Impact of agriculture credit on agriculture productivity. Agriculture plays vital role in Pakistan's economy. It is the single largest sector and it is principal driving force for growth and development of the national economy of Pakistan. Agriculture credit plays vital role for increasing the efficiency of this sector. Timely and adequate availability of credit enables the farmers to purchase the required inputs and machinery for carrying out farm operations. There are two dimensions of this research first are measuring the impact of credit on development efficiency and second is measuring impact of credit on production efficiency. Regression model was used to determine the impact in both dimensions data collected from State Bank of Pakistan for analysis the results concluded that there is a positive relationship between agriculture credit and both development and production efficiency but not up to much extent that is required there is a minor impact on farm yield and productions levels by agriculture credit the reasons can be credit policies timings of providing credit and can be not providing credit effectively where it is needed most.


Agriculture plays an important role in Pakistan's economy. It is the single largest sector and it is principal driving force for growth and development of the national economy of Pakistan. Agriculture and Livestock accounted for 23.1 per cent of the GDP in 2004-05. It employs 43.1 per cent of the labor force, provides livelihood to 68 per cent of the country's population living in rural areas, and contributes 60 per cent share in export earnings from processed and un-processed agricultural products. Major industries like textile and sugar are agriculture based sectors. The rate of growth for agriculture sector is 4% in the past two decades, contributing significantly to overall economic growth, food supplies and exports.

Although the share of agriculture in the GDP has declined over the years, in line with Development of other sectors such as industry, infrastructure, services, etc., it still remains the leading sector of the economy. The future policies in agriculture have been focused on attaining high growth rates by providing the right policies and institutional support, so that the sector can move forward and enhance its contribution to the economy.

Review of Agriculture Sector

The agriculture sector grew at an average annual growth rate of 4.5 per cent in the last decade, i.e. 1990's. However in 2000-01 and 2001-02, its performance was badly affected due to persistent drought conditions. It registered a growth rate of (-) 2.2 and (-) 0.1 per cent in 2000-01 and 2001-02, respectively. With subsequent improvement in the availability of Water, it grew by 4.1 per cent and 2.6 per cent in 2002-03 and 2003-04, respectively. In 2003-04, the major crops which account for 34.2 per cent of the agriculture value added grew by 2.8 per cent and minor crops which contribute 12.4 per cent to the agriculture value added, Grew by 1.7 per cent. In 2004-05, the agriculture sector registered an all time high growth of 7.5 per cent due to farmer's friendly government policies, favorable weather conditions and Improvement in the availability of water. There was a recorded production around 14.6 million bales of cotton and 21.1 million tones of wheat. The contribution of major and minor crops was 17.3 and 3.1 per cent, respectively.

Although the shortage of water affected the performance of crops in 2000-01 and 2001-02, its impact was reduced due to various measures by the farmers on the Recommendation of the Agriculture Departments such as efficient use of canal water, Exploitation of underground water through tube wells, sowing on ridges and better Agronomic and good management practices.

The country had achieved self-reliance in wheat. Around 1.036, 1.704 and 0.553 million tones were exported due to build up of wheat stocks, in the years of 2001-02, 2002-03 and 2003-04, correspondingly. However, due to subsequent decline in wheat production, around 1.37 million tones of wheat was imported in 2004-05 to build up reserve stocks and meet domestic requirement.

Although availability of water has been a serious constraint, there are other factors also, which are hampering the growth and development of the sector. Some of the factors are: low productivity of crops, inefficient use of water, degradation of land resources (water logging and salinity), imbalance application of fertilizer, inefficient use of agricultural inputs, ineffective transfer of technology to the farmers, lack of coordination between research and extension, post-harvest losses, marketing infrastructure, etc.

Inspite of the reasonably performance in the agriculture sector the over all productivity is comparatively low as compare to other agriculture based countries like India for example in study based on comparison of agriculture performance in Indian and Pakistani Punjab it was found that Indian Punjab performed very well as compare to Pakistani Punjab because of the problems in infrastructure lack of mechanization most of these problems arise due to financial constraints these problems can be addressed by emphasizing on credit programs to farms get proper inputs such as production inputs like seeds, fertilizers, pesticides on time so that production efficiency improved and on the other hand development efficiency can be increased by mainly development efficiency is farm efficiency like land leveling, water courses, tractors tube wells these all required proper credit supply so therefore credit is the vital component in the improvement of agriculture efficiency.

Agriculture credit role in increasing productivity

Credit plays an important role in increasing agricultural productivity. Timely and adequate availability of credit enables the farmers to purchase the required inputs and machinery for carrying out farm operations. The farmers will be facilitated through the one window operation and revolving credit scheme. The one window operation was initiated in 1997 by the ZTBL which has been found quite useful in meeting the farmers' credit requirements.

Credit is the back bone for any business and more so for agriculture which has traditionally been a nonmonetary activity for the rural population in Pakistan. Agricultural credit is an integral part of the process of modernization of agriculture and commercialization of the rural economy. The introduction of easy and cheap credit is the quickest way for boosting agricultural production. Therefore, it was the prime policy of all the successive governments to meet the credit requirements of the farming community of Pakistan. Agriculture as a sector depends more on credit than any other sector of the economy because of the seasonal variations in the farmers returns and a changing trend from subsistence to commercial farming.

How credit improve productivity both production and development or farm efficiency the answer is through the supply of proper credit to farmers they are able to purchase proper amount of fertilizers at the right time purchase pesticides at the right time so the production process will continue without any problems that will increase production efficiency.

For development efficiency credit is needed for mechanization, i.e for land leveling water courses, tube wells, tractors and other inputs so credit is needed by farms for the proper availability of theses resource of course without the availability of these resource both production and development efficiency cannot be increased.

In some of the studies importance of credit in agriculture stated as According to Shephered (1979) credit determines access to all of the resources on which farmers depend. Consequently, provision of macroeconomic policies and enabling institutional finance for agricultural development has been directed to the provision of infrastructure capable of facilitating agricultural development with a view to enhancing the contribution of the sector in the generation of employment, income and foreign exchange.

One of the reasons for the decline in the contribution of agriculture to the economy is lack of a formal national credit policy and paucity of credit institutions, which can assist farmers. Credit or loan able funds is viewed as more than just another resource such as labor, land, equipment and raw materials.

Therefore, by injecting capital into agriculture, it is possible to increase the rate of agricultural development since credit has frequently been considered as one of the main factors in overcoming agricultural stagnation that helps to expand farmland size and production.

