Value-chain issues

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A lack of structural development policies and practices

Pakistan is the fourth or fifth largest producer of milk in the world. Yet, we import powdered milk and face milk shortages, while we only process a small fraction, some estimates put it as low as four percent or so, of the milk we produce in the country. Should we not have been self-sufficient, if not exporters of milk? Is there a problem somewhere and why are markets and/or governments not able to resolve the problems?

Pakistan produces, according to the billboards on the Motorway, some of the best citrus of the world, and though the world market for orange juice is very large, even for frozen or powdered concentrate, yet we do not figure in any appreciable way in this market. We have some of the best mangoes in the world, and while we export some mangoes, the export is not even near where our potential puts us. We have the perfect land for producing some of the best tomatoes and potatoes that can be, and the demand for both, or derivative products, is very large. But we have not been able to develop these markets either. We have some of the best rice in the world, and we do export quite a bit of rice, but we do not get the price of a brand name or export the volume we could.

There have been a number of large and/or multinational players in the milk market for a fair number of years in Pakistan now. And these players have made efforts to raise milk from certain areas of the country, but the fact remains that despite the efforts of these companies, we still have the bulk of milk production remaining un-processed and milk market, by and large, remains fragmented and local. Milk being unprocessed, perishable and bulky to transport, the market cannot be but local.

Some of the issues in milk sector are clear. People usually have a few animals each so that milk production is not concentrated and milk collection has to take place over a geographic spread and from many suppliers. This means transportation and storage costs. We need vehicles in which milk can be collected and kept safely for sometime and we need chillers in rural areas where collections from the area can be kept. These vehicles and chillers need to have basic facilities for checking quality of milk and the people operating them need skills as well.

In some places where milk availability density is high, it is possible for milk companies to either set up their own collection systems and chillers, or they can do longer term contracting with a local person to set up the system for the company (given weak property rights and even weaker enforcement, this option will be problematic in Pakistan) but in areas where collection is thinner, setting up a chiller and collection mechanism, in the hope that better prices will eventually elicit a supply response of more production, requires an initial investment which companies might find difficult to do but have a public good element and the local governments could consider.

There are other issues in the milk market that might require state attention as well. In areas where milk companies are working, they do provide support to farmers on animal husbandry: it is in their interest to do so to ensure a certain quality and quantity of milk. But they would have little or no interest in extending the services to other areas or people who are not dealing with the companies as potential or actual suppliers. Furthermore, some areas, such as availability of proper feed, knowledge on breeding and stock management, and veterinary services, especially inoculation and disease prevention services, require state provision also as there are public good and sunk cost elements here too.

Do these issues explain the relative lack of development of the milk sector in the country? The gains from having a more developed milk sector are clear: in terms of higher incomes for cattle farmers and for the rural population, more jobs in rural areas, higher milk supplies for the entire population, especially the urban dwellers, higher profits for the corporate sector, possible exportable surplus or at least reduction in imports, and higher growth and income for the country overall. If it is issues given above and/or similar issues that are holding the sector back, why have the milk companies, in collaboration with SMEDA and other concerned/responsible bodies not been able to resolve them?

The saddest part is that the basic ingredients and the potential is all there, and all can see it and appreciate it as we keep hearing of the impending ‘white revolution’, but it has not happened for the last many years.

In fruit export, we see similar issues. Fruit exports require cold chains and on-time delivery, they need good quality assurance, grading and certification mechanisms, and we need to ensure compliance with importing country’s regulations regarding pesticide use and other practices. But all of these have been done, in pockets, by other developing countries too. Why has it been so hard for us to do it? Similarly, the juice markets have not developed, almost at all. There are many juice producers and retailers in Pakistan but most of them, barring a couple, are small. And even the larger ones, with locally known brand names, have not been able to break into the mainstream export markets. Where are the bottlenecks in this industry? Some years back the Ministry of Industries had undertaken value-chain studies in a number of industries. These studies, if completed, must have identified the bottlenecks. Why has the state/government been unable to address them?

We have talked most of those agri-product areas here which seem to have a lot of untapped potential and about whom we know quite a bit already. In these areas, it is not a question of ‘developing’ comparative advantage as that seems to be already present. But if we still cannot break into export markets in these products, it should be of major concern to the finance and industries ministries at federal as well as provincial levels. And given the state of the economy there should be a sense of urgency in dealing with such issues.

Last, but not least, I do want to mention another topic. But I will come back to it another day. There are some large consortiums that have recently started operating in Pakistan, for buying the crop straight from the farm and eliminating the middleman. The governments need to see that these companies do not rip the farmers of their profits through fine print on legal documents and also that such export be regulated properly in order to calculate local demand, so that shortages do not result.

Large multinationals are also pushing for genetically modified seeds to be used in Pakistan. The industrialised world, especially European Union and Canada, have very stringent rules against GMO crops. Government regulators need to ensure that the foreign consortiums together with local partners do not introduce genetically modified crops, because not only will it be counterproductive for our exports in the long run, they will also compromise the quality of crops grown by sustainable farmers and be ruinous for our environment.

The writer is an Associate Professor of Economics at LUMS (currently on leave) and a Senior Advisor at Open Society Foundation (OSF). He can be reached at [email protected]

1 COMMENT

  1. It would not have been any different in India, but for one person called Dr.Verghese Kurien, who made India self-sufficient in dairying through Anand Pattern Co-operatives (APCOS). India has emerged as a formidable force in terms of milk production through village cooperative societies. These cooperative societies together make a Cooperative Union at the district level for milk processing and finally the district level unions federate themselves for a common marketing body to eliminate competition among themselves. Farmers are paid every 10days based on the quantity of milk poured and quality thereof which is determined by Fat and SNF. The profit earned by a Union is shared among the farmers as dividends for the shares they hold. Cattle feed and veterinary services are made available to the farmers at a very reasonable price. The quality of livestock has undergone a transformation through artificial insemination carried over the last four decades. Millions of marginal farmers have been able to earn their livelihood through co-operative dairying. Thus the whole of India has benefited from this model created and championed by Dr.Kurien, who went on to win World Food Prize, Magasasay Award and the second highest civilian honour (Padma Vibhushan) of India.Recently Dr.Kurien became 90. Long live, Dr.Kurien.

    May be a similar structure could help dairying in Pakistan by linking its milk producers in villages with the urban consumers. Pakistan is bestowed with high quality livestock ….. it is time a structure was put in place to leverage this strength.

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