PROSPECTS OF VALUE ADDITION IN HORTICULTURE CROPS Dr. Babar Ehsan Bajwa (Chief Operating Officer) Punjab AgriMarketing Company, Government of the Punjab 0
Horticulture Potential Horticulture is a major economic opportunity with a large global export market (USD 150bn) and fast growth (12% per year). It also has the potential for tremendous social impact (employment creation and income generation) as well as sustainability (e.g better economic use of water) Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m) The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture, low productivity, high losses, low value add) however these are only symptoms of the issue The real problem is that with the current industry structure, Pakistan cannot fulfil the requirements of the large global buyers who dominate this increasingly sophisticated market. Specific challenges include the: Lack of sophisticated/ professional players Lack of integration in the value chain The current set of solutions being undertaken in Pakistan focus on piecemeal interventions which h have limited it impact and limited it scalability The government should facilitate a private-led integrated approach, with 3 specific initiatives: Attraction of one key foreign importer Development of an integrated pilot contract farming scheme Beauty contest t for public land attribution, ti promoting nucleus farming If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from the horticulture sector within the next 5 years 1
Shift to horticulture can lead to a significant growth, income increase Pakistan average size farm is 3.1 ha 100% = 6.6m farms 21m ha > 5 ha Growing fruits and vegetables can help increase income for farmers Simulated annual turnover (USD) 1 16,800 14,000 86% 71% Average: 3.1 ha per farm 12,200 8,000 9x < 5 ha 43% 25% 7,700 Farms Arable land 1,800 For small farmers this is a risky move because it requires a shift from subsistence farming to commercial farming which also requires the right market linkages and access to training and investment 1 Simulated revenue = National average yield x Producer price (based on FAOStat) x Average farm size Source: FAOStat, Agricultural Census 2000, Team analysis 2
Pakistan Missing the Opportunities Horticulture is a major economic opportunity with a large global export market (USD 150bn) and fast growth (12% per year). It also has the potential for tremendous social impact (employment creation and income generation) as well as sustainability (e.g better economic use of water) Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m) The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture, low productivity, high losses, low value add) The real problem is that with the current industry structure, Pakistan cannot fulfil the requirements of the large global buyers who dominate this increasingly sophisticated market. Specific challenges include the: Lack of sophisticated/ professional players Lack of integration in the value chain The current set of solutions being undertaken in Pakistan focus on piecemeal interventions which h have limited it impact and limited it scalability The government should facilitate a private-led integrated approach, with 3 specific initiatives: Attraction of one key foreign importer Development of an integrated pilot contract farming scheme Beauty contest t for public land attribution, ti promoting nucleus farming If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from the horticulture sector within the next 5 years 3
Productivity of the horticulture sector in Pakistan can be further improved to achieve the highest benchmark levels Productivity gap vs. benchmarks 1 Yield, t/ha Top 3 peer Fruits 18.4 7.5 17.7 10.4 15.3 12.7 Pakistan Apple Vegetables Mango Tangerine 40.4 On average, Pakistan can improve productivity levels by 40% on fruits and vegetables 25.7 14.0 23.3 19.5 10.2 Onion Potato Tomato 1 Average of the top quartile of peers ranked by productivity for each item; peer group includes Bangladesh, China, Egypt, India, Indonesia, Kenya, Morocco, Nigeria, Philippines, Vietnam SOURCE: FAOStat 4
Significant losses within the horticulture sector Pakistan losses vs. best practices, % Pakistan 30 40 2 4 times more Best practices 5 15 Level of losses vary according to the nature of the product Highly perishable products (e.g. mango, vegetables) Durable products (e.g. potato, onions) Significant room for improvement with better post-harvest management (e.g., rapid cooling after harvest, packaging) Better varieties and Production Technology Source: Interviews 5