Table 6 shows the figures of amount of credit in billion rupees disbursed by different sources in agriculture sector by analyzing the figures it has been noted that credit for production has more amounts in every year as compare to credit for development loans so therefore the area where government has to focus is how to increase development efficiency (land leveling, water courses, and tractors) etc. supply of adequate credit should be implemented for development loans like production loans.

Difference between production efficiency and development efficiency

Production efficiency is related to the productivity related to inputs related purely to crops production such as seeds fertilizers pesticides chemicals etc. where as development efficiency is related to mechanization of farms lands development there fore inputs are tractors, land levelers water courses etc the details are below.

Production efficiency factors

The input factors related to production efficiency are


The use of fertilizer is expected to grow by 4.0 per cent per annum in order to meet the crop production targets. The growth rate for the nitrogen is estimated at 3 per cent, phosphate 7 per cent and potash 12 per cent. In quantitative terms, nitrogen will increase to 3,049 thousand tones, phosphate 1,058 thousand tones and potash 45 thousand tones by 2009-10. The overall fertilizer consumption is estimated at 4,152 thousand tones.

The mean application rate at national level will be about 180 Kg nutrients per hectare. There are other fertilizer products as source of micronutrients such as Zinc, Boron and Iron would also be targeted for specific crops (rice, cotton, maize, sugarcane, vegetables and horticultural crops) for efficiency and quality.

According to research by (Coady, 1995) it is stated that the introduction of high-yielding varieties (HYVs) of wheat and rice in Pakistan in the mid-1960s was heralded as a major breakthrough in the problem of food supply.

A crucial characteristic of these new HYVs was their high yields when used in conjunction with chemical fertilizer (henceforth just fertilizer) and controlled irrigation. Great emphasis was placed on increasing the supply and use of fertilizer, which was still regarded as of crucial importance by the mid-1980s-of the total increase in agricultural output envisaged by the Sixth Five Year Plan (Government of Pakistan 1983), 48% of it was expected to come from increased use of fertilizer. Although the technology associated with HYVs is essentially regarded as being neutral to scale, constraints such as those arising from inadequate irrigation, an inability to secure credit and access to extension services can bias the technology towards larger farms. The researcher focuses on the use of fertilizer. Earlier analysis of the data showed that just over 80% of the sample applied fertilizer, this the farms more than 25 hectares have higher percentage. However, that simple analysis of fertilizer use did not indicate any systematic relationship between land size and per-acre levels applied (henceforth, fertilizer intensity). There, as in most studies of fertilizer use, zero observations are dropped.

Much of the literature on agriculture in developing countries argues that, because of lack of access to crucial complementary inputs (such as irrigation, knowledge or credit), the productivity of fertilizer is lower on smaller farms. This would suggest that fertilizer intensity ought to be positively correlated with farm size. However, although my data suggest that a larger proportion of smaller farms do not apply any fertilizer, focusing only on users, I do not find any systematic relationship between fertilizer intensity and farm size. However, when I allow in my analysis for lack of access, I find a negative relationship between fertilizer intensity and farm size, in spite of the fact that productivity-enhancing characteristics appear to be biased in favor of large farms. I suggest that this could reflect the effect of uncertain yields on risk adverse farmers. If one accepts this interpretation, then it appears that the effect of uncertainty is strong enough to outweigh the productivity bias towards larger farms

Pesticides and Plant Protection

The productivity of crops is mainly depends upon control of pest. Around approximately 20% to 25% cent of crop production output lost due to hit of insects and pests. The use of pesticides has increased from 665 tones in 1980 to 69,897 tones in 2002. It has been estimated that its consumption may touch 78,000 metric tones till 2010. Approximately around 54% of the pesticides are useful on cotton crop, 23 per cent on rice, 9 per cent on fruits and vegetables, and 5 per cent on sugarcane. The rising and unsystematic use of pesticides must be avoided as it also kills useful predators and insects and causes environmental deprivation. Importance will be given on support of Integrated Pest Management (IPM) in order to reduce the application of pesticides in the best way.

According to research (Alagh, 1988) states that INSECT pests, diseases and weeds inflict considerable damage to crops and plantations resulting in an estimated. Crop loss of over one-third of realizable output globally. Losses are higher in Africa and Asia, more than 40 per cent annually. The earliest use of chemicals to prevent crop losses is reported in the nineteenth century with the use of inorganic salts. The thirties of this century represent the beginning of the modern era of synthetic organic pesticides which saw the discovery of DDT (in 1939) and BHC (in 1942). A host of chloro organic compounds were introduced subsequently. Then came the organophosphorous com- pounds representing another extremely important class of organic insecticides, malathion being the first example of a wide spectrum insecticide with low mammalian toxicity.

The new crop varieties and cropping sequences for intensive agriculture brought to the forefront problems of pests which caused tremendous losses to various crops and their produce. Pest problems have shown marked increase in changing agriculture. Pest problems have increased with the intensification of agriculture. Also improved agriculture brought about a transformation and an all round consciousness not to allow/tolerate yield losses especially because of the availability of modern pest control technology which makes it possible to avoid or to minimize such losses. Losses to crops and their produce are caused by various agencies which include insects, diseases, nematodes, weeds and several other non-insect pests. The estimated losses vary from crop to crop and region to region. However, it has been estimate that in India annual monetary loss in agriculture due to weeds, diseases, insects, nematodes, storage pests, rodents and birds runs into Rs 6,000 crore. This estimate is somewhat speculative yet it gives a first order approximation of the nature of the problem. Estimates with respect to many crop pests or diseases are available both in terms of percentage avoidable loss or loss in value. Such information is valuable and essential planning and implementation point of view of economic programs.

So therefore pesticides plays important role in increasing production efficiency by reducing diseases and damage to the crops by the insects or pests because if crops production is effected by any of the reasons stated above crops production efficiency will be decreased.

Development Efficiency

How mechanization helps in improving farm efficiency Animal draft has conventionally remained a source of traction powers at farm over centuries. All operations at farm from tilling of the land to sowing, cultural management practices, lifting of water from shallow wells, harvesting, threshing, winnowing and transport were carried through animal provided draft. The use of fuel run machinery is a matter of about half a century.

The major focus in the area came since the times of green revolution in late 1960s when the high yielding varieties (HYVs) inspired farming community for paradigm shift in adoption of other new technologies including farm mechanization.

The major emphasis has been on farm traction, exploitation of sub surface water resources from sweet water aquifer, harvesting/threshing of crops, spraying of crops against insects, pests/diseases and pressurized irrigation operations.

The main purpose of farm mechanization is to improve efficiency by replacing techniques with more efficient use of machines which performs sowing, harvesting, shallow wells and transport with less time and more efficient that animals based techniques.

