TA6884 - Green and Resilient Rural Recovery through Agri-Food System Transformation in the Asia and Pacific Region Pakistan Agri-Food System Assessment Report International Food Policy Research Institute (IFPRI) December 2025 Stephen Davies Amna Ejaz 2 Acknowledgments This report was prepared by the International Food Policy Research Institute (IFPRI) for the Asian Development Bank's (ADB) Agriculture, Food, Nature, and Rural Development (AFNR) Sector, as part of the regional project TA6884 - Green and Resilient Rural Recovery through Agri-Food System Transformation in the Asia and Pacific Region. This report is also partially supported by the ASEAN-CGIAR Innovate for Food and Nutrition Security Regional Program. We would like to express our appreciation to the leadership and staff at ADB, namely Dr. Shingo Kimura, Ms. Noriko Sato, Dr. Babur Wasim Arif, Mr. Sahibzada Mansoor Ali, Ms. Namesh Nazar, Dr. Umer Saeed, Dr. Ahmad Nawaz, Dr. Aman Ullah and Mr. Muhammad Danish for their valuable input at various stages of the consultative process. We are thankful to Ms. Iqra Akram, Dr. Tahir Ali, and Dr. Muhammad Ashraf at the International Water Management Institute (IWMI) Pakistan, for technical, logistical, and overall support during the assignment. At IFPRI, we thank Kevin Chen and May Wang in IFPRI’s Bejing office for their oversight and guidance during this process, and Xinshen Diao and James Thurlow in IFPRI Washington for their analysis contained in Appendix 1, which set the stage for our work extremely well. Finally, we thank Pamela Stedman-Edwards for her careful review as we came to the end of the exercise. We also acknowledge and extend our gratitude to the following individuals who participated in our interviews and attended the National Consultation Workshop on July 3rd 2025, and the Key Findings Dissemination and Validation Workshop on December 11th 2025, for their time, perspectives, and valuable contributions, which were instrumental in the development of this report. Individuals interviewed: 1. Mudassir Shafique, International Finance Corporation (IFC) 2. Charles Schneider, International Finance Corporation (IFC) 3. Wasim Iqbal. Pakistan Agricultural Marketing Regulatory Authority (PAMRA) 4. Asad Raza, Pakistan Mercantile Exchange (PMEX) 5. Saqib Shehzad Saleem, Representative Punjab Agriculture Department 6. Muhammad Zeshan, Pakistan Institute of Development Economics (PIDE) Consultative Workshop participants: 1. Nazim Ali, United States Agency for International Development (USAID) 2. Emily Vooris, UN World Food Programme (WFP) 3. Muhammad Imtiaz, International Center for Agricultural Research in the Dry Areas (ICARDA) 4. Munawar Kazmi, Australian Centre for International Agricultural Research (ACIAR) 5. Tehseen Qureshi, World Bank 6. Sahibzada Mansoor Ali, Asian Development Bank (ADB) 7. Muhammad Danish, Asian Development Bank (ADB) 8. Kashif Salik, Sustainable Development Policy Institute (SDPI) 9. M. Faisal Ali, Pakistan Institute of Development Economics (PIDE) 3 10. Farah Naz, Pakistan Institute of Development Economics (PIDE) 11. Mubarik Ali, Ministry of Planning, Development, and Special Initiatives 12. Ghulam Sadiq Afridi, Pakistan Agricultural Research Council (PARC) 13. Faiz Rasool, Global Alliance for Improved Nutrition (GAIN) 14. Iqra Akram, International Water Management Institute (IWMI) 15. M. Tahir Ali, International Water Management Institute (IWMI) Key Findings Dissemination and Validation Workshop participants: 1. Arif Rehman, Ministry of Planning, Development, and Special Initiatives 2. Shingo Kimura, Asian Development Bank (ADB) 3. Ghulam Sadiq Afridi, Pakistan Agricultural Research Council (PARC) 4. Mubarik Ali, Ministry of Planning, Development, and Special Initiatives 5. Nazim Ali, United States Agency for International Development (USAID) 6. Nazeer Ahmed, Ministry of Planning, Development, and Special Initiatives 7. Naeem Ullah, Ministry of National Food Security and Research (MNFSR) 8. Haroon Sarwar, Ministry of National Food Security and Research (MNFSR) 9. Muhammad Imtiaz, International Center for Agricultural Research in the Dry Areas (ICARDA) 10. Tehseen Qureshi, World Bank 11. Sitara Gill, Food and Agriculture Organization of the United Nations (FAO) 12. Sahibzada Mansoor Ali, Asian Development Bank (ADB) 13. Yahya Gulraiz, Sustainable Development Policy Institute (SDPI) 14. Faiz Rasool, Global Alliance for Improved Nutrition (GAIN) 15. Farah Naz, Pakistan Institute of Development Economics (PIDE) 16. Muhammad Danish, Asian Development Bank (ADB) 17. Iqra Akram, International Water Management Institute (IWMI) 18. Babur Wasim, Asian Development Bank (ADB) 19. Munib Baig, Asian Development Bank (ADB) 20. Safyan Kakakhel, Asian Development Bank (ADB) 21. Ahmed Nawaz, Asian Development Bank (ADB) 22. Umer Saeed, Asian Development Bank (ADB) 23. Ryutaro Takaku-Bessho, Asian Development Bank (ADB) 24. Ishfaq Ahmed, Development Bank (ADB) 4 Table of Contents Acknowledgments...................................................................................................................... 2 List of Acronyms and Abbreviations ......................................................................................... 7 Executive Summary ................................................................................................................... 8 Project Background .................................................................................................................. 12 1. Current Situation of Pakistan’s Agri-Food Sector ............................................................... 13 1.1 Background ................................................................................................................... 13 1.2 Structural Transformation in the Agri-Food System ..................................................... 14 1.3 The Investment Position in Pakistan ............................................................................. 15 1.4 Current Policies and Programs ...................................................................................... 16 1.4.1 Recent Wheat Policy Developments ..................................................................... 18 1.4.2 Regional Tensions and the Indus Waters Treaty .................................................... 18 1.4.3 Example Donor Approaches and Implementation Strategies ................................ 18 2. Deep Dive: Implications of Wheat Value-Chains and PAMRA for Rural Transformation in Pakistan .................................................................................................................................... 21 2.1 Wheat Value Chains ...................................................................................................... 21 2.1.1 The Challenges and Consequences of Exiting the Wheat Procurement and MSP Program .......................................................................................................................... 22 2.1.2 A Deeper Look into Wheat Sales and Storage ....................................................... 23 2.1.3 Opportunities for Agri-Food Systems Transformation within the Wheat Value Chain............................................................................................................................... 25 2.2 Developments in the Punjab Agricultural Marketing Regulatory Authority (PAMRA) ............................................................................................................................................. 27 2.2.1 Status, Consequences, and Lessons Learned ......................................................... 29 2.3 Extended Off-Farm Agri-Food System and Value Chain Perspectives ......................... 30 2.3.1 Perspectives on Market Engagement Across Different Value Chains: Contracts and Corporate Farming ................................................................................................... 30 2.3.2 Perspectives on International Comparisons to Pakistan’s Agri-Food System ....... 32 2.3.3 Perspectives on Off-Farm Proportions in Pakistan and Selected Countries Over Time ................................................................................................................................ 33 2.4 Concluding Comments .................................................................................................. 35 3. Deep Dive: Economic Effects of Climate Change in Pakistan’s Agriculture Sector Using IFPRI’s CGE-W Model ............................................................................................................ 37 3.1 Overview of Key Impacts of Climate Change in Pakistan ........................................... 37 3.2 The 2022 Floods: An Example of Increasing Extreme Events ..................................... 40 3.3 Effects on Agriculture and Its Transformation. ............................................................. 42 3.3.1 Analytical Results from the CGE-W Model .......................................................... 43 3.4 Comparing 2022 Flood Costs to 25 Years of Chronic Climate Losses ......................... 49 3.5 Concluding Comments on Climate Change Analyses .................................................. 51 4. Challenges to Transformation of the Agri-Food System ..................................................... 54 4.1 Value Chain Challenges ................................................................................................ 54 4.1.1 Storage Constraints ................................................................................................ 54 4.1.2 Fragmented and Informal Marketing Channels ..................................................... 55 4.1.3 Wheat Value Chain Uncertainty ............................................................................ 55 4.2 Challenges in Market Access ........................................................................................ 56 4.2.1 High Transport Costs and Losses .......................................................................... 57 4.2.2 Market Location and Infrastructure ....................................................................... 57 5 4.3 Policy and Institutional Gaps and Knowledge Constraints ........................................... 58 4.3.1 Weak Implementation of Market Reforms ............................................................ 58 4.3.2 Limited Private Sector Investment in Market Reforms ......................................... 58 4.3.3 Limited Access to Information and Extension Services ........................................ 59 4.3.4 Monitoring Challenge ............................................................................................ 59 4.3.5 Unpredictable and Ad Hoc Policy Interventions ................................................... 59 4.4 Nutrition Gaps ............................................................................................................... 59 4.5 Climate Change Challenges .......................................................................................... 60 4.5.1 Increased Weather Variability and Extreme Events ............................................... 60 4.5.2 Growing Water Scarcity amid Rising Demands .................................................... 61 4.5.4 Needed Climate-Sensitive Agricultural Practices ................................................. 62 5. Final Perspectives: Opportunities and Recommendations ................................................... 63 5.1 Leveraging Wheat Sector Reforms for Diversification and Value Addition ................. 63 5.1.1 Encouraging Crop Diversification in a Post-Procurement Era.............................. 63 5.1.2 Expanding Value Addition and Processing ............................................................ 63 5.2 Formalizing and Modernizing Market Systems ............................................................ 64 5.2.1 Strengthening PAMRA to Support Market Development ..................................... 