PROSPECTS OF VALUE ADDITION IN HORTICULTURE CROPS

Dr. Babar Ehsan BajwaDr. Babar Ehsan Bajwa(Chief Operating Officer)

Punjab AgriMarketing Company, Government of the Punjab

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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)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 interventionshi h h li it d i t d li it d l bilitwhich 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

B t t t f bli l d tt ib ti ti l f i

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• 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

– Beauty contest for public land attribution, promoting nucleus farming

Shift to horticulture can lead to a significant growth, income increase

Growing fruits and vegetables can help increase income for farmers Pakistan average size farm is 3.1 ha

Simulated annual turnover (USD)1

16,80016,800

> 5 ha> 5 ha

100% = 21m ha6.6m farms

14,00014,000

86%Average:

3.1 ha per f

12,20012,200

9x

< 5 ha< 5 ha

71%

25%43%

farm

7,7007,700

8,0008,000

1,8001,800Arable landFarms

For small farmers this is a risky move because it requires a shift from

21 Simulated revenue = National average yield x Producer price (based on FAOStat) x Average farm sizeSource: FAOStat, Agricultural Census 2000, Team analysis

y qsubsistence farming to commercial farming which also requires the right market linkages and access to training and investment

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)g ) y ( g )

• 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 interventionshi h h li it d i t d li it d l bilitwhich 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

B t t t f bli l d tt ib ti ti l f i

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• 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

– Beauty contest for public land attribution, promoting nucleus farming

Productivity of the horticulture sector in Pakistan can be further improved to achieve the highest benchmark levels

Productivity gap vs. benchmarks1

Yield, t/ha

18 4Fruits Pakistan

Top 3 peer

12.715.3

10.4

17.7

7.5

18.4

TangerineMangoApple

On average, Pakistan can improve productivity levels

Vegetables 40.4

19 523.325.7

by 40% on fruits and vegetables

Tomato

10.2

Potato

19.5

Onion

14.0

4

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

Significant losses within the horticulture sector

Pakistan losses vs. best practices, %

Pakistan 30–40• Level of losses vary according

to the nature of the product

2–4 times more

– Highly perishable products (e.g. mango, vegetables)

– Durable products (e.g. potato, onions)

• Significant room for improve-ment with better post-harvest management (e g rapid cooling

Best practices 5–15management (e.g., rapid cooling after harvest, packaging)

• Better varieties and Production Technology

5Source: Interviews

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 (%)

29

31

Vietnam

Philippines

Pakistan only

18

19

Morocco

ChinaPakistan only processes little of its produce compared to benchmark

7

9

14

Pakistan

Bangladesh

Indonesia countries

4

7

7

India

Egypt

Pakistan

6

Peer average: 14

SOURCE: Global Insight

Pakistan fresh products fetch much lower prices than other exporting countries

Spain 1.8 Morocco 0.4

Export unit value, $/kgFruits Vegetables

M P t t

Indonesia 0.8

Philippines 1.3

Kenya 1.5

Peru 0.8 Bangladesh 0.3

Egypt 0.3

Indonesia 0.3

Vietnam 0.4Mangoes Potatoes

Pakistan 0.3

Egypt 0.6

India 0.7

India 0.1

Pakistan 0.2

China 0.2

Pakistan fresh produce fetches lower prices in

Morocco 0.7

India 0.9

Kenya 1.0

Indonesia 0.4

Morocco 0.7

Kenya 0.9Tanger-ines (incl. Kinnow)

Toma-toes

lower prices in international markets than other countries

Philippines 0 3

China 0.4

Egypt 0.4

Indonesia 0.6

Egypt 0 3

India 0.3

Nigeria 0.3

China 0.3

7SOURCE: FAO statistics, 2008

Pakistan 0.3

Philippines 0.3

Pakistan 0.2

Egypt 0.3

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

low productivity, high losses, low value add) however these are only symptoms of the issue

• Poor product post harvest management• Technology

• The current set of solutions being undertaken in Pakistan focus on piecemeal interventionswhich have limited impact and limited scalability p y

• 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

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• 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

– Beauty contest for public land attribution, promoting nucleus farming

Pakistan has large traditional marketing structure which does not link with product differentiation, quality and safety

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With the current industry structure, Pakistan cannot fulfil the requirements of these large global players

Pakistan industry structure

Producer Intermediary

• Fragmented subscale farmers

• Fragmented intermediaries with

• Limited agro-processing with

Agro-processing

Exporter

Need to address industry structure to break the current vicious circle and

subscale farmers intermediaries with short term/trader mindset

processing with sourcing issues

• Absentee large landowners • Fragmented

t ith li it d vicious circle and attract investment in the sector

exporters with limited sophistication

No value chain integration

Vicious circle: low investment – low productivity/ quality low profitability

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productivity/ quality – low profitability

Horticulture is no more just farming, its an industry!