Mechanization of farm operation has become necessary due to shortage of labor and animal power at planting and harvesting stages of crops. It helps in timely sowing, cultural practices and harvesting of crops and reduction in post harvest losses. The most popular forms of mechanization are tractors with cultivators, drills, wheat threshers, sprayers, power rigs, tube-wells and bulldozers.

The total number of operational tractors in the country is estimated to be 342,000 by June 2005. Thus available horsepower (hp) at farm level will be 0.82 hp per hectare as compared with 1.4 hp per hectare recommended by FAO for developing countries.

It is projected that 45,000 tractors per annum will be added to the existing fleet. Thus, the total number of operational tractors will be increased to 466 thousand in 2009-10, increasing the horsepower at farm level to 1.1 hp per hectare. The fleet of bulldozers in the provinces will be strengthened for the development of wastelands and construction of slow action dams.

The availability of institutional credit for the purchase of tractors and other agricultural machinery will be ensured through earmarking the actual credit requirement to Zarai Taraqiati Bank Limited (ZTBL) and other commercial banks.

The farmers will be facilitated to procure small seed processing units and establish primary grading facilities at farm level to fetch good price of their produce. The sugarcane harvesters, maize and cotton pickers, paddy transplanters and laser land leveling equipments will be introduced. Custom hire farm service centers will be established at suitable places for costly agricultural machinery/implements for small and medium farmers under public-private partnership. The public sector will provide seed money and technical assistance for the establishment of these centers. The farmers' organizations will be responsible for the operation and maintenance of these centers on sustainable basis.

The factors included in farm efficiency are

  1. Left bank outfall drainage scheme
  2. Land leveling
  3. Water courses
  4. Drainage schemes

Left bank outfall drainage scheme

Emerging drainage problems

The greatly increased continuous use of Indus water for irrigation (from storage or direct river diversions) has significantly altered the hydrological balance of the Indus Basin. Seepage losses from irrigation canals, distributaries, minors, and watercourses and deep percolation from the irrigated lands have resulted in a gradual rising of the groundwater table, bringing with it critical problems of water logging and salinity over a vast area. Water logging is widespread throughout Punjab and Sind provinces, where most of the country's food and fiber crops are produced. In the early 1900s, the water table was generally more than 15 meters (m) below the surface throughout the Indus Plain. However, by 1978 (when the Indus Basin Salinity Survey was completed), the water table in 22% of the Indus Basin was within 1.8 m of the surface, and an additional 30% was within 3 m. The condition has get worse since then. There was a comprehensive survey conducted in 1961 calculated that about 40,000 ha of land were being lost per year to agricultural production due to water logging and salinity.

While these estimations have not been updated available information suggests that land neglected in severely waterlogged areas is continuing.

What is left bank outfall drainage schemes The Left bank outfall drainage concept embraces major drainage and agricultural development and represents the collective efforts of Government of Punjab, Government of Sind, WAPDA, 1UNDP, international consultants, and potential co financiers, led by the World Bank.

The Stage I Project has evolved from numerous investigations and studies initiated in the mid-1960s and refined thereafter. The project was subjected to extensive professional scrutiny and is a milestone in the Bank's long-standing involvement with Indus Basin development.

The LEFT BANK OUTFALL DRAINAGE SCHEME concept has been subject to intensive project preparation during the past 20 years. The Lower Indus Project report, prepared in 1966 by Sir N. MacDonald and Partners Ltd. and Hunting Technical Services Ltd., both of the United Kingdom, contains a comprehensive plan for optimum development of agriculture in the LEFT BANK OUTFALL DRAINAGE SCHEME area.

Why this scheme is so important for Pakistani agriculture due to the irrigation conditions of agriculture Major factors in recent improvement of agriculture have been favorable weather and the affirmative response of farmers to GOVERMENT OF PUNJAB's policies and programs for agriculture sector development.

Land leveling in Pakistan

Studies have indicated that a significant (20 to 25 %) amount of irrigation water is lost during its application due to poor farm designing and uneven fields. It has been estimated that the farmers keep on applying water until the maximum point in a field is covered. This leads to over-irrigation of low-lying areas and under-irrigation of superior spots in those results in irregular supply of all nutrients to the plants besides accumulation of salts in such areas. The fields not correctly leveled, because wastage of land, low irrigation efficiencies, and eventual result is considerably lesser yields than the possible. Accurate Land leveling (PLL) consists of grading and planning land to a smooth level or no slope to facilitate efficient irrigation. Modernized method of carrying out PLL is by using LASER equipment that helps in attaining mandatory degree of precision at lesser cost and effort. LASER land leveling equipment is provided to the farmers on nominal average rental charges i.e. Rs 150/hour to 200/hour. An area of about approximately 400,000 acres has been accurately leveled in the Punjab since inauguration of OFWM program that includes over 113,000 acres leveled with LASER technology. Precision Land Leveling (PLL) is a mechanical process of grading and smoothing the land to a accurate and consistent plane surface at grade or no grade (zero slope) with variation of less than ± 2cm. It is carried out to control irrigation application losses at the farmers' fields besides other advantages. LASER technology has been proved to be advantageous as it minimizes the cost of irrigation operation, ensures better degree of precision in much lesser time, saves irrigation water, ascertains consistent seed germination, increases fertilizer use efficiency and resultantly enhances crop yields.

Impact studies on LASER land leveling identify that it:

  • Curtails the irrigation application losses up to the extent of 25%
  • Reduces labor requirements for irrigation by about 35%
  • Enhances the irrigated area by about 2% by brining the number as well as length of field ditches and dikes to a minimum

* Increases the crop yields by about 20%

Pakistan is considered to be the pioneer in South Asia for promoting use of LASER technology in irrigated agriculture. OFWM Punjab has tested the first laser leveling equipment in 1985. Before devolution, there were 140 LASER land leveling units available with District Governments which have been procured through donor assisted projects, respectively. One hundred units were equipped with tractors while 40 units were without tractors. These machines have accurately leveled about 125,000 acres of land. The yearly potential of available LASER equipment was about 25,000 acres per year. The major operational limitation encountered to make sufficient use of this equipment was insufficient availability of O&M funds with the public sector.

Drainage schemes

The constant expansion of the irrigation system over the past century drastically altered the hydrological balance of the Indus River basin. Seepage from the system and percolation from irrigated fields caused the water table to get higher, attaining crisis conditions for a significant area. Around 1900 the water table was typically more than sixteen meters below the surface of the Indus Plain. A 1981 study found the water table to be within about three meters of the surface in more than one-half the cropped area in Sindh and more than one-third the area in Punjab. In some areas, the water table is much nearer to the surface. Cropping is fatally affected over a wide area by poor drainage--water logging--and by accumulated salts in the soil.

