OPERATIONAL RISKS CONTROLS TO IMPROVE AGRICULTURE AND FOOD MANAGEMENT
SYED ALAMDAR ALI
Hailey College of Baking & Finance Lahore
Mar 10 - 16, 2008
The Economic Survey of Pakistan for the year 2006-7 states that the agriculture growth has experienced mixed trends over the last six year. The country witnessed unprecedented drought during the first two years of the decade i.e. (2000-01 and 2001-02) which resulted in contraction of agricultural value added. Hence agriculture registered negative growth in these two years. In the following years (2002-03 to 2004-05), relatively better availability of irrigation water had a positive impact on overall agricultural growth and this sector exhibited modest to strong recovery. The performance of agriculture remained weak during 2005-06 because its crops sector particularly major crops could not perform up to the expectations (Table 2.1). Growth in the agriculture sector registered a sharp recovery in 2006-07 and grew by 5.0 percent as against the preceding year's growth of 1.6 percent. Major crops posted strong recovery from negative 4.1 percent last year to positive 7.6 percent, mainly due to higher production of wheat and sugarcane.
The availability of food for masses in the country is directly dependent on the success of crops in the country. Here it is very unfortunate to state that although the country achieved its targets for most of the agriculture produce yet we suffered from very severe shortage of wheat and other food items towards the end of the last year. Whatever would be the causes, argued by the government, all of them point to the same reason, sheer mismanagement!
Here we present a synopsis of the required operational risk controls that need to be adhered strictly if we wish to avoid any such situation in the near future:
1. INDUSTRY/MARKET CONDITIONS: Do current and forecasted industry conditions (local, regional, national, and/or international) indicate a "friendly" environment for developing a new agriculture strategy? How are these conditions affecting raw inputs and labor availability? How are they affecting product sales for similar products? Will tax imposition greatly affect operating costs and profitability? What is happening with interest rates and how will that affect debt servicing for agriculture? These and other economic/market considerations may have strong impacts on agriculture.
2. LEGAL AND REGULATORY ANALYSIS: Does the large distributors of agriculture produce have a registered/protected name? Does each of the company's products have a Universal Product Code (UPC), and will the products" labels require nutritional analysis and labeling? Does the company comply with local and federal health and manufacturing regulations? Does the company have the required purchasing, health, and sales permits? What contractual arrangements have been made with input suppliers, co-packers (if used), and distributors/brokers (if necessary)?
3. CONSUMER ANALYSIS: It may seem arbitrary in this field, but in order to channelise the agriculture produce on all country basis according to the requirement of the masses, it is advisable to perform a research that how the market for a product is segmented, i.e., can a profile be developed that identifies primary and secondary customer groups for a product? For instance, who are the direct buyers of the wheat, who are buyers in retailer market and who is the buyer in wholesale market. By performing a little library research, it is possible to define customers in terms of location, ethnicity, income level, education, or other factors affecting the demand for a given product. With this information, it is possible to target the customer group(s) with the greatest market potential. The increasing size of a given consumer group, the tendency of a given consumer group to purchase similar products, or possibly the lack of competitors to supply products to meet the needs of that group, may determine market potential.
4. COMPETITIVE ANALYSIS: With whom will the products/ services be competing? Will competition be based upon quality standards/attributes or upon price? What advantages/disadvantages do competitors have? What business and marketing strategies can be applied specifically for the agriculture produce? What resources do they have available? How new competitive advantage could be obtained?
5. OPPORTUNITY ANALYSIS: After reviewing the market, regulatory, customer, and competitive aspects, what unique opportunities are apparent for the produce? How do the risks of potential problems weigh against the forecasted gains of opportunities? Given certain internal and external factors, which opportunities rank highest? In other words, what business options seem to provide a path to success with minimal risk?
Performing a research specially related to food production and distribution requires considerable planning. Carefully designing a plan keeping in mind regulatory and business environment conditions will highly increase the chances of policy success and longevity. Just as a well-planned vacation allows a family to avoid unpleasant surprises and expenses, a well-planned agriculture policy taking into account the operational risk aspect as listed above guards against legal problems and financial stress.