What if e-vouchers could promote a shift toward higher-value agriculture and reduce poverty?

A half-hour’s drive from Parveen’s village, farmers are being encouraged to try a crop that is more lucrative, more productive and requires less water than wheat: oilseed. Pakistan imports most of its cooking oil, though the conditions are good for producing it at home.

An e-voucher program helped Khalil Ahmad Sajid (left) change his farming practices and increase his income by 70%. Photo: Flore de Preneuf/ World Bank

A new e-voucher-based input subsidy scheme, which includes barcodes on input bags and simple, cellphone-based transactions, aims to change the status quo by lowering the price of strategic inputs such as fertilizers and seeds. The idea is to nudge farmers into using the right fertilizer mix and to shift their cropping patterns toward higher-value, higher-yielding crops. Now in its second year, the e-voucher program has already increased the area of production dedicated to oilseed (rapeseed and sunflower) by 33 percent, from a low base of 350,000 acres

By relying on a digital database of landholders and tenants, the government of Punjab is now able to focus its efforts on the 91% of farmers who own less than 12.5 acres (or 5 hectares) of land, allowing for more efficient and more progressive use of government spending than in the past.

For example, by providing a discount on high-quality certified rapeseed, the e-voucher program helped Khalil Ahmad Sajid change his farming practices and increase his income by 70%. Khalil also reaps health benefits and savings from this new source of fat: “I’m able to make my own oil, thanks to training from extension workers. It’s very good quality oil and I no longer have to spend money on ghee.” Though oilseed is more lucrative, Khalil shifted only half of his 12.5-acre plot to oilseed in 2017, keeping the other half in wheat for home consumption and sale.

His neighbor Khalid Irfan embraced further change – planting 10 acres of sunflower. Because his wife has a stable income as a school teacher, he was more willing to take risks than other farmers, he says. But he too still keeps some land for wheat (2.5 acres). “It’s peace of mind,” he says. “It’s something you can always sell.”

What if the wheat sector could be modernized to better reward farmers and lower the financial burden on the province?

Bread is the staple food of Pakistani diets -- more so than rice. Photo: Flore de Preneuf/ World Bank

Wheat is, indeed, the lodestar of Punjab agriculture – and its Achilles heel. About 16 million acres are devoted to the crop, representing 52% of Punjab’s farmland. Bread is the staple food of Pakistani diets (more so than rice) and considered too politically sensitive to leave entirely to market forces.

As a result, the government procurement and marketing of wheat is mired in inefficiencies.

Of the roughly 20 million tons of wheat produced each year, half is kept by farmers for their own consumption and as animal feed. The government of Punjab currently purchases about 40 percent of the remaining wheat (about 4 million tons of wheat), at a fixed price (1,300 rupees for 40 kg of wheat), to constitute grain reserves and maintain the option of lowering wheat prices by releasing wheat on the market.

This system, which once assured food security, now comes at a high cost: it encourages overproduction of wheat at the expense of more lucrative, diverse and nutritious crops; wheat stocks, kept by the government in bags rather than in bulk in modern silos, often deteriorate; farmers are largely unable to sell wheat at higher prices or profit from export opportunities; and the government is forced to borrow large amounts of money each year to finance its wheat procurement drive, adding to Government of Punjab debt. At 35 billion rupees (about US$ 218 million) per year, the amount of wheat subsidies is more than three times all other public spending in agriculture, including research and development, and goes mainly towards paying interest rates on past debt that now stands at about 600 billion rupees (or US$ 4 billion).

Though they see a role for government regulation, many stakeholders see flaws in the current procurement model: “Government investments could be targeted in a more innovative manner,” says Arif Nadeem, head of the Pakistan Agricultural Coalition, a non-profit business incubator. “The government feels that if the price of wheat goes up, people might get upset with the government,” explains Almas Hyder, President of the Lahore Chamber of Commerce and Industry. “It’s true. But having said that, the market should be allowed to work. There could be direct wheat subsidies for poor consumers, using for example the Benazir Income Support Program which is already in place.”

Diversifying agriculture away from wheat could also boost nutrition outcomes. Photo: Flore de Preneuf/ World Bank

Among recommendations such as investing in sanitation, diversifying agriculture and fortifying flour, reforming wheat subsidies has long been highlighted as an action that could help improve nutrition in Punjab. “Provide targeted subsidies to poor and food insecure population instead of across the board subsidies on wheat,” reads a 2012 policy guidance note supported by the South Asia Food and Nutrition Security Initiative, a program that seeks to address chronic malnutrition in South Asia.

Through the SMART program, the World Bank is supporting the Government of Punjab to modernize wheat policies while keeping wheat within the buying power of poor consumers. “On the concept and benefits there is no disagreement,” says Zafar Nasrullah Khan, Secretary of Food for the Government of Punjab. “The only question is: how do we provide a sufficient guarantee that a fair price will be maintained?”