Officials were conscious of the need for additional expenditure to prevent further worsening of the existing situation. Emphasis in the 1980s and early 1990s was on rehabilitation and preservation of existing canals and watercourses, on farm improvements on the farms themselves (including some land leveling to conserve water), and on drainage and salinity in priority areas. Emphasis was also placed on the short-term projects, mainly to improve the operation of the irrigation system in order to lift up yields. Element of the funding would come from stable increases in water use fees; the objective is gradually to raise water charges to cover operation and maintenance costs. Substantial time and money are needed to understand the full potential of the irrigation system and bring it up to modern standards.(detected)

Irrigation and watercourses

In the beginning of 1990s, irrigation from the Indus River and its tributaries comprised the world's largest contiguous irrigation system, capable of watering over 16 million hectares. The system includes three major storage reservoirs and numerous barrages, head works and canals, distribution channels. The total length of the canal system exceeds 58,000 kilometers; there are a further 1.6 million kilometers of farm and field ditches.

Over the use of Indus waters there were prolonged disputes between India and Pakistan because partition placed portions of the Indus River and its tributaries under India's control. After nine years of dialogue and technological studies, the issue was resolved by the Indus Waters Treaty of 1960. India use of the waters of the main eastern tributaries in its territory--the Ravi, Beas, and Sutlej rivers after a ten year transitional period, the treaty awarded Pakistan received use of the waters of the Indus River and its western tributaries, the Jhelum and Chenab rivers.

When the treaty was signed, Pakistan began an extended and rapid irrigation construction program, partly financed by the Indus Basin expansion Fund of US$800 million contributed by various nations, including the US, and administered by the World Bank. Several huge link canals were built to transfer water from western rivers to eastern Punjab to substitute flows in eastern tributaries that India began to redirect in accordance with the terms of the treaty. In 1967 the Mangla Dam, on the Jhelum River, was completed. The dam provided the first major water storage for the Indus irrigation arrangement. The flood control was also contributed by the dam, for regulation of flows for some of the link canals, and to the country's energy supply. At the same time, further construction was undertaken on barrages and canals.

The vital need in the 1960s and 1970s to raise crop production for domestic and export markets led to water flows well beyond designed capacities. Completion of the Mangla and Tarbela reservoirs, as well as enhancement in other parts of the system, made superior water flows possible. In addition, the government began installing public tube wells that frequently discharge into upper levels of the system to add to the available water. The higher water flows in parts of the system significantly go beyond design capacities, creating stresses and risks of breaches. However, many farmers, mainly those with smallholdings and those on the way to the end of watercourses, suffer because the supply of water is unreliable.

The irrigation system represents a considerable engineering achievement and provides water to the fields that account for ninety percent of agricultural production. Nevertheless, serious problems in the design of the irrigation system avert achieving the highest potential agricultural output.


Production Efficiency and Agriculture Productivity

According to research (Taylor, Drummond, & Gomes, 1986) which relates to effectiveness of subsidized credit programs in improving the productivity of traditional farmers in developing countries the credit program known as PRODEMATA it is concluded by empirical results suggest that PRODEMATA has had no desire impact on technical efficiency and a slightly negative effect on allocative productivity (it is defined as a theoretical measure of the advantage or utility resulting from a planned or actual choice in the distribution or distribution of resources).

The "poor but efficient" hypothesis states that the provision of agricultural credit will be ineffective in improving productivity and incomes since investment opportunities are limited. Traditional farmers are hypothesized to be efficient but faced with technological barriers that can- not be overcome by the mere influx of capital provided by credit programs alone.

It is further analyzed that the economics of credit in Brazil and concluded there was an underutilization of capital on small farms and that credit would relieve capital shortages and improve output. However, in analyzing farm-level production in it is found that technological barriers were present which would prevent credit programs from having a significant impact on capital formation and incomes.

Studying traditional agriculture in southern Brazil concluded "that in- creased investment capital formation, such as use of mechanized equipment and fertilizer, alone is not the answer to increasing crop production. Better management,

Information sources and consumption of resources are as significant and should be equally emphasized if any advantage is to be anticipated from increasing disbursement on these inputs." The implication here is that, while credit availability may afford traditional farmers the opportunity to invest in modernized inputs, there is no guarantee that these inputs will be used in such manner as to recognize the full level of output gains possible.

It thus seems appropriate that the effectiveness of subsidized credit in traditional farming depends on concerns of technical as well as allocative efficiency.

The research above illustrated credit program named as PRODEMATA was instituted

The result was that participated in the program compared to those of nonparticipating farms indicate that the program was not successful as measured by technical efficiency gains the reason behind this was allocative efficiency there if allocative efficiency is not there results cannot be achieved by such credit programs therefore production efficiency is depend on allocative efficiency.

According to research by (Stefanou & Saxena, 1988) it is stated that various kinds of trainings can help the farm operator to enhance profitability. When this training influences production decision making, it is relevant to consider allocative efficiency. This focuses on the impact of training on operator decision making and develops an implement able theoretical framework that links training variables to allocative efficiency.

However, relative efficiency can be achieved for four of six possible input combinations. Education and experience are found to be substitutes and play a significant role in the level of efficiency.

It has long been believed that differential access to subsidized credit from government sources plays an important role in explaining observed differences in input use and consequently in productivity across farms in developing countries. As a result, it is frequently argued that rural development must originate with agricultural credit reform. There is, however, little empirical evidence that farm production has been effectively constrained by lack of access to formal or government controlled credit. While credit reform may be desirable for any number of reasons, reform of other input markets may have a larger impact on farm incomes.

In other cases, the small amounts necessary to finance working capital requirements may be readily available at relatively low cost from "informal" sources such as relatives and friends and other farm households. Households also may be able to substitute for formal credit through a variety of rental markets. Under such conditions lack of access to formal credit may not constrain the production decisions of farm households.

The formal sector borrowers do have an advantage in the tenancy market, this advantage results not from their access to formal credit, but from their superior resource position, particularly as it relates to irrigated land. Because households do not equilibrate access to formal credit through the land rental market, such access does not determine variable input use. Informal credit does improve the probability of renting land for households who lack access to the formal sector. The effect of informal credit, however, appears to be less important than ownership of resources such as irrigation, draft power, and family labor.

According to research by (Murgai, Ali, & Byerlee, 2001) measuring the productivity of Pakistani and Indian Punjab's by measuring trends in total factor productivity for production systems in both states since the origination of the Green Revolution. It is determined that Indian Punjab has more productivity than Pakistani Punjab.