New countries are competingCustomers are more demanding

• Development of very aggressive horticulture powerhouses over the last

Safety• Certification

according to standards (e g

New countries are competing aggressively

• Importance of

powerhouses over the last decade in countries such as China, Kenya, Turkey

• Countries have developed d l ti hi ith l

Being successful as a nation in the horticulture sector requires increased

standards (e.g., CAC; SPS; Private Standards)

Quality appearance, packaging and taste

• Consistently high

good relationships with large buyers, who have invested heavily in those countries

requires increased investment and sophistication

VolumesConsistently high volumes with timely delivery

11Source: Bajwa BE 2009. International Compliance Issues for Horticulture Commodities.

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 issuelow 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:

Th t h ld f ilit t f ith 3 ifi i iti ti

– Lack of sophisticated/ professional players – Lack of integration in the value chain

• The government should facilitate reforms, with 3 specific initiatives:– Institutional development– Marketing & Agribusiness – Research and Technology Development

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• 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

The Options for Value Addition!

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The Chain Integration !!! (Three to Five Years)

DEPLOYMENTINDUSTRY

INVESTMENTSINVESTMENTS

MAR

KET

NTRO

DUCT

ION

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PUBLIC PRIVATE

PARTNERSHIPS

INT

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PARTNERSHIPS

PRO

DUCT

EL

OPE

MNT

- Institution Reforms- Market Reform

T h l Ch

UNIVERSITY RESEARCH

PDE

VE - Technology Change- Entrepreneurship- Model CRC’s

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BASIC+APPLIED

As part of this integration strategy, the private sector will make investments in all parts of the value chain

P d ti

Technology neededTypical Investment Expected impact

• Greenhouse (e.g. walk-in, low tunnel)• Modern irrigation (e g sprinkler drip)

NON EXHAUSTIVE

• Higher productivity• Off season

• PKR 80,000/ha for greenhouse

• Cooling stations at production site

Production • Modern irrigation (e.g. sprinkler, drip) • Enhanced seeds• Adequate fertilizer

• Off-season production possible

• Higher quality

for greenhouse• PKR 100,000/ha

additional for inputs

• PKR 300-400k

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Cool chain • Cold storage at packing sites• Cool chain for transportation (e.g. reefer,

controlled atmosphere)

• Irradiation facility for e g USA • Access to higher-

Higher quality• Lesser losses

PKR 300 400k for a 20’ reefer (possible rental)

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Export treatment

Irradiation facility for e.g. USA• Vapor heat treatment facility for e.g.

Japan• Hot water dip for e.g. China

Access to higherend more profitable markets

• PKR 100-200m for irradiation facility

Processing Packaging

• Processing, washing, waxing, grading, de-greening equipment

• Packaging and branding

• Higher price fetched • PKR 8m for a citrus processing unit (8T/ha)

15Source: Prefeasibility studies (SMEDA, PHDEC), Interviews, Web Search, Team analysis

• R&D Investments are a key to success• Good Incentives to be given for Applied R&D

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,

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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.

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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 li it d i t d li it d l bilithave limited impact and limited 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

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• 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

– Beauty contest for public land attribution, promoting nucleus farming

Some Examples-PAMCO Introduces Farmer Markets in PakistanW

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References

ADB 2009 A i D l t B k St i C itt P t ti f th E t bli h t f N ti l ADB 2009. Asian Development Bank, Steering Committee Presentation for the Establishment 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

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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

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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 PHDEC 2009. Pakistan Horticulture Development & Export Company, Ministry of Commerce, Government of Pakistan. www.phdec.org.pk

SMEDA 2009. Small and Medium Enterprise Development Authority, Ministry of Industries, Government of Pakistan. www.semda.org

ACIAR 2008 ASLP Mango Q alit Impro ement Workshops A stralian Centre for International

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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.