Pakistan has not yet fully developed its agro-processing industry Low transformation rate Processed food value add as share of total agri and processed food (%) Philippines 31 Vietnam China Morocco Indonesia 14 19 18 29 Pakistan only processes little of its produce compared to benchmark countries Bangladesh 9 Pakistan Egypt 7 7 India 4 Peer average: 14 SOURCE: Global Insight 6
Pakistan fresh products fetch much lower prices than other exporting countries Export unit value, $/kg Fruits Vegetables Mangoes Tangerines (incl. Kinnow) Spain 1.8 Morocco 0.4 Kenya 1.5 Potatoes t Vietnam 0.4 Philippines 1.3 Indonesia 0.8 Indonesia 0.3 Egypt 0.3 Peru 0.8 Bangladesh 0.3 India 0.7 Egypt 0.6 Pakistan 0.3 Kenya 1.0 India 0.9 Morocco 0.7 Indonesia 0.6 Egypt 0.4 China 0.4 Philippines 03 0.3 Pakistan 0.3 Tomatoes China 0.2 Pakistan 0.2 India 0.1 Kenya 0.9 Morocco 0.7 Indonesia 0.4 China 0.3 Nigeria 0.3 India 0.3 Egypt 03 0.3 Pakistan 0.2 Pakistan fresh produce fetches lower prices in international markets than other countries SOURCE: FAO statistics, 2008 7
Specific Problems Horticulture is a major economic opportunity with a large global export market (USD 150bn) and fast growth (12% per year). It also has the potential for tremendous social impact (employment creation and income generation) as well as sustainability (e.g better economic use of water) Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m) The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture, low productivity, high losses, low value add) however these are only symptoms of the issue The problem are Lack of sophisticated/ professional players Lack of integration in the value chain Poor product post harvest management Technology The current set of solutions being undertaken in Pakistan focus on piecemeal interventions which have limited impact and limited scalability The government should facilitate a private-led integrated approach, with 3 specific initiatives: Attraction of one key foreign importer Development of an integrated pilot contract farming scheme Beauty contest for public land attribution, promoting nucleus farming If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from the horticulture sector within the next 5 years 8
Pakistan has large traditional marketing structure which does not link with product differentiation, quality and safety 9
With the current industry structure, Pakistan cannot fulfil the requirements of these large global players Pakistan industry structure Producer Fragmented subscale farmers Absentee large landowners Intermediary Fragmented intermediaries with short term/ trader mindset No value chain integration Agro-processing Exporter Limited agro- processing with sourcing issues t ith li it d Need to address industry structure to break the current vicious circle and Fragmented exporters with limited sophistication attract investment in the sector Vicious circle: low investment low productivity/ quality low profitability 10
Horticulture is no more just farming, its an industry! Customers are more demanding Certification Safety according to standards (e.g., CAC; SPS; Private Standards) Importance of Quality appearance, packaging and taste Being successful as a nation in the horticulture sector requires increased investment and sophistication New countries are competing aggressively Development of very aggressive horticulture powerhouses over the last decade in countries such as China, Kenya, Turkey Countries have developed good relationships with large buyers, who have invested heavily in those countries Volumes Consistently high volumes with timely delivery Source: Bajwa BE 2009. International Compliance Issues for Horticulture Commodities. 11
What needs to be done Horticulture is a major economic opportunity with a large global export market (USD 150bn) and fast growth (12% per year). It also has the potential for tremendous social impact (employment creation and income generation) as well as sustainability (e.g better economic use of water) Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m) The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture, low productivity, high losses, low value add) however these are only symptoms of the issue The real problem is that with the current industry structure, Pakistan cannot fulfil the requirements of the large global buyers who dominate this increasingly sophisticated market. Specific challenges include the: Lack of sophisticated/ professional players Lack of integration in the value chain The government should facilitate t reforms, with 3 specific initiatives: iti Institutional development Marketing & Agribusiness Research and Technology Development If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from the horticulture sector within the next 5 years 12
The Options for Value Addition! 13