The reason Indian Punjab is more productive Statistics from official resources of Pakistan have frequently viewed as motivated by a desire to current a picture rosier than the ugly and terrifying ground truth and hence often viewed as erroneous and on the superior side in case of efficiency and lower when it comes to scarcity and population expansion. Two of the main cash crops of the two provinces are rice and wheat. Pakistan's yields in both crops are far behind the other Punjab. For instance, Indian Punjab has shown an annual production growth rate of 11.03 per cent for rice whiles it has been a mere 3.08 per cent for Pakistani Punjab.

The Pakistani Punjab output was 13.13 million tons from 5.9 million ha. While the Indian Punjab produced 14.36 million tons of wheat in 1996- 98 from 3.3 million hectares. Even in other periods, productivity on the other side of Wahga has been consistently higher. As a result, the Indian state is following a policy of trying to produce more from less land while in Pakistan, more land is brought under cultivation every year to enhance the total yield and meet domestic consumption needs. At the same time, it is well known that Pakistan can ill afford to increase area of cultivated land because of scarcity as also deteriorating quality of water.

The difference between the productivity of the two sides reflects sadly on the state of affairs in Pakistan's Punjab. According to a study by three Pakistani and Indian experts, "if India were to produce the same amount of rice with Pakistan's productivity level, it would have to devote an additional area of more than one million hectares under rice". The picture of wheat is worse. Pakistan would have to bring an area of about 'four million ha' to reach Indian Punjab's produce. The experts ask the question why yields vary so much under fairly similar 'agro-climatic, socio economic and managerial conditions'? Their analyses identify some of the factors contributing to this discrepancy in productivity. They cite productivity performance as partly caused by differences in input use and cropping intensity but link it with the use of technology and resource quality too.

The lag time between adoption of Green Revolution technologies and recognition of efficiency gains is related to learning- induced efficiency gains, better utilization of capital investments over problems and time with the ordinary methods of productivity measurement that downwardly bias measurements, particularly throughout the Green Revolution period. Secondly the input growth accounted for most of the production growth in both Punjabs during the time period under study. Third, intensification, especially in the wheat-rice system, resulted in resource degradation (resource degradation means exploiting substitution possibilities among inputs and crops) in both Punjabs. Data from Pakistan shows that resource degradation reduced overall productivity growth from technical change and from education and infrastructure investment by one-third. These conclusions imply the need for policies that encourage agricultural productivity and sustainability through public investments in education, roads, and research and extension; and that diminish resource degradation by decreasing or eliminating subsidies that promote intensification of inputs.

Land is suffering a process of degradation in Pakistan. India has countered the problem with 'widespread use of gypsum to combat secondary salinity from tube well irrigation' by providing gypsum at subsidized rates to states facing salinity. Am organization has been established for this purpose. Pakistan has not undertaken any such measure. The result is rapid degradation of land contributing towards a decline in productivity

Punjab was hurt by a steep decline in the water table, while rising water levels in the wheat-cotton zone led to severe water logging in the wheat-cotton zone.

First, empirical evidence from areas of Asia that experienced rapid Green Revolution-induced change suggests that when new technologies were first adopted, inefficiency was fairly high (about 30 percent). In general, high levels of technical inefficiency are due mainly to deficiencies in information and technical skills and these were probably serious factors in both Punjabs, where poorly educated farmers switched, in a single generation, from traditional agriculture to complex multiple cropping systems dependent on significant levels of modern inputs.

The increase in technical efficiency a few years later, during the second period, can be attributed to learning by doing, as farmers gained experience using the new technologies; and also to an increase in human capital as education levels rose in both states. Indeed, evidence from India suggests that Green Revolution technological change directly increased the returns to education by spurring greater private investment in schooling, particularly in states such as the Punjab.

Third, low TFP(Total factor productivity) growth during the Green Revolution relates in part to limitations of the conventional method of productivity measurement when technical change is biased toward saving one or more factors.

When technical change is biased in this sense, it is impossible to separate the contribution of technical change from that of factor accumulation, because part of the contribution of technical change is captured in changes in the factor shares used to aggregate inputs. In the case of land- and labor-saving technologies, conventional TFP calculations underestimate the contribution of technical change to growth, particularly during the Green Revolution period.

Soil and water degradation reduced productivity in all regions, highlighting the effect of natural resource variables on productivity. In the wheat-rice system, resource degradation more than canceled the productivity-enhancing contributions of technological change, education, and infrastructure. The indefinite "other factors" captured by coefficients on the regional time-trend variable also reduced efficiency quite strongly in all but the wheat-cotton system.

In particular, constant underinvestment in operational and management costs has critically reduced the efficiency of the irrigation system resulting in such problems as regular breaches, unnecessary seepage, and limited water supplies for the conclusion reaches of distributaries.

Research and spending also fell in real terms in the 1990s and accounts for a falling share of the agriculture budget. Across the border in India, even though the share of public resources devoted to agriculture has risen steadily since the early 19 80s; subsidies to agriculture have increased three times faster than other expenditures (World Bank 1996).

Apart from crowding out productivity-enhancing expenditures, input subsidies have also been a major cause of overcapitalization, inefficient use of inputs, and a shift in cropping patterns toward water- and fertilizer-intensive crops, thus contributing, in India, to soil degradation, salinity problems, and overexploitation of ground- water. In Pakistan, the subsidy on canal water prices has led to inefficient use of water and has contributed to the water logging and salinity problem. In addition, the flat rate structure of water and electricity prices, together with a subsidy on tube well drilling without regulation of the number of tube wells, has distorted the efficient use of water Johnson 1989). Resource degradation is not, in itself, a reason for policy intervention if it is internalized in producer decision making.

Finally, a large number of institutions in the two Punjabs have overlapping mandates to address soil and water management problems in irrigated agriculture and their efforts are poorly coordinated. In the Pakistan Punjab alone, for example, nearly a dozen institutions are working on salinity problems. Information about land and water problems is also institutionally dispersed, as is policymaking. It is important, therefore, to establish a central agency in each Punjab to regularly provide farmers and policymakers with current information on the status of land and water resources in irrigated areas.

Investment (both public and private) plays a central role in productivity growth, there was, in Punjabs, a considerable lag between investment in infrastructure and Green Revolution inputs and the realization of productivity growth. This seems to relate in part to learning by doing and investment in human capital, which take time to produce improvements in technical efficiency; and in part to the better utilization of lumpy capital investments over time, especially tube well capacity. For policymakers, this lag suggests that a long-term commitment is needed to realize complementarities between investment in technologies and supporting infrastructure.