64 5.2.2 Developing Electronic Warehousing and Digital Market Platforms ..................... 65 5.2.3 Encouraging Medium and Large Farmers as Catalysts ......................................... 65 5.2.4 Strengthening Farmer Organization and Cooperative Models to Improve Bargaining Power of Small Farmers .............................................................................. 66 5.3 Expanding Climate-Smart Agriculture .......................................................................... 67 5.3.1 Balancing Investment in Flood Programs vs. Adaptation Programs ..................... 67 5.3.2 Addressing Water Scarcity amid Increased Water Demand .................................. 67 5.3.3 Addressing Issues Related to Heat Stress .............................................................. 68 5.3.4 Needed Climate-Sensitive Agricultural Practices ................................................. 68 5.4 Building Institutional Capacity and Data Systems ........................................................ 69 5.4.1 Strengthening Research and Agricultural Extension Services .............................. 69 5.4.2 Using Data and Research for Targeted Policy ....................................................... 69 5.5 Unlocking Youth and Women’s Participation ............................................................... 70 6. A Summary of Key Recommendations with Stakeholder Input .......................................... 71 6.1 A Summary of Stakeholder Comments and Priorities ................................................... 71 6.2 Matrix of Key Recommendations with Stakeholder Feedback ..................................... 73 7. Alignment with ADB Strategy 2030 Operational Priorities ................................................ 88 8. Conclusion ........................................................................................................................... 91 References ................................................................................................................................ 92 Appendix 1: Pakistan’s Agrifood System: Structure and Drivers of Transformation .............. 96 Appendix 2: Field Mission Report ......................................................................................... 120 6 List of Figures Figure 1: Monthly Wheat Prices in Domestic and International Markets ............................... 21 Figure 2: Wheat Produced and Sold Per Farm-Size Category ................................................. 24 Figure 3: Distribution of Wheat Sales Per Farm-Size Category .............................................. 24 Figure 4: Shares of Agricultural and Off-Farm AFS GDP in total GDP (%) ........................... 32 Figure 5: Shares of Off-Farm Components in AFS GDP (%) ................................................. 32 Figure 6: AFS and Agricultural Shares of Total GDP and Off-Farm Share of AFS GDP (2006 to 2023) ........................................................................................................................ 34 Figure 7: US Farm Share of Consumer Food Expenditures and Gross Farm Value Added Share of GDP ............................................................................................................... 35 Figure 8: 2023 Food Dollar: Industry Group (Nominal) ......................................................... 36 Figure 9: Inflow Patterns into the Indus Basin ........................................................................ 38 Figure 10: Mass Change Estimates Across Glaciers in Different Mountain Ranges: Current vs. End of 21st Century ................................................................................................ 40 List of Tables Table 1: Basic Structure of Major Crops, Processing and Trade ............................................. 15 Table 2: List of Recent Relevant Policies and Acts ................................................................. 17 Table 3: Schematic of Agri-Food System Transformation through the Wheat Value Chain ... 26 Table 4: Changes in Crop Production Values for Alternative Climate Change Scenarios ....... 47 Table 5: Household Expenditure Changes with Four Climate Change Scenarios ................... 48 Table 6: Water Use Changes with Four Climate Change Scenarios ........................................ 49 Table 7: Comparing Losses from Floods vs. Chronic Climate Effects .................................... 50 Table 8: Participants in Each Breakout Session ....................................................................... 71 Table 9: Breakout Session Participant Feedback ..................................................................... 74 Table 10: Alignment of Recommendations with ADB Strategy 2030 Operational Priorities . 89 7 List of Acronyms and Abbreviations ADB Asian Development Bank ADP Annual Development Plans AFS agri-food system APMs agriculture produce markets CGE-W Computable General Equilibrium – Water Model EWR electronic warehouse receipts GDP gross domestic product IFPRI International Food Policy Research Institute IFC International Finance Corporation IMF International Monetary Fund IWT Indus Waters Treaty MAF million acre feet MMT million metric tonnes MSP minimum support price PAMRA Pakistan Agricultural Marketing Regulatory Authority PASSCO Pakistan Agricultural Storage and Services Corporation PDNA Post-Disaster Needs Assessment PIDE Pakistan Institute of Development Economics PMEX Pakistan Mercantile Exchange TFP total factor productivity 8 Executive Summary Despite agriculture’s central role in Pakistan’s economic growth, the sector continues to struggle with decades old structural issues and its performance is weak. Spending on subsidies for water, fertilizer, electricity, and wheat procurement reached US$1.25 billion in Punjab alone, far more than the funding provided for research and development. Inefficient and fragmented value chains, high post-harvest losses and transport costs, limited access to formal markets, dependence on subsidies, and underdeveloped storage and processing infrastructure are among the significant problems affecting agriculture. The deep-rooted traditional system, characterized by reliance on commission agents and the weak implementation of market reforms both restrict farmers’ bargaining power, especially for smallholder farmers. Moreover, although on average the country’s population is food secure in terms of caloric sufficiency, limited dietary diversity and inadequate access to nutritious foods cause widespread malnutrition. Regardless of these issues, some positive changes have been introduced. The recent rollback of wheat procurement and the minimum support price policy presents both challenges and opportunities as long-sought reconsideration of crop choices and promotion of higher value or climate-resilient alternative crops now seems possible. Market reform under the Punjab Agriculture Marketing Regulatory Authority (PAMRA), created as an initiative of the World Bank’s SMART program, presents another opportunity, particularly as the notified areas for central markets have been dropped, creating an opening for more competition. Although implementation remains slow, the Authority has begun paving the way for market modernization. However, this transition must be supported by improvements in market access, development of an improved and well-managed storage network, and well-functioning price mechanisms to protect food security and farmer incomes. In addition to the marketing, value addition, and productivity challenges identified above, climate change will also create constraints and challenges for agri-food development and transformation in Pakistan. The sector faces likely increases in extreme events, particularly flooding, as well as longer-run chronic effects of heat on yields and labor productivity in agriculture, rising salinity and land drying, and increasing crop water requirements even as other demands for water increase. Key findings of the report are highlighted here: I. Shifting Wheat Policy. Wheat policy in Pakistan continues to shape farmer decisions and the broader functioning of the rabi production system. However, fluctuations in policy—such as removal of the minimum support price (MSP), followed by its reintroduction after just two seasons—can hamper crop diversification, delay investment in alternative crops, and weaken confidence in market reforms. The situation is further exacerbated by limited value chain development in alternate crops, weak price signals, inadequate storage facilities, limited agro- processing, and fragmented market linkages. The following recommendations are put forth to counter these issues: Encourage crop diversification under a stable policy environment. Policy stability is essential, as farmers require predictability in order to make the best planting decisions. The 9 reintroduction of the MSP this year in response to the recent floods and related losses, although an understandable short-term measure, has created uncertainty regarding the longer-term direction of wheat policy. A more consistent approach would use the MSP only as a contingency option for a severe crisis, or better yet, develop a farmer registry that can target payments by size of farm or location. This would provide farmers the clarity needed to explore alternative crop options, which in turn and over time would reduce wheat production, if dictated by market forces, and would shift marginal wheat-producing areas toward higher value crops. Expand value addition and processing. As recommended above, with the government signaling MSP as a contingency plan reserved for severe shocks, the rollback of wheat procurement and support policies is likely to lead to crop diversification, if the initiative is adequately supported. This is a valuable opportunity to invest in localized value chains and processing industries that can handle a wider range of crops. Value addition will also be essential to provide options for better nutrition. II. Market Systems. Agricultural marketing in Pakistan continues to operate either through informal channels or formal systems with limited transparency or competition, and with poor price information for farmers. While reforms like PAMRA were introduced to modernize markets, most central markets continue to operate under outdated models. For many farmers, particularly small and medium ones, and those in remote areas, the journey from farm to market is hindered by long distances, poor road infrastructure, limited transportation options, and lack of aggregation facilities. Many farmers also lack access to adequate storage facilities, often relying on open-air or informal storage. The limited use of certified warehouses and absence of an effective warehouse receipt system is an additional constraint. Recommendations: Strengthen PAMRA to support market development. The establishment of PAMRA itself marked a significant policy shift in Punjab’s agricultural marketing. However, it is likely that the initiative was implemented hastily, and thus, its full potential remains untapped. Within the current departmental setup, PAMRA is best suited to evolve into a platform that standardizes auctions, digitizes market data, and regulates licensing and grading more effectively. Explore electronic warehousing and digital market platforms. Investing in electronic warehousing systems and digital platforms can strengthen market stability and empower farmers by allowing them more flexibility in timing their sales. Electronic warehousing can enable safer, standardized storage, especially in flood-prone areas. If targeted to appropriate end-users and scaled properly, especially along with quality certification, integration with broader market reforms through PAMRA, and linkages to digital marketplaces, this system can serve as a critical buffer in volatile years. Engage medium and large farmers as catalysts of change. Given the diverse characteristics of actors within the agri-food sector, a standardized policy approach is unlikely to fully tap the unique potential, needs, and capacities of each group. Tailored strategies are therefore needed for different farmer groups, which make use of quite varied value chains, to account for how each is likely to interact with the market. 