PAKISTAN'S ECONOMIC PROGRESS WOULD RELY VERY HEAVILY ON TRANSFORMATIVE CHANGE IN THE AGRICULTURE SECTOR
GROWING TREND WITNESSED TOWARDS INVESTING IN THE PAKISTANI AGRICULTURAL SECTOR
Aug 6 - 12, 2012
There has been a small but growing trend towards investing in the Pakistani agricultural sector, one of the largest sectors in the world in terms of its production of several key commodities.
The amounts involved are small so far, but the names of the investors coming in - and the expertise and connections they represent - are far more significant.
One company that has done more than most to bring in foreign investment into Pakistani agribusiness is Indus Basin Holdings, a new venture capital firm that has amongst is investors' financial and industrial luminaries from Europe and the United States.
Indus Basin is the brainchild of Aamer Sarfraz, a merchant banker at the London-based private equity firm Tigris Financial, where he has been managing director since 2006.
"We're focused on non-political commodities (those in which the government does not set the prices) where we can launch greenfield investments that yield a return that is 10, 20, 40 times the initial investment," said Sarfraz. "We want to be the biggest agribusiness private equity player in Pakistan."
Indus Basin is now about to launch a rice export business as well as a corn mill and a dairy farm. Yet they are not the only firm getting into the game. Nestle, the Swiss conglomerate, recently announced that it will be investing over $300 million in the Pakistani dairy sector to double its output of milk. Nestle's Milkpak brand is one of the largest packaged milk brands in the market.
Several local conglomerates have been organising themselves into investment companies geared towards extracting high yields from the agriculture sector.
The Dawood Group of companies, for instance, has wound down its insurance company - Central Insurance - and restructured it to become Cyan Ltd, a company that will invest in high growth sectors in Pakistan and has agriculture as one of its priority sectors.
Hussain Dawood, the patriarch of the Dawood family, also owns 38% of the Engro Corporation, one of the largest conglomerates in Pakistan. Engro's subsidiary operates the world's largest single-train urea manufacturing plant, in what is likely the single largest investment in the Pakistani agriculture sector: $1.1 billion. Engro also owns Engro Foods, one of the largest food companies in the country. Another conglomerate - the Nishat Group, owned by Mian Muhammad Mansha, the richest man in Pakistan - has also decided to enter the consumer foods business by launching its own dairy company.
Pakistan has, indeed, a tremendous potential for irrigated agriculture, with fresh water from the River Indus and other rivers, rain water if harvested, and fossil water that can be drilled. It also has a weather pattern that is suitable for almost all production but unfortunately agricultural sector still is being placed n the list of the most neglected sectors. However, population growth, urbanization, gender inequalities, climate change and access to markets are just some of the factors that affect Pakistan's ability to produce desirable quantity of food. Despite impressive paper work, even the present government is doing nothing to invest in our people's skills and agricultural technology.
Food exports from the country witnessed negative growth of 6.03 to reach at $4.237 billion during the fiscal year 2011-12 as compared to the exports of the same period of the previous year. The food exports during July-June (2011-12) stood at $4.237 billion against the exports of $4.509 billion recorded during July-June (2010-11), according to Pakistan Bureau of Statistics (PBS).
The major food commodities that contributed to the negative growth included rice, exports of which decreased by 4.57 percent from $2.160 billion to $2.061 billion.
The recent rise in global food prices caused by the severe shortages presents an opportunity to boost local food production and increase the country's self-sufficiency level. The government needs to push the agricultural sector in this direction through food security strategies that are already bearing fruit in different agro-economy based countries. An innovative step should be the local cultivation of rice with the aim of supplying the domestic market and for export. Furthermore, development of the agribusiness sector should be very high on the agenda of the Board of Investment ( BoI) and it needs to devise planning to attract further foreign investment in areas such as Horticulture: Fruits, Vegetables, Flowers, Field crops, Cereal grains, Grain legumes, Root crops, oil plants and tress and others.
The FAO says that about 85 percent of the world's farms are smaller than two hectares and smallholder farmers and their families represent one-third of the world's population, or two billion people.