According to research by (Looney, 1994) over the past decade, the agriculture sector has undergone major technological and policy transformations. By introducing technical changes offering production incentives, and increasing the availability of fertilizer, water, and credit, Pakistan has increased its exportable surplus of cotton and is close to self-sufficiency in wheat. For the 1980-88 periods the corresponding figure was 4.3 percent, up from 3.3 over the 1965-80 period. Since then overall growth has been maintained at similar levels. As in most semiarid developing countries, however, considerable variations exist in annual and seasonal production owing to adverse weather, pest incidence, and uncertain irrigation supply.

Pakistan's agriculture is also characterized by regional disparities: Sindh and Punjab are the granary of Pakistan, whereas North West Frontier Province (NWFP) and Balochistan are the food-deficit regions. Average wheat yields in Balochistan and NWFP are about 25 percent lower than in Sindh and Punjab. Low fertilizer applications, traditional farming practices, limited extension services, mountainous terrain, and a smaller share of irrigated land explain the slower pace of agricultural development in these two provinces.

Given the difficulties of increasing the cultivated area, the extent to which raising yields and labor productivity can contribute to future output growth will be critical determinants of the country's food situation. The potential for productivity increases is limited by several major constraints-inadequate input management and institutional support, labor-supply bottlenecks, environmental degradation, and the supply of water. Of these, the supply of water is probably the most severe. Water is a binding limitation to land extension for agriculture.

The greatest scope for further important increments in irrigation water supply is likely to lie at the intensive margin of agriculture and will come through better operating policies for the irrigation system, an increasing water conveyance efficiency, and better on-farm management. Currently conveyance losses from river to distributaries canal amounts to an estimated 25 percent, and from the distributaries canal outlet to farmers' field to another 40 percent. " I Studies modeling the Indus Basin have demonstrated that better operating policies for the irrigation system can bring about major improvements in operating efficiencies, and hence reduce crop losses.'2 In addition to the difficulty of water availability, deficient use and management of inputs is an important constraint to agricultural growth. Pakistani agriculture still ranks low in input use relative to other developing countries despite progress over the last several decades. Greater use of inputs may increase yields if they are managed properly. Although fertilizer use grew rapidly from 1970 to 1980 (14 percent per annum and close to 9 percent since 1980), crop yields did not. Limited water availability and inappropriate nutrient balance are often cited as reasons for this lack of yield response.

These revised sector objectives were confirmed in the Ministry of Food and Agriculture's Policy Framework Paper (PFP) issued in 1988. The PFP stressed the importance of enhancing productivity through adequate funding of investment and appropriate price incentives to farmers. Priority was to be given to accelerating privatization of tube wells in fresh groundwater areas, adjusting support prices, promoting private sector participation in rice and cotton exports, removing the fertilizer subsidy as well as all distribution controls, and ensuring full recovery of operations and maintenance costs for irrigation and draining systems.

Production Efficiency and Agriculture Credit

According to research done by (Kahn, 1994) on World Bank-its role in farm mechanization Agricultural credit is necessary for the proper functioning of present day farm production. Agricultural development will result in increasing the farmer's income and will have its impact not only on his family but on the community as whole. As such in Pakistan agriculture has still an instrumental role to play in bettering the lot of rural population in particular and overall population in general. Any project therefore designed for rural development should have as its first object, the promotion of agriculture. This is necessary as agriculture sector possess higher labor absorption capacity compared to other sectors.

During the past four and a half decade financial services have expanded substantially specially in low income group society of Pakistan. This includes major increase in volume of formal loans, many new financial institutions and some steps towards mobilization of local resources in the form of financial savings in rural areas. The major objectives of these activities have been to increase agricultural output and to ease rural poverty. Thus there is a growing recognition among Pakistani farmers of the effective of improved inputs and new technology on cropping and agricultural yield. The use of these improved inputs and the adoption of the new techniques and enterprise which has changed the entire outlook of farm have given rise to an increased demand for agricultural credit in which the World Bank has played a crucial role.

The main constraint in the mechanization of in Pakistan has been the paucity of foreign exchange and availability of standardized agricultural machinery. To over-come these shortcomings ADBP during 1965-69 arranged foreign credit which was primarily for the importation of popular makes of tractors and for financing the installation of tube wells act of which in fact is the milestone in the history of this part of sub-continent.

Farm mechanization is an important factor in agricultural development. Increased production can result from new techniques put into practice on farm. Thus the modernization of our agriculture cannot take place without the transfer of technology aspect of which to greater extent become possible mainly through World Bank as is evident from foregoing narration of this text.

According to research by (Lambert & Bayda, 2005) its states that Farm financial structure may affect both short- and long-run input usage, thereby affecting farm efficiency. Any inefficiencies arising caused from the selection of inputs can be exaggerated over time as credit constraints continue to influence input usage. In a panel of 54 North Dakota crop farms, efficiency and debt structure were linked. Intermediate debt was found to be positively related to farm technical efficiency, and short-term debt was negatively related with technical efficiency. Use of intermediate-term debt was positively linked with farm-scale efficiency, while no significant relationship was found between short- and long-term debt and scale efficiency.

Farm financial needs include current-year borrowing to cover production costs; intermediate funds needed for equipment, machinery, and farm-improvement investments; and long-term capital required for investments in land and other real estate. Balancing internal and external sources of funds to cover farm costs may reflect farm financial targets, farm household income, farmer risk attitudes, credit constraints imposed by lenders, or the relative costs of internal versus external funds. The latter two considerations may reflect lender confidence in the payback abilities of the farmer, based on projected farm income or on past experience with the farmer's production efficiency relative to the lender's portfolio of borrowers.

Reliance on external funds can affect farm production decisions. In particular, debt financing can influence factor usage and potentially affect farm costs and efficiency. Greater reliance on short-term credit, which can be costly or constrained by lender limits, may reduce farm expenditures on necessary repairs and maintenance, decreasing the efficiency of owned assets and, consequently, overall farm efficiency. Increasing intermediate- or long-term debt, on the other hand, may increase farm efficiency through adoption of technological innovations embodied in new equipment, buildings, or storage facilities. When input choice is affected by external financing, disparities between input costs and marginal value products may occur, increasing farm costs and, as a consequence, decreasing farm efficiency.

Further in the study it was studied about "Costs, Debt, and Production Efficiency" There is little agreement about the relationship of financial structure, farm costs, and production efficiency In the agricultural setting, farmers with higher debt obligations should be induced to exert greater efforts on behalf of lenders (Barry and Robinson), which would result in a positive relationship between farm debt and production efficiency.