10 III. Climate Change Effects. Expanding climate-smart agriculture and increasing resilience to extreme weather events and shifting rainfall patterns, as experienced in 2022 and 2025, is critical for the agri-food system. The costs incurred within several weeks of extreme flooding can be huge and are far beyond what the government is able to manage. In 2022, losses to agriculture, mostly crops, were on the order of US$9.2 billion, and little international support was provided to cover these needs. Compensation for losses will always be insufficient, and therefore a concerted effort to develop resilience should be front-loaded. Simulations using IFPRI’s computable general equilibrium model (CGE) showed that the payoffs from reducing losses in labor and water productivity due to heat stress, avoiding land salinization, and averting yield decreases by using heat- and drought-tolerant practices and varieties can provide benefits of similar value to providing flood compensation, which is far beyond the government’s potential. Finding the right balance for investments in these areas will be challenging, but necessary to minimize future losses from climate change. Recommendations: Design and implement programs to balance investment in resilience to floods versus adaptation to long-run climate effects. Floods have visible and dramatic costs while the longer-run climate change effects may be less obvious but are consequential. Costs of adaptation and resilience are large for a government that is fiscally strapped, so it is critical to ensure that funds are spent productively. A more complete analysis than was possible here would be a good starting point. Address water scarcity in the face of increased water demand. Water demand is rising due to greater household, industry, and livestock requirements, as well as for environmental purposes and for crops whose water requirements are growing due to climate change. Crops account for the greatest share of water use, so crop diversification and better management are needed. Address issues related to heat stress. Labor productivity is likely to fall with climate change as a result of rising temperatures, particularly in agriculture and for female workers, who provide much of the labor in agriculture. With higher evaporation and perhaps less available water, soil salinity levels could rise. Also, continental drying of agricultural land will affect South Asia and possibly Pakistan as well. An important task for research and extension services will be to support productivity by designing mechanization interventions for those activities most sensitive to heat stress. Mainstream climate-sensitive agricultural services. The major effects of climate change in the agri-food system will be to affect yields and water use, which (along with heat stress) will change the profitability and competitiveness of most crops in the country. IV. Cross-Cutting Themes. The recommendations also cover a number of cross-cutting themes that must be considered across all dimensions of agricultural transformation. These include the need for timely data, evidence-based research, stronger institutions, and the meaningful integration of women and youth. As crop patterns shift and markets evolve under climate pressure, improved data systems and research partnerships can support adaptive and targeted policies. At the same time, inclusive value chains that engage women and youth 11 through skills development, micro-credit, digital tools, and emerging agri-logistics opportunities will be essential to build both resilience and productivity across the agri-food system. This report aligns with broader development goals of the Asian Development Bank’s Strategy 2030, particularly the strategic objectives of Promoting Rural Development and Food Security; Tackling Climate Change, Building Climate and Disaster Resilience, and Enhancing Environmental Sustainability; Strengthening Governance and Institutional Capacity; and Accelerating Progress in Gender Equality. 12 Project Background This assessment report is part of the Asian Development Bank’s (ADB) regional technical assistance project TA6884: Green and Resilient Rural Recovery through Agri-Food System Transformation in the Asia and Pacific Region. The project aligns with ADB’s comprehensive US$14 billion support program (2022–2025), which represents a significant commitment to addressing the worsening food crisis in Asia and the Pacific. The program targets four critical areas: (i) impact assessment of COVID-19 on food and nutritional security and rural development; (ii) identification and promotion of smart, resilient, gender-responsive, inclusive, and sustainable agri-food systems; (iii) testing and demonstration of climate-smart agriculture interventions; and (iv) development of inclusive and sustainable agribusiness value chains. In line with similar agri-food assessments conducted by the International Food Policy Research Institute (IFPRI) in other countries, this study aims to provide evidence-based analysis of Pakistan’s agri-food system to guide ADB’s strategic investments and policy support. Specific goals include: i. Evaluating post-COVID-19 impacts on food security and rural livelihoods. ii. Identifying short-, medium-, and long-term investment needs. iii. Analyzing transformation pathways for sustainable and resilient food systems. iv. Developing country-specific recommendations for ADB’s lending pipeline. Furthermore, under the specific mandate for Pakistan, the team was tasked with conducting two in-depth analyses: the first examines the recent developments in wheat policy, while the second reviews the impacts of climate change and extreme weather events. Given their far- reaching implications for national stability, food security, and agri-food system transformation, both areas are currently recognized as high priorities in Pakistan’s agriculture and food security agenda. Little time was put into specific analysis of COVID-19 as its effects merged with other destabilizing macro and political events. Data collection and analysis consisted of: i. A desk review of national and provincial strategies and policy documents. ii. A field mission and multiple in-depth interviews with representatives from government agencies, development partners, and local institutions. iii. A National Consultative Workshop, held in July 2025 in Islamabad, Pakistan, which incorporated real-time feedback using the interactive Mentimeter platform. iv. Descriptive analysis using agricultural and economic data from both national sources and international databases. v. Quantitative modeling using IFPRI’s Rural Investment and Policy Analysis (RIAPA) framework and IFPRI’s Computable General Equilibrium – Water (CGE-W) Model. vi. Consultations with the ADB team. vii. A Results Dissemination and Validation Workshop, held in December 2025 in Islamabad, Pakistan. 13 1. Current Situation of Pakistan’s Agri-Food Sector 1.1 Background Pakistan, like most developing economies, often views the agri-food sector as the backbone of the economy and its transformation as a key accelerator for increased per capita income, poverty reduction, and a more sustainable and climate-resilient economy. In fact, over recent decades, Pakistan has grown to be a lower-middle-income country and has seen agriculture’s contribution to its gross domestic product (GDP) drop from 28.6% in 2006 to 23.7% in 2019, while the off-farm portion grew by about 4%.1 However, annual agricultural growth rates were over 4% until 2000 and have been less than 3.0% since then. Between 1991 and 2019, Pakistan grew more slowly than regional neighbors (at about 2% annual per capita real growth since 2000 versus about 4.8% in India and Bangladesh), according to the World Bank.2 Poverty had declined steadily in Pakistan until 2018, when the percent of poor in the total population was 21.9%. Since then, the decline has stagnated and the number of poor has grown.3 In the agriculture sector, output per worker has grown at just 0.7% per year in Pakistan, significantly below the South Asia average growth of 2.8%. This slow output growth is directly related to slow yield growth, as wheat yields are just half that of China’s and are 15% below India’s yields. Pakistan’s use of water in agriculture puts it among the 10% worst-performing countries in terms of agricultural water productivity.4 Over the decades, Pakistan has gone to the International Monetary Fund (IMF) to borrow funds numerous times and generally has not followed through on the reforms required as loan conditions5. From 2022 to 2024, the country suffered a broad economic crisis, driven in part by expenditures on COVID-19 responses, the higher cost of imports due to the Russia-Ukraine war, and the 2022 floods, which caused US$16.9 billion in damages. Prior to that period, there had been a facility with the IMF, but disagreements with the government over energy subsidies, taxation and external borrowing, the low export base, and other issues led to the facility’s withdrawal. Inflation reached 37% in May 2023, industrial output dropped by 10%, GDP flattened, and the value of the Pakistan rupee declined from PKR 136 per dollar in 2019 to PKR 283 in 2024. Since then, a new Extended Funding Facility has been set up with the IMF, inflation has subsided, exports have grown, and debt has been rescheduled. The government 1 Thurlow, J., B. Holtemeyer, S. Jiang, K. Pauw, and J. Randriamamonjy, “Measuring Agrifood Systems: New Indicators and Global Estimates,” IFPRI Discussion Paper 2339, IFPRI, 2025. https://hdl.handle.net/10568/174848. 2 Durand, O., and B. Saeed, “Reforms for a Brighter Future: Policy Note 4—Unleashing the Agri-Food Sector,” World Bank, 2023. https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms- For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf 3 Wieser, C., and M. Meyer, “Pakistan’s Poverty Trajectory: Progress, Peril, and the Path Forward,” World Bank Blog, September 23, 2025. https://blogs.worldbank.org/en/endpovertyinsouthasia/pakistan-s-poverty-trajectory--progress-- peril--and-the-path-for 4 Ibid., Durand, O. and B. Saeed. 5 Husain, M.A., Rescuing Pakistan’s Economy, Issue Brief, The Atlantic Council, April 1, 2025. https://www.atlanticcouncil.org/in-depth-research-reports/issue-brief/rescuing-pakistans- economy/#:~:text=An%20inability%20to%20save%20constrained,investment%20was%20also%20much%20lower https://hdl.handle.net/10568/174848 https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms-For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms-For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf https://blogs.worldbank.org/en/endpovertyinsouthasia/pakistan-s-poverty-trajectory--progress--peril--and-the-path-for https://blogs.worldbank.org/en/endpovertyinsouthasia/pakistan-s-poverty-trajectory--progress--peril--and-the-path-for 14 intends to sell state-owned enterprises and to create an austerity budget and is aiming for a 40% gain in tax revenue.6 These changes are a move in the right direction, but more needs to be done to put the country on an inclusive, high-growth path7 . Some critical constraints on the economy appear to be diminishing, including recurrent fiscal and current account deficits. However, growth is still constrained by “protectionist trade policies, unproductive agriculture, a difficult business environment, a heavy state presence in the economy, and a financially unsustainable energy sector.” 