The agriculture sector plays a crucial role in the overall development of the country. The sector shares about 24 percent of the GDP and employs about 44 percent of the workforce in the country. Crops sub-sector is the major contributor towards agriculture, sharing more than 53 percent of the value-added. Wheat, being the staple food of Pakistanis, carries immense importance: it contributes about 12 percent of sector value-added, is sown on about 37 percent of the total cropped area, and shares 80 percent in consumption of food grains, while its share in food grain production is around 70 percent. As primary diet, wheat alone shares about 50 percent of the total calories’ and proteins intake in Pakistan, and contributes about 8 percent of the total fat consumed [FAO (Various Issues]. Consequently, overall dietary well being of our people especially the urban and rural poor is largely dependent on the performance of wheat economy.

Water is one of the basic necessities of life. God has gifted Pakistan with abundant water resources, with rivers flowing down the Himalayas and Karakoram heights from the world’s largest glaciers and free and unique bounty for this land. Pakistan is basically an agrarian economy. Out of its total geographical area of 79.61 million hectares, cultivated area is 22.05 million hectares. The total area under irrigation is 19.02 million hectares [Agricultural Statistics of Pakistan (2005-06)]. Irrigated land supplies more than 90 percent of agricultural production and most of the country’s food. Agriculture sector is regarded as the backbone of Pakistan’s economy. It contributes 25 percent of the GDP. About more than 50 percent labour force is employed in this sector. Agriculture sector is also the major user of water and its consumption will continue to dominate water requirement. Similarly, for industrial development main source of energy is hydropower which is generated by dint of water stored in big dams and reservoirs. Therefore the importance of the water for the survival of our economy cannot be denied.

Pakistan operates the world's largest well-articulated irrigation system. Individual farms receive water from the gravity flow of a massive network of canals, distributaries and watercourses fed by the Indus River and its tributaries. In recent years public tubewells have become an additional, though somewhat limited, source of irrigation water. The canal system, which has been in operation for more than 100 years, is believed to have become too obsolete to cater for the needs of modern agriculture and is, therefore, in desperate need for rehabilitation. But resource-poor Pakistan cannot undertake the rehabilitation work on its own, and must depend on foreign loans or at least ensure full recovery of annual operation and maintenance (0 and M) expenditures [Chaudhry (1985); Duane (1975) and Hotes (1984)]. Apart from generating investment funds, the cost recovery, with higher water charges, would also lead to greater water-use efficiency and an equitable income distribution at the farm level [Chaudhry (1985) and Hotes (1984»). Can this all be accomplished by simply raising water charges? In this paper, we have attempted to answer this question. To answer the question systematically, we have divided the paper in five sections. The current state of Pakistan's irrigation system, water charges and cost recovery is discussed in Section 2. Section 3 deals with possible impact of rising water charges on cost recovery, investments, efficiency of water use and income distribution under the current system of water pricing. Section 4 presents policy alternatives that would ensure an effective cost recoyery, greater water-use efficiency and a more equitable distribution of farm income. Section 5 presents the summary and conclusions of the paper.

It follows from the experience of World economies that rising and balanced use of fertilisers is the key factor in agricultural productivity [FAO (1995); SFS and STI (1996); Habib-ur-Rehman (1982) and Pinstrup-Anderson (1976)]. In the case of Pakistan the stepped up fertiliser use has been argued to be incritable to realise existing untapped yield potential of major crops [Johnston and Kilby (1975)] and to induce yield increasing technological change in future [John Mellor Associates and Asianics Agro-Dev. International (1993)]. Although proper malnutrition involves the use of primary, secondary and micro-nutrients, Nitrogen (N), Phosphorus and Potassium (K) or NPK is generally considered to be sufficient to harvest normal crop yields [FAO and IFA (1999)]. Given this situation, this paper looks at various factors that determine fertiliser use in Pakistan. Although price of fertiliser is a critical factor in this respect [Schultz (1965) and Johnston and Cownie (1969)], only non-price factors are considered in this paper due to limitations of data. Apart from this introductory section, the paper comprises of three more sections. The following Section 2 explains the data and the empirical model. Section 3 presents the results. Section 4 summarises the main findings along with their policy implications.

Agriculture is the backbone and single largest sector of Pakistan’s economy as its contribution to Gross Domestic Product (GDP) exceeded 25.3 percent during 1997-98. Crops, livestock, fishing and forestry sub-sectors being its main components, only crop and livestock sub-sectors are of critical importance. They accounted for 59.6 and 36.2 percent of the sector’s output respectively. Because of the ongoing process of structural transformation, agriculture’s share in the national economy is shrinking. From 39 percent of GDP in 1969-70 it has fallen to its current levels [Pakistan (1999a)]. The livestock sub-sector however has not followed suit. It has risen from 27.3 percent in 1969-70 to 36.2 percent in 1997-98. This trend in fact would be more pronounced if the national accounts did not underestimate the sub-sector’s components such as farm yard manure, dung cakes for household fuels and animal draft power.