PAKISTAN RURAL MARKET

Businesses thriving on rural market

By Mohiuddin Aazim | InpaperMagzine February 14, 2011 (4 weeks ago)

A SURGE in the agriculture incomes, spurred by high commodity prices, over last few years has benefited the industrial economy and services sector in many ways. Companies providing farm inputs like fertilisers, selling tractors, or engaged in processing and marketing of food products, or in trading in commodities, are performing better in an otherwise not so promising growth in the manufacturing sector. Capacity expansion in fertilisers manufacturing is taking place as increased income levels in rural economy has stimulated demand. Launching of Fatima Fertilizer Company last year is an example. Earnings of companies catering to farm sector are also on the rise. Emboldened by huge profits earned in recent years, Engro Chemicals Pakistan is planning a billion dollar investment overseas. Fauji Fertiliser Company and Fauji Fertiliser Bin Qasim, both have also made enormous profits over last two years. And Millat and Al-Ghazi have increased itheir sales of tractors. With increase in domestic support prices of food crops and with rise in international prices of agricultural commodities, the appetite and production of agricultural machinery has grown. In FY10, double-digit growth was seen in manufacturing of chaff cutters and power looms and production of sugarcane machine surged 68 per cent. Food industry has received fresh domestic investment in such areas as grading, processing and packaging of citrus fruits and mangoes and in expansion of processed meat and poultry projects. The launching of Meat Onea Karachi-based chain of retail meat outlets comes handy as an example. Similarly, 25 tons of meat were exported from Punjab were exported to Malaysia

recently. Much of the recovery in sales of automobiles and electronic items in last two years can also be attributed to higher demand in rural and semi-urban localities. Increased income in rural areas and speedy spread of telecommunication technologies across the country have also led to more organised livestock breeding and marketing. For last two years, young entrepreneurs in big cities have joined hands with educated youth in villages and towns. They arrange bulk transportation of sacrificial animals from the countryside to urban centres and erect fashionable pavilions in temporarily set up animal markets for selling them. The use of cell phones and internet is becoming popular in marketing of sacrificial animals and several websites also offer round-the-year sales of animals to allincluding meat exporters who do not have their own livestock farms. The worst-ever floods in July-September last year may have hit farmers and eroded rural prosperity. But because of shortages in output so created, prices of sugarcane, cotton and vegetables have gone up, aided by a surging international commodity market. The post-flood rehabilitation and reconstruction would eventually reinvigorate the agricultural economy, and the rural prosperity should continue to provide support to industrial and services sector. That the rural income levels had increased substantially in fiscal years 2008-09 and 2009-10 and part of that had been reinvested for improving agricultural productivity is evident from the fact that flood-inflicted shortfall in production of crops is for less than originally anticipated. More than 11 million bales of cotton crop have reached ginneries and overall output is being estimated between 11.5 and 12 million bales against the initial estimate of 10 million bales. Similarly, wheat crop is all set to yield 25 million tonnes against earlier post-flood estimate of 23 million tonnes. And sugarcane crop is expected to touch 47 million tonnes. It was projected after the floods that sugarcane production would fall to 43 million tonnes. Prospects of better-than-initially anticipated size of wheat crop along with availability of sufficient carryover stocks have facilitated exports of wheat and wheat products with the surges in the international market demand and the prices of the commodity rising. Latest reports are that Chinese wheat crop has been badly hit by a severe draught. Exports of wheat flour, bread and confectionary items have led to at least half a dozen leading mills to utilise more of their installed milling capacity, says Mr. Akhtar Hussain, a Karachi-based exporter of wheat flour and its products. Capacity utilisation in this industry has always remained low because of mushroom growth. Rice millers say they have also recently invested in making on-farm silos, grading and processing of rice grains as well as in packaging and marketing. Today you can find several brands of quality rice in retail packs of five and 10kg selling not only in big cities but also in semi-urban and rural areas of Sindh and Punjab, says a Jodia Bazar-based trader. Branded family packs of cooking oils, spices, tea and other fast-moving consumer goods are also being sold there. Only a few years ago, we just used to make bulk supplies. So, the point is that domestic trading is becoming more formal in rural Pakistan and better and more fashionable

retail outlets continue to pop up there. This is all because the purchasing power of rural people has increased. In last few years, the public and private sectors have joined hands to use agricultural gains as a means to commercialise farming. Apart from initiatives taken by the federal government, provincial governments of Sindh and Punjab have made several attempts to deepen linkages between farming and industrial activities. Their respective boards of investment have also played a key role towards transformation of agriculture. And now Khyber Pakhtunkhwa has set up its own board of investment for the same purpose. These efforts combined with the post-flood agricultural recovery and revival package of the federal and provincial governments have started bearing fruits, claims a senior official of Sindh Agriculture Department. One of the key challenges, however, is the lack of adequate storage capacity and sizable supply chains necessary to maximise revenues on supplies of farm products to the market. The dairy sector is a primary example of this where, according to estimates by the Sindh Board of Investment, only about 30 per cent of the total milk produced is marketed and only 3.5 per cent is packaged. There are very few chillers available that can store the milk properly for marketing. According to Engro Foods CEO Sarfaraz A. Rahman, the country might face a shortage of approximately four million tonnes of milk by next year unless there is a rapid build-up in cold chain capacity. The shortage of storage capacity in other commodities including wheat is also common. But lately, the Punjab government has taken initiatives to set up steel silos and other on-farm non-traditional storage houses with the help of domestic and foreign investors. Companies like Engro Foods, Nestle and Haleeb are playing a pioneering role in the development of the dairy industrytowards a transformation from a dispersed, low-margin sector to one that now has higher margins and integrated supply chains. Engro Food, a food products subsidiary of Engro Corporation has set an example of investment being made in agricultural sector. Engro has a wide distribution network and has started using the synergies from that network in its newer lines of business. Company officials say that that poor logisticsa hurdle in the way of promoting agro-based businessesthey have set up the Engro Foods Supply Chain Company which will manage the companys integrated supply chain throughout the country.
Source: DAWN.com