8 1.2 Structural Transformation in the Agri-Food System Pakistan’s agri-food system (AFS), including primary (on-farm) agriculture as well as the off- farm components, accounts for 42.2% of the country’s GDP and employs 49.4% of its workers. Primary agriculture alone accounts for 24.7% of GDP and 35.8% of employment. Thus, remuneration is better in the off-farm industries of the AFS than within primary agriculture.9 From 2006 to 2023, primary agriculture’s share in GDP dropped by 4%, while the off-farm portion grew by 4%, suggesting a small but significant shift toward better employment within the system. Table 1 shows the basic structure of the agricultural economy of interest in this analysis. The first column provides growth rates for the country’s main crops from 2006 to 2023. Most grew at around 3% per year in terms of contribution to GDP. Maize substantially exceeded that rate, while cotton’s contribution declined dramatically over these years. Wheat has grown more slowly, as expected for a staple crop. The next three columns show the relative contribution to GDP of the total AFS and its component parts: primary agriculture and the off-farm portion. The rows add two groups, livestock and other crops, where the latter is the remaining crops not listed individually. The column headed AFS shows the proportional contributions to GDP of these different activities, comprising both primary agriculture and the off-farm component. Wheat and vegetables are the crops with the largest contributions to GDP at about 10% each. Other Crops were the only activity nearing this level. Livestock accounted for about 50% of the total AFS contribution to GDP. Among crops, vegetables surprisingly accounted for the leading crop contributor to primary agriculture GDP, accounting for 11.9%, while most of the remaining crops had much lower contributions. Livestock was by far the largest contributor, at 58.9%. For the off-farm component of AFS GDP, the largest crop contributors were wheat, generating 17.6% of all off- 6 Van Der Eng, P. “Pakistan’s Economy: Fallout of 2022 Economic Distress Magnified the Need for Structural Reforms,” Asian Economic Policy Review 20 (1): 128-146, 2025. https://doi.org/10.1111/aepr.12486 7 Ibid. 8 World Bank, Reforms for a Brighter Future: Time to Decide—Policy Notes: Fundamental Policy Shifts for Pakistan’s Sustainable Economic Development, 2024. http://hdl.handle.net/10986/41358 9 In the absence of “food dollar” statistics in most countries, which show the off-farm portion of each consumer dollar spent on a commodity, the report by Thurlow et al. (2025) developed a methodology to determine some of these proportions. Thurlow, J., B. Holtemeyer, S. Jiang, K. Pauw, and J. Randriamamonjy, Measuring Agrifood Systems: New Indicators and Global Estimates. IFPRI Discussion Paper 2339, IFPRI, 2025. https://hdl.handle.net/10568/174848 https://hdl.handle.net/10568/174848 15 farm value added, and rice, with10.3%., while livestock’s off-farm contribution was lower than its contribution to primary agriculture. The large crops with the highest off-farm value added undergo only rudimentary processing, namely simple rice milling and wheat flour milling, with little attention to either grading or standards. Cotton processing is more elaborate, including carding and spinning activities. Apart from those three crops, the off-farm portions for crops, whether larger or smaller than the primary agriculture portion, individually account for only very small contributions to GDP. Similar stories can be told about the export and import proportions, where rice and cottonseed oil make up the bulk of exports, while the remaining crops are not exported much. Oilseeds– generally edible palm oil—and pulses dominate imports. Given the declining production of cotton, imports of that commodity have been growing. Table 1: Basic Structure of Major Crops, Processing, and Trade, 2006-2023 Share of Column GDP (%) GDP Growth (2006-23) AFS* Primary Ag. Off-Farm Exports/ Output Imports/ Demand Rice 3.2 6.8 4.5 10.3 15.6 0.3 Maize 4.7 1.8 1.6 2.1 8.2 1.9 Pulses /Oilseeds 3.1 1.5 0.5 3.1 17.6 76.4 Cotton −1.8 6.2 4.9 8.2 0.9 15.3 Wheat 2.2 10.3 5.5 17.6 0.1 2.8 Vegetables 3 10.1 11.9 7.3 2.7 2.3 Sugar 3.1 4.1 3.1 5.7 1.6 0.1 Other Crops -- 8.8 9.1 8.3 -- -- Livestock -- 50.4 58.9 37.4 -- -- Source: Diao and Thurlow, 2025, Appendix 1 to this report. Note: *AFS is the sum of the contributions of primary agriculture and the off-farm portion. These results suggest the direction that crop expansion could take to achieve a rural transformation that reflects the government’s vision for a dynamic economy. Specifically, exports of vegetables and maize could grow, as they already have some exposure to international markets. Also, import substitution could reduce the large imports of cotton pulses and oilseeds. The proportions of off-farm GDP generation could rise in most crops, but this will require more developed processing and retailing sectors than have emerged in Pakistan to this point. 1.3 The Investment Position in Pakistan Investment in infrastructure, such as roads, technology and communications, and irrigation and water resources systems, and in health and education, can increase the likelihood that other investments will lead to more economic growth. However, in addition to Pakistan’s poor 16 infrastructure, inflation, high interest rates, and a negative “ease of doing business” can negatively affect investment in the agri-food system. With the government running deficits and spending large amounts on policies that lead to circular debt problems in energy and, until recently, wheat procurement, there has been little scope for public sector investments in more beneficial programs. Given the instability of Pakistan’s macroeconomy over the past decades and particularly in the recent past, it is no surprise that investment has been low. For instance, in FY2015, Pakistan ranked 151 among 175 countries in terms of its investment rate, much below its neighbors, India (32), Sri Lanka (36), and Bangladesh (40)10. In 2024, China had an investment rate of 40%, Bangladesh reached 31%, India’s was 30%, and Sri Lanka’s was 19%, while Pakistan’s investment rate was 11%, which includes some effect from the China-Pakistan Economic Corridor. There are important examples and programs with potential that can move ahead as the government gets its house in order on the challenges presented above: The China-Pakistan Economic Corridor is a framework of regional connectivity to benefit Pakistan and other regional countries. It is intended to improve geophysical links using better road, rail, and air transportation systems with “frequent and free exchanges of growth and people to people contact.” It commenced in 2015 with project funds of $46 billion. While the program has had some ups and downs, it is continuing and, as of May 2025, was being extended to include Afghanistan. With respect to agriculture, the government has been spending on the sector for many years, but rather than investments, funds were used for “direct and indirect subsidy support to agriculture and irrigation in Punjab and Sindh [which] has accounted for about US$2.2 to $2.7 billion of public spending per year, including tax relief for inputs, import and export subsidies and revenue gap financing.”11 The two main topics considered in this analysis—changes to wheat programs and the damaging effects of climate change—are areas ripe for investment to transform the AFS and manage climate change effects. These are the same areas promoted in the Reforms for a Brighter Future Policy Note by the World Bank (footnote 8). 1.4 Current Policies and Programs In the last 10 years, several policy documents and strategies have been introduced by Pakistan’s federal and provincial governments, with the aim of modernizing agriculture, promoting climate-smart practices, and improving food security and nutrition outcomes. These include the National Food Security Policy (2018), provincial agricultural policies, and various frameworks around climate change adaptation and water resource management. Additionally, 10 Ali, A., “Savings and Investment in Pakistan, State Bank of Pakistan Staff Notes,” State Bank of Pakistan, 2016. https://www.sbp.org.pk/publications/staff-notes/SavingInvestmentStaffNote-Jan-16.pdf 11Durand, O., and B. Saeed, “Reforms for a Brighter Future: Discussion Note 4—Unleashing the Agri-Food Sector,” 2023. https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms- For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf https://www.sbp.org.pk/publications/staff-notes/SavingInvestmentStaffNote-Jan-16.pdf https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms-For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf https://thedocs.worldbank.org/en/doc/59dbf031f78c1a096ef5692feac018e9-0310062023/original/Pakistan-Reforms-For-A-Brighter-Future-Policy-Note-4-Unleashing-the-Agri-Food-Sector.pdf 17 regulatory reforms such as creation of the Punjab Agricultural Marketing Regulatory Authority (PAMRA) have signaled a shift toward more market-oriented, private-sector-friendly approaches. A complete list of recent policies is given in Table 2. The introduction of these policies reflects a growing recognition among government agencies, development partners, and research institutes that neither Pakistan’s agriculture sector nor the AFS can truly evolve under out-of-date policies, some dating back as far as the pre-partition era of 1939, and that business- as-usual approaches will no longer suffice to address the challenges being faced. Implementation of these new policies, however, has thus far been limited. During the past decade, the country faced a persistently unstable political environment, with frequent leadership changes, making it difficult to sustain momentum. Shifting policy directions and limited coordination between federal and provincial governments weakened implementation. Table 2: List of Recent Relevant Policies and Acts Policy Year Introduced Description 1. National Food Security Policy 2018 Considered the core document for food security planning. Provides a national strategy on availability, access, utilization, and stability of food. 2. National Climate Change Policy 2012; updated 2021 Provides a foundational framework for adaptation and mitigation, focusing on vulnerable sectors like water, agriculture, and coastal areas 3. Pakistan Climate Change Act 2017 Provides the legislative architecture for national climate governance 4. National Water Policy 2018 Provides a framework for integrated water resource management, aiming to address water-security challenges. 5. Punjab Agriculture Policy 2018 Provincial agriculture policy 6. Punjab Agricultural Marketing Regulatory Authority (PAMRA) Act 2018 Introduced to reform and modernize the marketing system in Punjab, replacing the old Agricultural Produce Markets Act 7.. Sindh Agriculture Policy 2018-2030 Provincial agriculture policy 8. Khyber Pakhtunkhwa Agriculture Policy 2015 Provincial agriculture policy 9. Khyber Pakhtunkhwa Food Security Policy 2021 Aims to ensure food security and rural livelihoods 10. Balochistan Organic Agriculture Policy 2024 Provincial agriculture policy Note: Other guiding documents include policies/acts pertaining to inputs (seed, fertilizer, pesticide) as well as provincial food safety acts and regulations, and national and provincial disaster management acts, preparedness plans, and flood and drought management frameworks. Moreover, recurring external shocks, such as floods and other climate-related events, continued to divert attention and resources, further exacerbating the situation. Other issues that have contributed to the slow uptake of policy include a top-down blanket approach to policy design, 18 with limited engagement from relevant stakeholders and without consideration for different characteristics each group may possess. 1.4.1 Recent Wheat Policy Developments Wheat policy in Pakistan is undergoing a major shift. Wheat had long been managed by the both the federal and provincial governments through a countrywide procurement and minimum support price (MSP) program. However, faced with stringent IMF conditions, the Government has committed to phase out this program and to wind down the Pakistan Agricultural Storage and Services Corporation (PASSCO). As a result, the Punjab government announced in May 2024 that it would no longer procure wheat. However, the MSP was reintroduced in 2025 in response to the recent floods. Further discussion of this policy change and resulting implications are found in Chapter 2. 