Alternatively, the higher relative costs of external to internal funds may result in higher costs and induce production inefficiency. Agency cost implies monitoring, bonding, and adverse-incentive costs are largely passed on by lenders to borrowers through interest rate adjustments, origination fees, collateral requirements, and other transfer mechanisms. These costs, in turn, may reduce the borrower's technical efficiency when compared with farms having less reliance on borrowed funds. The agency-cost concept implies a negative relationship between technical efficiency and financial leverage.

Increasing intermediate- and long-term assets through debt financing may positively influence farm efficiency because improvements in equipment and other farm capital facilities can improve farm efficiency. The relationship between financial structure and scale efficiency may depend on whether farms exhibit decreasing or increasing returns to scale. In another research it is found that no statistically significant relationship between debt structure and scale efficiency for farms operating under decreasing returns to scale. Conversely, for farms exhibiting increasing returns to scale, they found a significant negative relationship between intermediate debt and a positive relationship between long-term debt and scale efficiency.

Farm technical efficiency was found to be influenced by debt structure. A significant negative relationship was found between technical efficiency and the current debt-to-asset ratio. Two nonexclusive rationales may explain the nature of these impacts. First, the negative relationship supports the agency-cost concept, in which the higher costs of external to internal funds result in input misallocation. An alternative explanation, especially in a state subject to adverse weather events during the production year, may be increased reliance on operating loans to compensate for production shocks during the year. Increased borrowing may be necessary to cover costs required to bring in a crop or, alternatively, localized crop damage may reduce output levels below those attainable for the level and composition of farm inputs, including operating loans, employed.

According to research by (Olagunju, 2007) it is stated that Agricultural credit has long been identified as a major input in the development of the agricultural sector in Nigeria Credit determines access to all of the resources on which Farmers depend. Consequently, provision of macroeconomic policies and enabling institutional finance for agricultural development has been directed to the provision of infrastructure capable of facilitating agricultural development with a view to enhancing the contribution of the sector in the generation of employment, income and foreign exchange. One of the reasons for the decline in the contribution of agriculture to the economy is Lack of a formal national credit policy and paucity of credit institutions, which can assist farmers. Credit or loan able funds is viewed as more than just another resource such as labor, land, equipment and raw materials.

Therefore, by injecting capital into agriculture, it is possible to increase the rate of agricultural development since credit has frequently been considered as one of the main factors in overcoming agricultural stagnation that helps to expand farmland size and production.

Credit facilities as well as the use of agricultural capital and labor Resources accelerate adoption process and expand the scale of production. He further ascertained that with the introduction of credit, the farmers would be able to make possible a better combination of resources that can be employed to facilitate an increase in resource productivity.

According to research by (Ruben & Kolk, 2005) it is stated that Rural households use financial services for a wide variety of purpose credit can be applied in the production process as a device for hiring-in land, purchasing external inputs or contracting wage labor. In addition credit can also be used to consumptive process like acquisition of food and non-food items, durables for making investments in education or health.

In this research they compare two type of farmers one which uses micro credit and the other did not use it. It is further stated that credit can be helpful for substituting hired for family labor, albeit at the cost of reduced labor it is usually thought that credit will be applied to substitute materials inputs for land, but its impact on labor use is well known.

The findings of this research paper was that the impact of credit use on resource use and income distribution among rural farmers in Lempira department of Honduras the empirical results shows that the farmers use credit rely on a more input and labor intensive maize production technology compared to those who don't use credit. This is partly due to the substitution of land by capital inputs, but can also be attributed to the emerging complementarities fertilizers and labor.


R1: Is there a significant relationship between agriculture credit and development efficiency?

R2: Is there a significant relationship between agriculture credit and production efficiency?


In the following section hypothesis are generated which describes Section 4.1, Section 4.2 describes data collection and section 4.3 describes the research method used in this study.

H1: There is an association between agriculture credit and development efficiency.

H2: There is an association between agriculture credit and production efficiency.

Data Collection

To evaluate relationship between agriculture and development and production efficiency we have taken data from State Bank of Pakistan for yield of 27 crops and loan data for four different provinces through 1990-2007 where yield is dependent variable we are measuring the impact of agriculture credit on yield of different crops then for production efficiency we have taken loans data from different sources such as commercial banks ZTBL and State Bank of Pakistan and also we are measuring impact of different types of loans on production efficiency production data is taken for 31 crops from four provinces of Pakistan.

Research Method

To evaluate the relationship of variables the explanatory variables were regressed using Regression method called General Linear Model (GLM). In measuring impact of agriculture credit on development efficiency we have taken yield output of crops in Kg/hectare is dependent variable and independent variables are loan amount in million rupees, crops types 27 crops we are using, province. For evaluating the relationship between production efficiency and agriculture credit we have taken production output in thousand tones as our dependent variable and independent variable is loan type there are four types of loan types, crops type there are 31 crops and loan amount in million rupees.



We used cobb-douglas production function to find the relationship between agriculture credit and both production and development efficiency.

The traditional COBB-DOUGLAS production function

Y = ALaKß



A=total factor productivity



ß,a are elascities for Labour and Capital

5.1 Model 1 for relationship of agriculture credit with development efficiency

We change the variables in COBB-DOUGLAS production function for our use now our model looks likes:



DL=Development Loan

CT=Crop type


a,ßa,ßb are elascities for DL,CT and PR

This equation is transformed into linear one to facilitate to use of General Linear Model method by taking logarithmic transformation.

After making such a transformation the final equation is expressed as

Data Construction

Method for testing

We used GLM as our test method GLM applies when we have scale variable as our dependent variable and we have both scale and categorical predictors we have dependent variable yield as scale variable and development loan as scale independent variable and crop type, province are categorical variables that we used in our model so that's the reason to apply GLM because we have both scale and categorical predictors and scale dependent variable.


Significant at the5 percent level.

After doing test we have calculated beta of intercept which will be the value of our total factor productivity in COBB-DOUGLAS model originally that was "A" in main equation which is 8.197 and we have taken beta of lnamnt as beta of loan amount for development as 0.033.

Now we are developing equation as calculated by our tests.

Interpretation of results

The final equation that we have total factor productivity of 3630.0460 and beta for development loan is 0.033 which is greater than 0 now the interpretation of results we will start from Tests of Between-Subjects Effects which is our first table specially we are focusing on row 6 and row 7 which are significance or p value and Partial Eta Square in our case we have taken significant level at 5% so we can reject if any value of sig or p>0.05 and also R square which is the coefficient of determination which explains that how much variation in the dependent variable is explained by independent variables Partial Eta Square is also just like R square it also show split of R square means how dependency showed by each predictor.

If we look at intercept which is our total factor productivity in COBB-DOUGLAS model it seem to be significant F(1, 5277.560) p=0.000 (p<0.05) and have Partial Eta Square of 0.760 or 76% so it means our total factor productivity is highly important for yield improvement because it explains 76% variation in yield output.

