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 One—a 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 all—including 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 industry—towards 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 logistics–a hurdle in the way of promoting agro-based
businesses—they have set up the Engro Foods Supply Chain Company which will manage the
company’s integrated supply chain throughout the country.

Source: DAWN.com