1.4.2 Regional Tensions and the Indus Waters Treaty In discussing policy, it is imperative to mention the recent regional tensions between India and Pakistan that have begun to spill over into shared water governance, with serious implications for Pakistan’s agriculture sector. The Indus Waters Treaty (IWT), signed in 1960 with facilitation of the World Bank, allocated rights over the six rivers of the Indus Basin, giving Pakistan control over the three western rivers (Indus, Jhelum, and Chenab) and India over the three eastern ones (Ravi, Beas, and Sutlej). For decades, this Treaty was respected and upheld, even during times of heightened tensions between the two countries. In 2025, however, as tensions were growing, India suspended its participation in key mechanisms of the Treaty, including data-sharing and annual meetings, and threatened to halt water flows and construct dams on the western rivers. This raises serious concerns for Pakistan, as about 80% of irrigated agriculture depends upon the Indus River flows, particularly in the provinces of Punjab and Sindh, both of which are critical to national food production. 1.4.3 Example Donor Approaches and Implementation Strategies In this section, we point out several recent and ongoing project examples to illustrate strategies and techniques used to accomplish project objectives. We do this to highlight possible options in a “toolkit” that might be used in future efforts, and to provide options that might help implement recommendations in Chapter 5. Perhaps the most encompassing project related to our interests has been the SMART program of the World Bank with the Punjab government, which ran from the end of 2017 to 2024. Evaluations exist for a range of program activities that addressed agricultural productivity, value addition, and climate change. 12 The ADB complemented this effort with several significant projects, located in Khyber Pakhtunkhwa (KP) and the Punjab. The KP project reviewed is the Khyber Pakhtunkhwa Food Security Support Project (KPFSSP)13 and the one 12 This section is drawn from: World Bank, Implementation Completion and Results (ICR) Report (IBRD-88090-001, ICR00063), annexes 7 and 8, 2025. https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB- 16984764-2911-4c57-8231-2c3832b88d31.pdf 13 Asian Development Bank, Khyber Pakhtunkhwa Food Security Support Project (KPFSSP), Project number 56151-001, 2023. https://www.adb.org/sites/default/files/project-documents/56151/56151-001-rrp-en.pdf https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB-16984764-2911-4c57-8231-2c3832b88d31.pdf https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB-16984764-2911-4c57-8231-2c3832b88d31.pdf https://www.adb.org/sites/default/files/project-documents/56151/56151-001-rrp-en.pdf 19 in Punjab is the new Punjab Climate-Resilient and Low-Carbon Agriculture Mechanization Project (which we are calling PMP).14 In most projects, there was a significant use of digital tools to address various objectives. The SMART program used an e-voucher system to target subsidies to seed and fertilizer. Similarly, ADB’s KPFSSP encouraged adoption of resilient agricultural production practices through the provision of “high-yielding, climate-resilient, and certified seeds and fertilizer,” and vegetable production packages. These subsidies are provided through an e-wallet that enables farmers to obtain these subsidized inputs and agriculture production tools. ADB’s PMP will include a focus on “policy reforms to improve female laborers’ livelihoods by updating the Punjab Agriculture Policy and (using) digital registration.” The use of digital tools is not limited to direct interactions with farmers; these tools can also be used in strengthening the relevant government institutions. For instance, the KPFSSP supports “(i) establishment of a unified sex dis-aggregated digital database of farmers in the province for more targeted extension services delivery, information availability, and financial services; (ii) integration of remote sensing technology in monitoring crop stress by agriculture extension…; and (iii) installation of an ICT-based pest surveillance system for early warning and timely management of climate-induced pest attacks.” Many programs used targeted levels of expenditures and institutional provision of new policies and strategies to meet targeted objectives. In the SMART program, value chain improvement was considered achieved when by 25% of wholesale markets were managed privately. Climate-change resilience had specific targets for the percentage of area covered in selected canals that delivered water. Additionally, specific levels or proportions related to spending in the provincial and federal governments Annual Development Plans (ADP) can often be used as targets. SMART included raising the proportions of expenditures on agriculture, on high-value crops, and on climate-smart agriculture, and also stipulated the ratio of expenditures on preventative programs for livestock versus livestock healthcare programs. There were also deliverables related to the numbers of services or assets provided to farmers and a line item for female farmers. The creation and acceptance of policies can be measured similarly. The Punjab Crop and Livestock Research and Extension policy and strategy, as well as PAMRA, were mandated in SMART. In these cases, success was simply to get them written, agreed upon by the government, and approved by the legislature (if necessary). ADB’s PMP on mechanization will work with the Punjab provincial government to develop a “comprehensive policy and regulatory framework to promote standardized and sustainable mechanization.. Also, the PMP has a focus on policy reforms to improve female laborers’ livelihoods through updates of the Punjab Agriculture Policy and digital registration. 14 Asian Development Bank, Pakistan: Punjab Climate-Resilient and Low-Carbon Agriculture Mechanization Project, Project Number: 57196-001, September 2025. https://www.adb.org/sites/default/files/project-documents/57196/57196- 001-sddr-en.pdf https://www.adb.org/sites/default/files/project-documents/57196/57196-001-sddr-en.pdf https://www.adb.org/sites/default/files/project-documents/57196/57196-001-sddr-en.pdf 20 Finally, substantial improvements of laboratories, training institutes, and financial programs are often central in these projects. In PMP, a matching grant program will support the introduction of advanced farm machines with up to 30% of the cost covered, and the SMART program’s agriculture insurance programs were essentially subsidized financial programs that also promoted risk management. The KPFSSP will enhance the KP agriculture department’s capacity to expand its seed production and multiplication system and the capacity of soil and water testing labs. In PMP, the capacity of public sector research laboratories to measure greenhouse gas (GHG) emissions will be enhanced and a speed breeding facility will also be established to accelerate the development of climate-resilient crop varieties at the University of Agriculture-Faisalabad. 21 2. Deep Dive: Implications of Wheat Value-Chains and PAMRA for Rural Transformation in Pakistan 2.1 Wheat Value Chains Wheat is arguably the most important crop in Pakistan, cultivated on more than 22 million acres15 during the rabi season each year. Annual production has hovered around 26.7 million metric tons (mmt)16 over the past decade. Wheat’s significance, however, goes beyond just agriculture, as it holds critical political and economic importance; it also is a key symbol of the country’s broader food security challenges. For decades, wheat has been regarded as a strategic crop. While the government gradually reduced direct intervention in the markets for other food commodities, wheat remained an exception until recently. The crop was tightly integrated into a state-led procurement system and MSP program that influenced both farmers’ sowing decisions and market outcomes. Figure 1: Monthly Wheat Prices in Domestic and International Markets, 2010-2022 In theory, the procurement price was calculated as a markup on the estimated cost of production, with figures derived from government surveys and expert consultations. However, this created distortions between domestic and international market prices. As a result, domestic wheat prices often diverged significantly from international benchmarks, especially during years of global volatility or bumper domestic harvests (see Figure 1). Figure 1 compares monthly wheat prices in Pakistan (Lahore wholesale market) with international wheat prices (U.S. Gulf No.2 Hard Red Winter). While the overall trend in both markets has been similar, domestic prices remained consistently lower than international prices 15 The 10-year average (2014-15 to 2024-25) is based on data from Agriculture Statistics of Pakistan. 16 The 10-year average, (2014-15 to 2024-25) is based on data from Agriculture Statistics of Pakistan. 22 from late 2014 to around 2018. After 2018, domestic prices began to rise sharply, often exceeding or closely matching international prices, especially from 2021 onward. The MSP served not only as a price guarantee but also as a powerful signal across the agri- value chain. It influenced sowing patterns, expected profitability, and even guided the purchasing behavior of flour mills and intermediaries. However, this near-guaranteed return led to several unintended consequences: limited crop diversification, inefficient input allocation, a growing fiscal burden on the government,17 and ultimately, the stagnation of AFS transformation. Limited crop diversification is among the most notable outcomes of this long-standing policy. Farmers, particularly medium farmers with some marketable output, have had little incentive to shift away from wheat as long as assured prices and government procurement minimized market risk. Even in ago-ecological zones better suited for other crops, the dominance of wheat persists. The imbalance is also evident in the allocation of agricultural inputs and subsidies in Pakistan. Over the years, fertilizer subsidies, water usage, and credit support have predominantly been geared toward wheat cultivation. In many regions, agricultural water usage in wheat is disproportionately high, even in areas where wheat’s marginal productivity is declining. Similarly, access to credit and mechanization is often structured around the wheat production cycle, leaving alternative crops underfunded, under-mechanized, and unable to reach their full potential. The overall outcome of these patterns has been the stagnation of rural transformation. While wheat production has kept millions of rural households afloat and food secure in terms of caloric sufficiency, it has done little to improve nutritional and dietary diversity outcomes. Broader development of the overall agricultural economy has also been limited. Few value chains have emerged around wheat, or any other rabi season crop, that could drive broader economic linkages such as off-farm employment, agro-processing, or rural service markets. Additionally, because the government has traditionally handled wheat procurement and storage, there has been little private investment in storage facilities by producers or other actors along the value chain. 2.1.1 The Challenges and Consequences of Exiting the Wheat Procurement and MSP Program The government-led procurement and MSP program was long criticized for placing a heavy fiscal burden on the government. Policymakers have frequently debated its contribution to reduced market competition, inefficiencies in flour milling, rising public debt, and the government’s limited ability to effectively support small farmers and poor consumers. Studies have consistently concluded that the system primarily benefited larger farmers with marketable surpluses, middlemen who bought from small farmers at low prices to recover cultivation loans, 17Anjum, A., and M.F. Faisal, The Cost of Government Interference in Agricultural Markets, Pakistan Institute of Development Economics (PIDE), 2024. 