The government needs to encourage the smallholder farmers so that they can play their role vigorously for sustainable agricultural growth and food security in the country. In sum, since Pakistan holds enormous potential for boosting the yield of food crops and other agricultural commodities and it could have a better chance of feeding its people with improved governance, more effective agricultural policies, better training and other measures what is needed the most it is continued, focused action on the agricultural sector and that will also lead Pakistan to vibrant agricultural growth and food self-sufficiency in this age of food prices hike and food items paucity.
Experts told PAGE that there is huge potential for investments in agriculture sector of Pakistan and demand for fertilizers has increased due to farmers' awareness so the better returns of agriculture produces are expected.
According to them, agriculture is crucially important for our national economy and any industry related to this sector would be encouraged and facilitated to work and flourish.
The United States Agency for International Development (USAID) has signed a cooperative agreement with Agribusiness SupportFund (ASF) for implementation of a five year 90 million dollar Agribusiness Project.
ASF, a locally registered development organization with rich experience in the Pakistan agriculture sector, will implement the project in collaboration with international and domestic partners. The overall goal of the USAID Agribusiness Project is to support improved conditions for broad-based economic growth, create employment opportunities and contribute to poverty alleviation through increase in competitiveness of horticulture and livestock value chains in partnership with all stakeholders. Although agriculture constitutes the largest sector in Pakistan's economy, the high value horticulture and livestock sub-sectors are characterized by non-efficient production and marketing systems, resulting in low-scales of response to market needs. The lack of awareness with respect to supply and market chains and an inability to fulfill the mounting market requirements for product quality, volume and continuity of supply, continue to deprive producers, especially smallholder farmers, of the potential opportunities. A competitive agribusiness sector can contribute to export-led growth, food import substitution, enhanced food security, employment creation, and poverty reduction. "This is a significant investment that USAID has committed to help strengthen Pakistan's high value agriculture sector" said Bill Patterson, Director of Agriculture USAID, Islamabad. "The phenomenal increase in global trade has created many new market opportunities for agricultural producers and processors worldwide" Patterson said. "This project will have a positive transformative effect on Pakistan's agriculture sector and will assist in alleviating poverty through economic development."
The Agribusiness Project has been designed to increase productivity, product quality, and value added by removing constraints that occur throughout the product value chains. It will focus on agriculture value chains that show significant market potential. The project will fuel investment in the agribusiness sector, integrate the target sub-sectors into domestic and global market chains and expand farm and non-farm employment opportunitiesin rural areas. It will improve farm and enterprise productivity through technical assistance programs targeting 62,500 farmers and 2,500 agribusiness stakeholders. It will leverage USD 320 million by the private sector through the provision of cost sharing support to 45,000 Farmer Enterprise Group members, 100 associations and cooperatives, 250 individual and corporate farmers, 40 R&D and extension providers, 140 SMEs and 8 Lead companies. It will create 1.3 million jobs and substantially raise farm incomes thereby contributing towards poverty alleviation and enhanced food security.
Pakistan has an Agri-based economy with a very well developed agriculture sector and most of the labor engaged in the Agriculture Sector. It has vast tracts of cultivable land offering the prospective investor lucrative returns and rich harvests on his investment. Pakistan has an agriculture base of more then 79.6 Mn Hectares of total area with 22 Mn Hectares land under cultivation. 18 Mn Hectares of land is under cultivation through irrigation system while 4 Mn Hectares of land relies its cultivation exclusively on rain.
Pakistan has a comparative advantage in the region with vast areas of cultivable wasteland available and a strong potential for expansion of agriculture base. The large local agricultural market of Pakistan is increasing at 29% per year with an Internationally competitive unit cost of production for all major crops, fruits & vegetables at a very low transportation cost, and developed routes to Middle East, Iran and Afghanistan.
By developing the country's agriculture sector in a systematic manner with focused approach to meet future challenges, we can become one of the food secured nations. Improvements in agricultural productivity have long been associated with the advancement of economies. Indeed, the first part of the Chinese economic miracle began with a transformation of Chinese agriculture in 1978, when Deng Xiaopeng allowed farmers in rural China to keep and sell most of their surplus. That decision led to a boom in agricultural productivity that launched the growth trajectory from which China has not looked back.
Many economists are of the view that Pakistan's economic progress would rely very heavily on transformative change in the agriculture sector, which in turn cannot come without significant investments. And given the extreme inefficiencies that exist in the sector, the potential for profit is enormous.