Our most important variable is Development loan amount which is significant F(1,5.219) p=0.022 which is less than 0.05 so it is significant Partial Eta Square is 0.003 which 0.3% only which shows the minimum variation in yield output so its means that either loan amount disbursed in these years(year variable removed from our model due to that reason) 1990-2007 doesn't vary too much according to needs and the policy for the development loans is not much efficient but it is still significant also loan type is not significant means that loans disbursed for different purposes like tractors, water logging, land leveling etc. doesn't have much impact on yield output.

Second is Province which is also significant F(3,84.328) p=0.000 and Partial Eta Square is 0.132 which 13.2% which is also high explanation in dependent variable (yield) and development efficiency so it means that loan provided has a positive effect on yield but not in significant in explaining yield differential in different provinces.

Third is Crop Type which is significant F(26,622.396) p=0.000 and Partial Eta Square is 0.907 which 90.7% which is highest variation explained by Crop Type means that for development efficiency or increase in yield growth crop type plays vital role.

R-Square interpretation which 90.6% means that 90% variation in the dependent variable is explained by predictors which show that our model is highly accurate.

Further analysis

The above diagram shows that estimated marginal means (mean of yield) is remain constant by year to year so there is no significant improvement is yield out put from 1990-2007.

The above diagram shows crops patterns in yield output analyzing this diagrams conclude that sugar beet has highest yield and then garlic and onion and lowest yield showed by cotton so there should be more focus to improve cotton yield Pakistan being exporter of cotton and we have to also focus on low performing crops in terms of yield.

The final diagram shows the performance of provinces in terms of yield Baluchistan and NWFP were highest as Sindh and especially Punjab which is main province of agriculture production shows low yield output so it has to be considered.

Model 2 for relationship of agriculture credit with Production efficiency

For this relationship we again use COBB-DOUGLAS production function with few changes again.


A=Total factor productivity


PL=Production Loan

CT=Crop type

LT=Loan type


a,ßa,ßb,ßc are elascities for PL,CT,LT and YR

We again change the variables in COBB-DOUGLAS production function for our use now our model looks likes:

This equation is transformed into linear one to facilitate to use of General Linear Model method by taking logarithmic transformation.

Data Construction

Method for testing

We again used GLM as our test method GLM applies when we have scale variable as our dependent variable and we have both scale and categorical predictors we have dependent variable yield as scale variable and development loan as scale independent variable and crop type, province are categorical variables that we used in our model so that's the reason to apply GLM because we have both scale and categorical predictors and scale dependent variable.


After doing test we have calculated beta of intercept which will be the value of our total factor productivity in COBB-DOUGLAS model originally that was "A" in main equation which is -0.208 and we have taken beta of LnLoanAmount as beta of loan amount for development as 0.262.

Now we are developing equation as calculated by our tests.

Interpretation of results

The final equation that we have total factor productivity of 0.8122 and alpha for production loan is 0.262 which is greater than 0 now the interpretation of results we analyzing Tests of Between-Subjects Effects focusing on row 6 and row 7 which are significance or p value and Partial Eta Square in our case here again we have taken significant level at 5% so we can reject if any value of sig or p>0.05.

Looking at intercept which is our total factor productivity in COBB-DOUGLAS model it seem to be significant F(1, 2847.736) p=0.000 (p<0.05) and have Partial Eta Square of 0.179 or 17.9% so it means our total factor productivity is significant and is important for production efficiency improvement because it explains 17.9% variation in production output.

Our most important variable is Production loan amount which is significant F(1,1829.589) p=0.000 which is less than 0.05 so it is significant Partial Eta Square is 0.123 which 12.3% only which shows the medium variation but not as expected in production output so its means that either the policy of production loans is not adequate or it is not much efficient from year 2005 and onwards state bank of Pakistan has work much on providing production in adequate manners and offered different types of schemes specially for small farmers to provide them credit for production easily to increase the production efficiency.

Second is Crop Type which is significant F (30,934.741) p=0.000 and Partial Eta Square is 0.683 which 68.3% which shows high variation explained by Crop Type means that for production efficiency type of crop is considered very important may be some crops give high productivity in our case it is sunflower while the crops production for other crops than sunflower shows no growth or constant production in span of 1990-2007.

Third is Loan Type which is also significant F (3, 92.942) p=0.000 and Partial Eta Square is 0.021 which 2.21% which is also show low explanation in dependent variable (production) but it is still significant partial eta square shows that type of loan in this case is loan for pesticide, fertilizer, seed and others doesn't have very much significant effect on production level.

Fourth is year which is also significant F(16,30.61) p=0.000 and Partial Eta Square is 0.036 which 3.36% which shows low explanation in dependent variable (production) but it is still significant partial eta square(3.36%) and if we take a look at diagram showing marginal means of production two years it shows that by the passage of time production drastically decreased from 1990-2007 the trend is going downwards slightly increased production is seen in 2005-2007 because of change in agriculture credit policy for improvement lack of agriculture credit and proper policy for farmers specially small farmers which are more in quantity may be the reasons for this trend in these three years state bank of Pakistan has done a lot on providing small farmers adequate credit for improvement of production efficiency.

Further analysis

This diagram shows that by the passage of time the amount of production goes drastically downwards but in year 2005 and onwards by the change in agriculture disbursements and new schemes by SBP the production is again raising slightly.

This diagram explains that some crops such as sunflower, wheat and tomato shows very high production while some crops like other rabi pulses and coriander shows extremely low production also cotton not showing significant growth so we need to focus on these crops which shows low production and see and analyze what are the reasons behind.

Loan type shows comparison with production means shows that fertilizers get smallest loans as compare to seeds and others so we have to focus on fertilizers if use of more fertilizer can improve production efficiency.


The results for development loan on development efficiency concludes that there is a positive relation ship between development loan and development efficiency but not up to that extent that is needed the reasons can be the credit policy is not accordingly as the need of credit for development efficiency or increase in yield per hectare also the types of loans government is providing for development efficiency is not significant to increase the yield output in such manners so the credit policies of providing loans should be re-analyzed accordingly.

As for impact of credit on production efficiency the results are same like development efficiency there is a positive relationship between credit and production efficiency but not so significant enough the reasons can be amount disbursed in these years(year variable removed from our model due to that reason) 1990-2007 doesn't vary too much according to needs and the policy for the development loans is not much efficient but it is still significant also loan type is not significant means that loans disbursed for different purposes like tractors, water logging, land leveling etc. doesn't have much impact on yield output.


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List of Sample Companies

State Bank of Pakistan