23 flour millers who received subsidized wheat quotas, and banks that financed the operations and profited from delayed repayments.18,19 Under the current 37-month Extended Fund Facility arrangement with the IMF, Pakistan agreed to gradually exit from direct intervention in commodity markets, including phasing out government procurement of wheat by 2026 to reduce the fiscal burden and improve market efficiency. However, in 2024, Punjab, the largest wheat producing (and procuring) province, moved ahead of schedule. The provincial government, as per tradition, announced the MSP before the sowing season, but later opted to not procure any wheat. The speed and manner in which the decision was carried out is thought to have also been influenced by a mounting circular debt 20 tied to commodity operations, which made it financially unviable for the province to continue procurement. This sudden policy shift left farmers without a guaranteed buyer, despite having planned their production around the announced support price, and they were forced to sell at prices well below the announced MSP. The subsequent 2024/25 season saw a year-on-year decline in wheat cropped area and production, albeit in line with the historical trend. Wheat prices again remained low. The impacts of this policy change extend beyond the farmers themselves. The potential dissolution of PASSCO, which has historically managed wheat storage for food-deficit regions and the military, puts wheat-deficit provinces in a precarious position. These provinces, which once relied on federal support for wheat storage, now face the daunting task of developing their own storage infrastructure—a process that may take years. Moreover, the shift away from subsidized wheat to reliance on open market purchases will likely increase costs, increasing financial strain on these provinces. Interestingly, the MSP was reintroduced in 2025 (after the first draft of this report was written) in response to the recent floods, fixed at PKR 3,500 per 40 kg, with a procurement target of 6.25 mmt for strategic reserves, to be carried out via the private sector in order to improve transparency and efficiency. Although an understandable short-term measure, this step has created uncertainty regarding the longer-term direction of wheat policy. 2.1.2 A Deeper Look into Wheat Sales and Storage Figures 2 and 3 show the production and sales trends across different farm sizes, and interestingly, challenge the common perception that larger farms dominate wheat sales. While they may have historically received a significant share of government procurement, the data show that a substantial portion of marketed wheat comes from small and medium farms. Of the total 24.4 mmt produced, only 41% (9.9 mmt) was sold, with more than half (56%) coming from farms with less than 12.5 acres of land. This indicates that smaller farmers are highly 18 Ibid. 19 Rana, A.W. Rationalization of Wheat Markets in Pakistan: Policy Options. PACE Policy Research Paper 4. International Food Policy Research Institute, 2020. https://hdl.handle.net/10568/143928 20 The Sindh government’s decision to raise MSP from PKR 2,200 to PKR 4,000 per 40 kg in 2022 to support flood-affected farmers, subsequently prompting Punjab to also do so, was a contributing factor in rising circular debt. https://hdl.handle.net/10568/143928 24 engaged in wheat markets, even if their production volumes are smaller per farm. Most of these sales go through commission agents, not directly to processors or government procurement centers. Figure 2: Wheat Produced and Sold per Farm-Size Category Figure 3: Distribution of Wheat Sales per Farm-Size Category In the past, the government purchased and stored roughly one-fourth of the national wheat output, equivalent to about 6.1 mmt using these figures. While the government is likely to continue buying around 4.0 mmt for strategic reserves, that still leaves about 2.0 mmt that must 25 now find other buyers or be stored by producers themselves. In hindsight the markets did manage to clear without any government procurement, albeit the price received by farmers just covered the cost of production. As mentioned earlier, in 2025, the government announced a procurement target of 6.25 mmt to build strategic reserves, to be carried out via the private sector. For the 2024/25 wheat cropping season, the government of Punjab introduced a set of incentives to promote the use of electronic warehouse receipts (EWRs) with the intention of providing secure storage and a reliable liquidity option. The program offered farmers free storage for up to four months in accredited warehouses along with quick access to credit of up to 70% of the wheat’s market value against EWR receipts.21 The response, however, was underwhelming, as only 11 farmers are reported to have participated in the pilot phase, with a total wheat storage of less than 1,600 metric tons.22 This low response has been attributed mainly to delays in program implementation and awareness, along with lack of access to accredited warehouses by small farmers and high transport and transaction costs. Given these limitations in implementation, the EWR model and approach should not be dismissed at this point. During the consultative process, experts were also of the opinion that the scheme is more likely to benefit larger farmers and millers, who possess the means and information to navigate the system. 2.1.3 Opportunities for Agri-Food Systems Transformation within the Wheat Value Chain The ongoing shifts in the wheat sector go beyond immediate concerns of farmer profitability or provincial storage capacities, raising deeper questions about the direction of agricultural policy, the future of rural livelihoods, and the role that government can play. As such, these changes create a valuable opportunity for AFS transformation, offering an opening to challenge the status quo and drive meaningful and lasting progress across the rural economy. To identify potential drivers of change within the agri-food system and understand how the transformation might unfold within the wheat value chain, it is critical to recognize the diversity within value chains, especially with regards to the different categories of farmers and how they engage with other stakeholders. Wheat producers can be divided into three groups: small and marginal farmers, medium farmers, and larger commercial producers. Each group operates within different market structures, faces unique constraints, and interacts with storage and marketing systems in distinct ways. A snapshot of these groups is given in Table 3. As summarized in the table, marginal and small farmers mostly grow wheat for their own household needs and sell only limited surpluses. These farmers will store some wheat to meet their consumption needs across the year. Their surplus production is generally sold at harvest, with little to no processing. However, given small farmers’ important contribution to 21 https://punjab.gov.pk/node/6416 22 Profit, “Punjab Government reviews Wheat Policy amid Declining Production and Market Instability, August, 11, 2025. https://profit.pakistantoday.com.pk/2025/08/11/punjab-government-reviews-wheat-policy-amid-declining-production- and-market-instability/ https://punjab.gov.pk/node/6416 https://profit.pakistantoday.com.pk/2025/08/11/punjab-government-reviews-wheat-policy-amid-declining-production-and-market-instability/ https://profit.pakistantoday.com.pk/2025/08/11/punjab-government-reviews-wheat-policy-amid-declining-production-and-market-instability/ https://profit.pakistantoday.com.pk/2025/08/11/punjab-government-reviews-wheat-policy-amid-declining-production-and-market-instability/ 26 production, their storage dynamics should be understood. Small farmers rely heavily on traditional marketing channels involving commission agents and middlemen, rather than formal processors or government buyers. Wheat may also function as a form of currency or store of wealth for them, often used in barter or informal exchanges, which further entrenches reliance on traditional systems. • Due to limited access to modern storage, credit, and market infrastructure, small farmers are likely to continue operating within this informal system for the foreseeable future. Any agricultural transformation strategy must therefore look to better serve them within the system they already use. Introducing competition among commission agents, improving local market infrastructure, or reducing transport costs could be areas to explore. Table 3: Schematic of Agri-Food System Transformation through the Wheat Value Chain Medium farmers, by contrast, are more commercially oriented and better positioned to engage with emerging modern market mechanisms such as EWRs and accredited storage facilities. While they still face challenges, particularly around credit availability and infrastructure, this group has considerable potential to act as the main agents in many dimensions of an agricultural transformation. • Targeted policy measures that improve access to affordable credit, enhance market linkages, and invest in storage infrastructure can empower medium farmers to adopt modern practices, reduce postharvest losses, and participate more effectively in formal markets. In doing so, they can stimulate broader economic diversification in rural areas. In a section below, we argue that areas such as contract farming may be slow to develop, given the low off-farm proportions of the AFS found in the country relative to other lower-middle-income countries. Some trends, such as rising urbanization and incomes that raise the demand for quality, will move these possibilities forward; however, the existence of contracts for farmers is not enough, especially with an inefficient legal system. 27 Large commercial farmers have historically benefited the most from government procurement programs, subsidies, and formal financing. Their capacity to adopt new technologies, build adequate storage, and access broader markets positions them as early adopters and innovators in the sector. In principle, these farmers play an important role in demonstrating the benefits of modern systems, encouraging wider adoption among medium and eventually small farmers. • However, the wheat sector, with its heavy reliance on the government procurement and MSP programs, has not shown much evidence of transformation. Moreover, focusing policies solely on this group risks deepening rural inequalities if smaller farmers continue to be excluded from modernization efforts. Storage and marketing infrastructure investment are critical for shaping a transformation of the wheat sector. Much of the country’s wheat is still stored in informal, often low-quality facilities. The Punjab government’s push toward modernizing storage through use of EWRs is an important step toward building a more efficient and transparent value chain. However, realizing the full potential of this system requires careful attention to design and implementation. It is essential to identify the intended users of the system—whether it be different groups of farmers or even traders or middlemen—and to keep in mind their characteristics and limitations. • To promote inclusivity, options such as farmer cooperatives could be explored, allowing smallholders to aggregate produce for reduced transaction costs. Such measures could enhance the bargaining power of smaller farmers, and mitigate the risk of capture by dominant market actors, as happened to the government wheat procurement program. 