A large trade deficit has remained one of Pakistan’s most persistent and deep-rooted structural economic challenges. In the past, this chronic imbalance between imports and exports has led to the accumulation of huge foreign debt and a continuous depletion of the country’s foreign exchange reserves.
In FY24, the trade deficit stood at $24.09 billion and is projected to widen further in the current fiscal year. This reflects a dual policy failure: the absence of a holistic export development strategy and the inability to implement an effective import substitution plan, at least for products in which Pakistan holds a comparative advantage.
The agriculture sector — often described as the backbone of Pakistan’s economy — has followed a similar trajectory. In the absence of a comprehensive, result-oriented export development strategy and its backward integration with farms through contract farming or other development approaches, farmers have independently shifted to crops that offer relatively better returns or align more closely with their available resources.
This directionless growth has led to increased production of crops like rice, maize, and sesame, and consequently to higher exports, albeit in raw or minimally processed form. However, concerns about the sustainability and long-term viability of these crops loom large.
The persistent lack of strategic planning and a weak government investment and development strategy to strengthen agro-processing has stunted the agriculture sector
Rice — Pakistan’s top agricultural export — is a highly water-intensive crop. Given the growing surface and groundwater crisis, its continued cultivation may become unsustainable. Similarly, hybrid varieties of maize (a spring crop) also demand substantial water, and in recent years, their requirements have increased further due to heatwaves and rising temperatures in April and May.
Another emerging challenge to agri-food exports is the global shift towards a stricter food safety regime. Many countries are now enforcing increasingly stringent sanitary and phytosanitary standards and traceability requirements that allow buyers to track agricultural produce back to its source even down to the specific farm or acre. However, Pakistan’s agriculture sector, still operating with outdated practices and limited technological adoption, is ill-prepared to comply with these evolving international norms.
Given these challenges, the future of Pakistan’s agri-food exports remains uncertain. There is a growing risk that they may be confined to low-end markets in the developing countries that prioritise affordability over quality and compliance. To make matter worse, rising domestic transportation costs and increasing sea and air freight costs continue to erode the competitiveness of Pakistan’s agri-food exports, which typically offer limited value-addition and thus have a larger product volume and weight relative to their value.
All these realities raise a serious question on our export development strategy in the agriculture sector. In the given situation, would it not be more prudent to focus on import substitution of primary crops and value-added products, especially where Pakistan already has significant production levels and a clear comparative advantage?
In July-March, FY25, the country imported garlic worth Rs15bn — despite having higher crop yields than India and Bangladesh, the world’s second and third largest garlic producers. This situation largely stems from the failure of our agricultural authorities to promote the right garlic varieties that align with domestic consumers’ preferences and meet industrial requirements.
Similarly, Pakistan imported tomato paste worth Rs1.5bn during the same period, even though tomatoes are widely grown across the country. The situation is no different with potatoes. Despite being a major potato-producing country with significant potato exports, Pakistan imported potato starch worth Rs0.67bn in FY25 (July-March). This starch is typically made from B and C grade potatoes, which are abundant and in the absence of any value-addition avenues, they are often used as livestock or fish feed.
Likewise, Pakistan imports pulses worth around $1bn annually. A large portion of these imports (though not all) could be curtailed through import substitution. The same holds true for edible oils. With imports exceeding over $3bn, Pakistan has become the world’s third-largest importer of edible oil — after China and India — despite having favourable agro-climatic conditions and considerable domestic production of oilseed crops such as canola, mustard, and sunflower.
These examples are part of a much longer list of agricultural products that Pakistan continues to import in raw or value-added form, despite having the capacity and cost competitiveness to produce them locally. This highlights a deeper issue: the persistent lack of strategic planning and a weak government investment strategy to develop the agriculture sector and strengthen agro-processing.
In the past, high electricity costs and soaring policy interest rates rendered many small and medium enterprises (SMEs) uncompetitive. However, recent developments — including a significant decline in solar panel prices, the widespread adoption of biomass as boiler fuel, and a sharp reduction in the policy rate from 23pc to 11pc — have collectively contributed to lowering production costs. A notable example is the cold storage sector, where a large majority have transitioned to solar power. Such reduction in operating costs has opened new avenues for crop processing and value addition.
In conclusion, Pakistan urgently requires a comprehensive agricultural production strategy that aligns the country’s needs with crop acreage and the available natural resources, such as land and water. Equally important is the need to boost investment in agro-processing and value addition. To this end, the government should introduce a subsidised financing facility — channeled through banks — to incentivise the development of SMEs. This approach would not only ensure transparency but also provide greater financial leverage for public money.
Khalid Wattoo is a farmer and a development professional, and Dr Waqar Ahmad is a former Associate Professor at the University of Agriculture, Faisalabad.
Published in Dawn, The Business and Finance Weekly, May 26th, 2025
