjab, the team found that less than 50 per cent had applied for credit and most were unsuccessful when they did. Those who do borrow tend to do so on the basis of availability and convenience, rather than the interest level and service costs.
One of the biggest barriers is the complex process of application. High interest rates – up to 40 per cent in some cases – may also deter farmers, as does the principle of interest payments which is forbidden in the Islamic faith.
The research found that any benefits from credit might also be limited because most farmers use the money for operational purposes – to smooth out cash flow or buy seeds and fertiliser – rather than capital investments such as equipment and land which are likely to have greater effect on productivity.
“Farmers need better awareness to make decisions,” says Shabbir. “Improving their financial literacy will raise borrowing rates and mobile phones and radio could be used to promote learning. There is an unmet need for Islamic finance and policies should encourage the growth of such services. There also needs to be greater awareness of the government finance schemes available.”
One way which has been shown to create wealth in developing economies is to support women entrepreneurs. In Pakistan, women dominate the livestock and dairy industry and deliver about 80 per cent of total milk production.
During their research with women in the agricultural Khairpur District, the team found many were reluctant to take a loan because of the high repayment cost. Loans to those with little agricultural land also tend to be short-term, perhaps because they have less collateral, rather than long-term loans which are more effective in increasing productivity.
As in other developing economies, credit in Pakistan is often secured through social networks, which are based on trust and where members co-operate for mutual benefit. Researchers found that these networks were effective in helping women to obtain loans and believe the government should encourage them.
However ultimately, Shabbir says credit by itself is the not the complete answer. Farmers also need to improve their techniques and innovate to make the most of the money invested.
“Villagers in rural areas are still using primitive technologies and can’t afford to invest capital to adopt more modern practices,” he explains. “For example, most still apply fertiliser by hand even though it spreads unevenly or might blow away in the wind.
“Raising awareness of more productive farming methods would improve profitability and help farmers to service the loan. This could be done by partnerships between credit providers and support services to encourage the adoption of better farming techniques as a condition of the loan.”
Even simple innovations can pay dividends. By carefully timing the harvest for the start of the season, Shabbir’s father-in-law raised $3,000 from an acre of cauliflower whereas two weeks later, the price would have been less than $500. Another local farmer, who grows vegetables using tunnel farming techniques but with traditional bamboo sticks, grades his produce before taking it to market. As a result he has built a reputation for quality and is charged less commission to sell at market because when customers know his crop is coming to market, they rush to buy.
However, most farmers are not adopting innovations, says Shabbir. “A more efficient credit market would create more entrepreneurial opportunities, but government or NGOs need to provide training in agricultural techniques to improve the effectiveness of loans. Using credit and training together could improve productivity and help more people to escape from poverty.”