2.2 Developments in the Punjab Agricultural Marketing Regulatory Authority (PAMRA) Established in 2018 and amended in 2020, PAMRA was created to modernize and restructure the agricultural produce markets in Punjab province. The Authority replaced the very old Punjab Agricultural Produce Markets Act of 1939, which was criticized for creating inefficiencies, upholding monopoly control by commission agents, and limiting farmer access to markets. In contrast, PAMRA’s mandate includes licensing a variety of public and private markets, regulating auctions, overseeing grading and food safety standards, and promoting better price discovery through digital platforms that provide market data, and developing the potential for direct sales from farmers and wholesalers to final buyers. PAMRA offers a legal and institutional frame to rethink how agricultural markets function. Further policy development was needed to provide PAMRA with necessary legal and implementation frameworks, and so the Punjab Agricultural Marketing Regulations, 2021, and the Punjab Agricultural Marketing Financial Regulations, 2023, among others, were promulgated with support from the World Bank SMART program.23 23 This section is drawn from the World Bank, Implementation Completion and Results (ICR) Report (IBRD-88090-001, ICR00063) (annex 7 and 8), 2025. https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB- 16984764-2911-4c57-8231-2c3832b88d31.pdf ; and ADB TA 9866-PAK: Preparing the Punjab Resilient Agriculture Value Chain Project, Finnish Consulting Group and Asian Development Bank, 2024. https://www.adb.org/sites/default/files/project-documents/53070/53070-002-tacr-en_4.pdf https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB-16984764-2911-4c57-8231-2c3832b88d31.pdf https://documents1.worldbank.org/curated/en/099021125130542105/pdf/BOSIB-16984764-2911-4c57-8231-2c3832b88d31.pdf https://www.adb.org/sites/default/files/project-documents/53070/53070-002-tacr-en_4.pdf 28 Five years on, however, PAMRA’s progress has been limited. While more than 200 private markets have been registered under its framework, concerns remain over their quality, transparency, purpose, and even functioning. (Indeed, it may be that many of these markets were established to meet the SMART program requirement that 25% of central markets be privately managed!) Moreover, despite an ambitious mandate to overhaul the old system, much of the traditional market structure remains intact. As Ahmed and Ali (2024) note, “there are some differences between provinces due to recent legislation, but the core functioning model remains the same. This includes the concept of a physical marketplace, managed by a market committee, relying on commission agents acting as middlemen, with auctioning as the price discovery mechanism.”Many public markets are struggling financially, with nearly one-third reportedly running losses or indebted to the Punjab Department of Agriculture.24 Commission agents or arthis continue to play a central role in the marketing system; they are the primary intermediaries between farmers and buyers who organize the sale of farm produce and provide essential credit to small and marginal farmers. Farmers largely depend on these agents for credit and loans, often at high interest rates. Arthis also act as informal service hubs, connecting farmers to input suppliers and managing risk during bad crop years by allowing flexible repayment arrangements. Despite their utility, the system remains opaque, with little transparency around pricing or loan terms, and arthis are widely seen as the biggest beneficiaries of the current structure (Ahmed and Ali 202425; Haq et. al. 201326; Rana 201827). Following the development of PAMRA and the legal and policy refinement of public markets, ADB initiated a project to “establish a modern and holistic wholesale agriculture market in Punjab and support the government’s agriculture policy implementation to enhance value addition, quality improvement and reduction in transaction costs. Success of these markets will lead to (i) increased productivity, (ii) improved processing and storage capacity, and (iii) reduced post-harvest losses, to improve the agriculture sector of Punjab.”28 The specific objectives of the TA 9866-PAK project was to develop a modern wholesale agriculture market and enhance the capacity of PAMRA to regulate agriculture markets. In a review of the status of the TA 9866-PAK project in 2021, numerous issues related to land acquisition and compensation for the proposed markets were found, including a “low compensation rate, (ii) incomplete compensation payment, and (iii) outstanding litigation 24 Asian Development Bank, ADB TA 9866-PAK: Preparing the Punjab Resilient Agriculture Value Chain Project— Agriculture Markets Development Assessment Report, Finnish Consulting and Group Asian Development Bank, 2024. https://www.adb.org/sites/default/files/project-documents/53070/53070-002-tacr-en_4.pdf 25 Ahmed, S., and M. Ali. “Agricultural Commodity Markets in Pakistan: Analysis of Issues.” The Pakistan Development Review (2024): 307-324. 26 Haq, A., et al. “Who Is the ‘Arthi’: Understanding the Commission Agent’s Role in the Agriculture Supply Chain.” International Growth Centre (IGC) Working Paper, IGC, 2013. 27 Rana, M.A. “Commissions and Omissions: Agricultural Produce Markets in Pakistan.” Working Paper 01-18-Policy and Institutional Reforms to Improve Horticultural Markets in Pakistan: ACIAR Project 2014/043, Centre for Development Economics and Sustainability, Monash University, 2018. https://www. monash.edu/__data/assets/pdf_file/0010/1428769/WP1_ Rana 28 Asian Development Bank, ADB TA 53070-PAK: Preparing the Punjab Agriculture Markets Development Project: Technical Assistance Completion Report, October 2024. https://www.adb.org/projects/documents/pak-53070-002-tcr. https://www.adb.org/sites/default/files/project-documents/53070/53070-002-tacr-en_4.pdf https://www.adb.org/projects/documents/pak-53070-002-tcr 29 cases.” These issues were subsequently found to be complex and significant. Ultimately, the Punjab Agriculture Department proposed two other markets, in Dera Ghazi Khan and Rawalpindi, as alternatives to the Lahore market. Between changes in the Punjab government’s development priorities, including transfer of the land for the Lahore project to the Ravi Urban Development Authority, and legacy issues, similar to those in Lahore, found in Dera Ghazi Khan and Rawalpindi, the entire project was terminated as a failed effort. Thus, the ADB experience highlighted major issues in land acquisition for modern agriculture markets, and it certainly casts doubt on the legal status of the 200 or so private markets that were developed in the first few years of PAMRA. ADB also supported value chain studies that were produced under the TA project. The following reports were prepared by the consultants; (i) Assessment Report on Punjab Agriculture Markets; (ii) Commodity Value Chain Study: Pulses Value Chain Study Report; (iii) Commodity Value Chain Report: Oilseeds Value Chain Study; (iv) Commodity Value Chain Study; and (v) Vegetable Value Chain Study. 2.2.1 Status, Consequences, and Lessons Learned PAMRA has the legal and institutional space for market creation and design of alternative mar- ket structures. At present, however, most markets, whether private or public, do not have the grading and packing capacity needed to make this transition. Also, the failure of the ADB pro- ject has highlighted the very difficult land titling setting that is limiting the dramatic develop- ment needed to make the transition to a modern value chain that generates an increased share of off-farm income. However, it is hoped that the higher revenues from outsourcing fee collec- tion will permit improvements. Another key recent development has been the removal of geographical restrictions previously tied to public markets, at least in Punjab province. Under the old system, markets were notified within specific areas, giving them exclusive jurisdiction over a surrounding zone, including administrative responsibility for commission agents and private actors. Now, an objective was included in the original PAMRA legislation of limiting markets only to their physical premises, enabling commission agents and private actors to establish new collection centers or markets outside previously controlled territories. This change is expected to foster competition, particularly when combined with the potential for electronic trading platforms and warehouse receipt systems. A further hope is that more fruit and vegetable markets can be set up locally, as they are often criticized as being too far from sources of production, necessitating long travel times and costs that also lead to larger post-harvest losses. PAMRA has recently started outsourcing the collection of fees to improve revenue collection. In one test market, outsourcing these fees led to a tripling of income from that source, according to the representative from PAMRA. Additional legislation is also being drafted to authorize sanitation fees, regulate warehouse accreditation (including food safety protocols), and to allow online sales by both central markets and licensed warehouses. PAMRA also intends to introduce standard grading and packaging procedures, which should further reduce post-harvest losses and improve farmer earnings, especially for horticulture. 30 However, for these changes to be effective, implementation must go hand-in-hand with stronger oversight, institutional capacity, and farmer outreach. Though slow in uptake, with adequate support PAMRA is well positioned to lead modernization of market infrastructure, thereby influencing how farmers engage within the value chain and how they access finance. 2.3 Extended Off-Farm Agri-Food System and Value Chain Perspectives This section provides three perspectives on AFS issues. The first looks at the ways that actors in different value chains interact with markets, reviewing the role of contracts and the growing potential of corporate farming in Pakistan. The second compares the off-farm and on-farm proportions of AFS GDP across a broad range of countries at different levels of development, and it looks at the different components of off-farm activities in Pakistan, with a comparison to other countries. The final section gives some perspectives across time on the evolution of Pakistan’s GDP AFS and compares it to the experience of the United States and some more recently transitioning economies. 2.3.1 Perspectives on Market Engagement Across Different Value Chains: Contracts and Corporate Farming The earlier section on the wheat value chains outlined how market engagement by farmers changes with farm size. Small and marginal farmers typically engage through the traditional value chain of middlemen and local commission agents. Medium farmers produce a marketable surplus and engage in transitional value chains; for these farmers, there are opportunities for limited vertical coordination, as these they can sell to millers, wholesalers, and small and medium enterprises that require basic quality compliance but still operate under informal exchanges. However, such coordination is still rare in Pakistan, apart from the government’s wheat procurement contracts. In contrast, large farms operate in the modern value chain, where formal contracts, private standards, vertical integration, use of warehouse receipts, and an export orientation is most likely to dominate.29 Small traditional farmers could potentially improve their bargaining power through collective action and by negotiating as a group rather than through isolated sales. These farmers could be organized into farmer organizations and collectively engage in transitional value chains that require basic quality standards and consistent supply. Studies have shown membership in farmer groups has a positive income effect as compared to nonmembers and also a positive effect on general wellbeing.30, 31 However, the same studies note that the price advantages of collective marketing were small and benefits were not uniform across members. Given the high costs of managing farmer organizations in terms of coordination, management capacity, and 29 Barrett, C.B., T. Reardon, J. Swinnen, and D. Zilberman, “Agri-Food Value Chain Revolutions in Low- and Middle- Income Countries.” Journal of Economic Literature 60, 4 (2022): 1316–1377. 