The Chain Integration!!! (Three to Five Years) DEPLOYMENT INDUSTRY INVESTMENTS MARKET NTRODUCTION INT UNIVERSITY RESEARCH BASIC+APPLIED PUBLIC PRIVATE PARTNERSHIPS PRODUCT DEVE ELOPEMNT - Institution Reforms - Market Reform - Technology Change - Entrepreneurship - Model CRC s Working Draft - Last Mod dified 6/10/2008 7:56:05 AM 14
As part of this integration strategy, the private sector will make investments in all parts of the value chain Technology needed Typical Investment NON EXHAUSTIVE Expected impact Production Cool chain Export treatment Greenhouse (e.g. walk-in, low tunnel) Modern irrigation (e.g. sprinkler, drip) Enhanced seeds Adequate fertilizer Cooling stations at production site Cold storage at packing sites Cool chain for transportation (e.g. reefer, controlled atmosphere) Irradiation facility for e.g. USA Vapor heat treatment facility for e.g. Japan Hot water dip for e.g. China PKR 80,000/ha for greenhouse PKR 100,000/ha additional for inputs PKR 300-400k for a 20 reefer (possible rental) PKR 100-200m for irradiation facility Higher productivity Off-season production possible Higher quality Lesser losses Access to higher- end more profitable markets Working Draft - Last Mod dified 6/10/2008 7:56:05 AM Processing Packaging Processing, washing, waxing, grading, de-greening equipment Packaging and branding PKR 8m for a citrus processing unit (8T/ha) Higher price fetched R&D Investments are a key to success Good Incentives to be given for Applied R&D Source: Prefeasibility studies (SMEDA, PHDEC), Interviews, Web Search, Team analysis 15
Conclusion/Recommendations Horticulture is a major economic opportunity with a large global export market (USD 150bn) and fast growth (12% per year). It also has the potential for tremendous social impact (employment creation and income generation) as well as sustainability (e.g better economic use of water) Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m) The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture, low productivity, high losses, low value add) however these are only symptoms of the issue The real problem is that with the current industry structure, Pakistan cannot fulfil the requirements of the large global buyers who dominate this increasingly sophisticated market. Specific challenges include the: Lack of sophisticated/ professional players Lack of integration in the value chain The current set of solutions being undertaken in Pakistan focus on piecemeal interventions which have limited it impact and limited it scalability The government should facilitate a private-led integrated approach, with 3 specific initiatives: Attraction of one key foreign importer for fruits Development of an integrated pilot contract farming scheme for vegetables Beauty contest t for public land attribution, ti promoting nucleus farming If Pakistan can manage the value additions successfully, sky is the limit; Country may bring in ~$2 to 2.5 bn foreign exchange from the horticulture sector within the next 3 years 16 Working Draft - Last Mod dified 6/10/2008 7:56:05 AM
Some Examples-PAMCO Introduces Farmer Markets in Pakistan Working Draft - Last Modified 6/10/2008 7:56:05 AM 17
References ADB 2009. Asian Development Bank, Steering Committee Presentation ti for the Establishment t of National Trade Corridor Improvement Programme. Bajwa BE 2009. International Compliance Issues for Horticulture Commodities. Pakistan Horticulture Development and Export Company, Ministry of Commerce, Pakistan. Bajwa B.E, F.M Anjum and U.A Bajwa 2011. Kinnow Mandarin: Postharvest Management of Kinnow Mandarin to Extend Shelflife. Lambart Academic Publishing, France. Bajwa B.E & F.M Anjum. 2007. Improving storage performance of Citrus reticulata Blanco mandarins by controlling some physiological disorders. Int J Food Sci Technol. 42: 459-501. Blackwell Publishing, London. FAO 2008. FAO STAT; Food and Agricultural Organization of the United Nations, Rome. Faostat.fao.org ITC 2009. International Trade Centre, Trade MAP. www.intracen.org Global Insight 2009. Economic and Financial Data. www.globalinsight.com MinFA 2009. Agriculture Statistics of Pakistan. Ministry of Food and Agriculture, Islamabad, Pakistan. www.minfa.gov.pk PHDEC 2009. Pakistan Horticulture Development & Export Company, Ministry of Commerce, Government of Pakistan. www.phdec.org.pk Working Draft - Last Mod dified 6/10/2008 7:56:05 AM SMEDA 2009. Small and Medium Enterprise Development Authority, Ministry of Industries, Government of Pakistan. www.semda.org ACIAR 2008. ASLP Mango Quality Improvement Workshops. Australian Centre for International Agriculture Research. ACIAR 2007. Market Research in China. Australian Centre for International Agriculture Research. 18