30 Fischer, E., and M. Qaim, “Linking Smallholders to Markets: Determinants and Impacts of Farmer Collective Action in Kenya, World Development 40, 6 (2012): 1255–1268. https://doi.org/10.1016/j.worlddev.2011.11.018 31 Ahmed, M.H., and Mesfin, H.M., The Impact of Agricultural Cooperatives Membership on the Wellbeing of Smallholder Farmers: Empirical Evidence from Eastern Ethiopia, Agricultural and Food Economics 5, 6 (2017). https://doi.org/10.1186/s40100-017-0075-z https://doi.org/10.1016/j.worlddev.2011.11.018 https://doi.org/10.1186/s40100-017-0075-z 31 leadership, there may be a trade-off: while collective action can open doors to better markets, they also create administrative and financial burdens, which may negate the gains. There is also a growing body of literature that recognizes the role contract farming can play in further developing value chains and better integrating various actors. Through contract farming, firms provide inputs and technical assistance in return for purchase rights to the output. This creates vertical coordination that links small and medium farms to processors or markets that they cannot otherwise access. Studies have found that contract farming can significantly improve production quality, farm-gate prices, and net-incomes.32 Specifically for Pakistan, a recent study on organic rice farmers demonstrated that contract farming can significantly increase technical efficiency. 33 Another study looking at both potato and maize contract farming outcomes found potato contracting to be associated with significantly higher incomes, whereas maize contracting increased neither incomes nor productivity.34 Interestingly, recent research finds that in the context of developing countries, it may be more sustainable for contract arrangements to develop organically between farmers and buyers, rather than being imposed by government policy and procedures. Evidence from West Bengal, India, shows that externally promoted contracts often introduce rigid production requirements and strict quality standards that smallholders struggle to meet, thus making the arrangement less resilient. 35 Another multicountry review finds that contract farming promoted by government, NGOs, or donors tends to suffer from weak enforcement mechanisms, complicate the terms and conditions, and demand interactions with a legal system that is less than transparent and efficient.36 Corporate farming is another model of agricultural production in which large agribusinesses or corporations lease or purchase land to manage farms directly. They have been promoted in the past as means to increase efficiency, adopt advanced technology, achieve economies of scale, and also to provide stable employment opportunities in rural areas. It is argued that by consolidating resources, corporate farming can facilitate export-oriented production and meet stringent quality standards that smaller farmer may struggle to achieve. On the other hand, corporate farming is criticized for possibly marginalizing smallholder farmers, reducing local control over land and resources, reducing output prices to levels unsustainable for smaller farmers, and eventually exacerbating socioeconomic inequalities. India’s unfavorable experience with corporate farming has raised concerns within Pakistan as well as activities under the Green Pakistan Initiative gain momentum. Rather than complete dismissal or 32 Tefera, D.A., and J. Bijman. “Economics of Contracts in African Food Systems: Evidence from the Malt Barley Sector in Ethiopia.” Agricultural and Food Economics 9, 26 (2021). https://doi.org/10.1186/s40100-021-00198-0 33 Mazhar, R., B. Xuehao, T. Dogot, R. Skominas, V. Tanaskovik, H. Azadi, and Z. Wei, “Contract Farming and Technical Efficiency: A Case of Export-Oriented Organic Rice Farmers in Pakistan,” Land 11, 11 (2022): 1-10. https://doi.org/10.3390/land11111953 34 Khan, M.F., Y. Nakano, and T. Kurosaki, “Impact of Contract Farming on Land Productivity and Income of Maize and Potato Growers in Pakistan,” Food Policy 85 (2019) 28–39. https://doi.org/10.1016/j.foodpol.2019.04.004 35 Ray, N., G. Clarke, and P. Waley, “The Impact of Contract Farming on the Welfare and Livelihoods of Farmers: A Village Case Study from West Bengal,” Journal of Rural Studies 86 (2021): 127–135. https://doi.org/10.1016/j.jrurstud.2021.06.003 36 Oya, C., F. Schaefer, D. Skalidou, C. Kea, and M. Raul. “Effects of Certification Schemes for Agricultural Production on Socio-Economic Outcomes: A Systematic Review,” World Development 112 (2018) 282–312. https://doi.org/10.1016/j.worlddev.2018.08.001 https://doi.org/10.1186/s40100-021-00198-0 https://doi.org/10.3390/land11111953 https://doi.org/10.1016/j.foodpol.2019.04.004 https://doi.org/10.1016/j.jrurstud.2021.06.003 https://doi.org/10.1016/j.worlddev.2018.08.001 32 acceptance, the need for the hour is of sustainable strategies that balance the interests of both corporate as well as small and medium sized farmers. 2.3.2 Perspectives on International Comparisons to Pakistan’s Agri- Food System This section compares Pakistan’s off-farm and on-farm proportions of AFS GDP with a broad range of countries at different levels of development. It also looks at the different components of off-farm activities, with a comparison to other countries. The figures that follow are drawn from Diao and Thurlow (2025), found in Appendix 1. Figure 4 shows the relationship between proportions of GDP in primary agriculture versus the off- farm contribution to the AFS. The latter includes processing, input supply, food services, and trade and transport. On average, including all countries in Thurlow et. al. (2025), the AFS accounted for 12.6% of GDP, with 7.4% of GDP from the off-farm portion (see footnote 1). Thus, on average, nearly 60% of the AFS GDP contribution is off-farm. However, there are substantial differences across categories of countries. In low-income countries (LIC), the share of total AFS in GDP is 43.7%, with 27.4% from on-farm value (almost 63% of the total AFS contribution to GDP). With economic development, economies transform away from agriculture, and thus in lower- middle-income countries (LMIC) the overall AFS drops to 29% of GDP and continues to drop in upper-middle-income countries (UMIC) to 19.4%, as compared to 43.7% in the LIC. High income countries (HIC) have AFS contributions to GDP of just 7.4%, with most in the off-farm sub-sectors. While the portion of GDP derived from AFS declines steadily with per capita GDP, the transformation accelerates as countries become UMIC and evolves into high-income countries (HIC), as total AFS drops to 19.4% of GDP in UMIC, and faster to 7.4% in HIC. Figure 4: Shares of Agricultural and Off-Farm Figure 5: Share of Off-Farm Components AFS GDP in Total GDP (%) in AFS GDP (%) Source: IFPRI’s Agrifood System Database (Thurlow et al. 2025 and the 2023 Social Accounting Matrix for Pakistan, IFPRI 2024). Note: LIC = low-income country; LMIC = lower-middle-income country; UMIC = upper-middle-income country; and HIC = high-income country. 31.0 41.3 30.5 35.7 27.6 28.6 35.9 43.4 49.1 35.0 33.5 51.2 22.6 9.0 10.8 18.3 28.2 8.0 10.6 6.3 9.6 10.9 10.6 12.1 Processing Trade and transport Food services Input supply 5.2 27.4 17.8 10.0 1.4 24.7 7.4 16.3 11.2 9.4 6.0 17.5 Primary agriculture Off-farm AFS 33 In addition to the total AFS proportions in the economy, it is important to consider the ratio between off-farm and primary agriculture portions of GDP. For example, the share of off-farm value added as a proportion of the total AFS GDP contribution is 34.2% in the LIC, 48.5% in the UMIC, and rises rapidly to 81.1% in HIC. Thus, we would expect the ratio in Pakistan to be lower than that seen in the UMIC or HIC. However, Figure 4 clearly shows that Pakistan is an outlier even among its cohort of countries. While average income in the country has reached the level of an LMIC, the proportions and levels of off-farm GDP in Pakistan’s AFS are similar to those of an LIC. Figure 5 shows the proportions of different off-farm activities in the AFS, with the breakdown in Pakistan similar to other LMIC. However, in terms of input supply, Pakistan uses about 2.5% more value added in its AFS than the average LMIC. Travel and transportation is also about 2.1% higher in Pakistan than in other countries in the group, while the processing GDP contributions are about 1.9% lower. Food services are also lower in Pakistan, by 2.8%. Because the overall share of the AFS in total GDP is larger than in the average LMIC, these percentages constitute larger contributions to GDP in Pakistan. These differences can be viewed several ways, with either positive or negative implications, and they may reflect specific situations in Pakistan. For example, the greater proportion of GDP in input supply could mean that higher quality inputs are being provided to farmers in Pakistan, but this theory is questionable given the lower growth in output per laborer and yields in Pakistan than in its neighbors. Alternatively, the resources tied up in input supply could be related to industrial concentrations of power in fertilizer and energy. Likewise, it may be that travel and transport require more resources in Pakistan because of the geographic complexity of the country, but it also may be that regulations across provinces and in central markets tie up excess resources in that activity. On the other hand, activities that would appear to be indicative of progressing modern value chains, such as food services and processing, are lower in Pakistan relative to the LMIC average. 2.3.3 Perspectives on Off-Farm Proportions in Pakistan and Selected Countries Over Time This section provides several perspectives on the off-farm proportions in Pakistan as well as in selected other countries. In contrast to preceding discussion, these figures look at Pakistan across time rather than applying a cross-country analysis. First, Figure 6 shows both the share of AFS (or AgGDP+ in this Figure) and of the on-farm component (agriculture) in the total economy. The third series in the figure shows the proportion of the off-farm component relative to the total AgGDP+ value. In 2006, AgGDP+ accounted for 46% of the total economy, of which 37.9% or slightly more than one-third was off-farm GDP, and 63% was on-farm. By 2023, the on-farm contribution to total GDP had dropped to 24.7% from 28.6%, but the off farm share in AgGDP+ had risen by 3.6%, to 41.5% from the 37.9% in 2006. This represents a slow but significant shift toward a higher off-farm contribution to GDP; however, this share is still 6.5% below the UMIC average, and at this rate, it would take another 30.7 years to reach the UMIC ratio. 34 Figure 6: AFS and Agricultural Shares of Total GDP and Off-Farm Share of Pakistan’s AFS GDP (2006 to 2023) Source: Thurlow et al. 2025, using 2023 Social Accounting Matrix for Pakistan (IFPRI 2024). Note: AgGDP+ in the figure refers to AFS GDP. Agriculture refers to primary production. For perspective, Barrett et. al. (2022) show the changes in the United States in the farm value of a “food dollar” from 1929 to 2016 (Figure 7). In 1950, about 40% of each dollar of food expenditure was found in the farm portion. Thirty years later, in 1980, the farm value had declined by 15 percentage points to 25% of a consumer’s food dollar (while at Pakistan’s rate it would have only have dropped by 6.5 percentage points). However, because the United States was similar to a UMIC, with agriculture contributing only 8% to the economy’s GDP, we may be seeing the rapid evolution that occurs later in the transition. Barrett et. al. (2022) also point out that this type of transition is accelerating relative to the pat