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Export Competiveness


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Export Competiveness in the dairy sector of Pakistan

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Export Competiveness

  1. 1. Pakistan: Export Competitiveness Dairy and Livestock Rehan A Khan Rehan A. Hashmi Imran Rafiq Shafqat Sahi Waqar Abbas
  2. 2. Export Potential <ul><li>From 1960-2000, agricultural GDP grew by 3% per annum </li></ul><ul><li>The contribution of the livestock sub-sector to agricultural GDP has increased from 26% to 52.2% (now 11% of total GDP) . </li></ul><ul><li>The share of agriculture in the GDP has declined from 30% in 1980 to 24% in 2002 </li></ul><ul><li>The livestock sector output grew by 3% until 1980 and over 5% thereafter. </li></ul><ul><li>Within livestock subsector </li></ul><ul><ul><li>Dairy (milk) accounts for 66% of the value of output </li></ul></ul><ul><ul><li>Meat accounts for 13% </li></ul></ul><ul><ul><li>Poultry meat and eggs 8% and other products 13% </li></ul></ul>
  3. 3. Export Potential <ul><li>Livestock contributes significantly towards national exports </li></ul><ul><ul><li>8.5 - 9.0 per cent of total exports belong to this sector. </li></ul></ul><ul><li>85-90% of milk consumption in both rural and urban areas of Pakistan remains in the form of raw unprocessed milk and traditional processed milk products, such as yoghurt, ghee/butter oil and butter. </li></ul><ul><li>Consumer demand for processed (UHT) milk has been increasing slowly since the mid 1990s </li></ul>
  4. 4. Export Potential
  5. 5. Export Potential
  6. 6. Productivity and Business Environment Factor Conditions Related and Supporting Industries Demand Conditions Country Strategy A local context and rules that encourages investment and sustained productivity improvement – e.g., Intellectual property protection 􀁺 Meritocratic incentive systems across all major institutions 􀁺 Open and vigorous local competition
  7. 7. Country Strategy <ul><li>Public investment in livestock extension and services </li></ul><ul><li>Promotion of dairy co-operatives </li></ul><ul><li>Targeted dairy development projects </li></ul><ul><li>Public sector investment in milk processing and marketing </li></ul><ul><li>Facilitating private sector investment in dairy processing </li></ul><ul><li>Import tariffs on milk powder and income tax exemption to dairy farmers </li></ul><ul><li>Other policies indirectly affecting the dairy sector: </li></ul><ul><ul><li>Promotion of Green Revolution technologies </li></ul></ul><ul><ul><li>Exchange rate policies </li></ul></ul><ul><ul><li>Tax policy for processed milk products and agricultural inputs </li></ul></ul><ul><ul><li>Regulations banning animals in metropolitan city areas </li></ul></ul><ul><ul><li>Regulations to control milk quality </li></ul></ul>
  8. 8. Public investment
  9. 9. Promotion of Co-Operatives <ul><li>Idara-e–Kissan (IK), 19,000 farmer members of the co-operative own the enterprise </li></ul><ul><ul><li>Daily collection is about 200,000 L through 576 milk collection centers </li></ul></ul><ul><ul><li>1992 to 2000, average annual sales increased from 4 M to 39 M Liters </li></ul></ul><ul><ul><li>Currently, daily processing and sales through 450 retail shops are roughly: </li></ul></ul><ul><ul><ul><li>70,000 L unpacked pasteurized (open pasteurized) </li></ul></ul></ul><ul><ul><ul><li>20,000 L pouch-packed pasteurized </li></ul></ul></ul><ul><ul><ul><li>30,000 L UHT </li></ul></ul></ul><ul><ul><ul><li>80,000 L converted to powder and other products </li></ul></ul></ul>
  10. 10. Targeted Dairy Development <ul><li>Punjab Smallholder Dairy Development Project, (UNDP) funded at a total cost $14 M </li></ul><ul><ul><li>Targeted 27,000 poor rural households in 720 villages in six Tehsils in Gujranwala Division </li></ul></ul><ul><ul><li>Milk production has increased by 26.5% among the targeted households and sales per household increased by up to 69% </li></ul></ul><ul><li>The results of the project were so encouraging, the project was incorporated into the Provincial Livestock Department </li></ul>
  11. 11. Investment in Milk Processing and Marketing <ul><li>Livestock Development Project was started in 1975 as an umbrella pilot project in some districts of all four provinces with an investment of PKR 78.4 M </li></ul><ul><ul><li>It helped in creating capacity to process nearly one M Liters of milk per day </li></ul></ul><ul><li>Currently Nestle, occupies the largest market share of UHT milk in the country </li></ul><ul><ul><li>collecting milk from 130,000 farmers in 3000 villages in Punjab Province. </li></ul></ul><ul><ul><li>The company also owns the biggest milk collection network, collecting 1 M liters of milk a day </li></ul></ul><ul><li>Engro, has recently entered into the market with huge investment </li></ul><ul><li>Currently, there are 44 milk plants in the country with installed capacity of 5 M litres per day </li></ul><ul><li>Only 13 plants are operational with about 40% capacity utilization in total. </li></ul><ul><li>Among these, the installed milk powder processing capacity is about 100,000 T per year </li></ul><ul><ul><li>plants operate at below 40% capacity due to competition with cheap milk powder dumped from European Union (EU) countries which offer export subsidies. </li></ul></ul><ul><ul><li>Imported milk powder from EU is USD 1000 per tonne compared to USD 1920 for local product. </li></ul></ul><ul><ul><li>The EU is offering an export subsidy of USD 660 per tonne for milk powder </li></ul></ul>
  12. 12. Productivity and Business Environment Factor Conditions Related and Supporting Industries Demand Conditions Firm Strategy Presence of high quality, specialized inputs available to firms – Human resources – Capital resources – Physical infrastructure – Administrative infrastructure (e.g. business registration, rules, licensing, property rights) – Information infrastructure – Scientific and technological infrastructure – Natural resources
  13. 13. Factor Conditions-Physical <ul><li>Pakistan is the 5 th largest producer of milk having the world 3 rd largest animal herd (appr. 50M), employing approximately 44% of the workforce </li></ul><ul><li>Milk prices range from a low of </li></ul><ul><ul><li>10 US$ per 100kg in Pakistan </li></ul></ul><ul><ul><li>29 US$ per 100 kg in the USA. </li></ul></ul><ul><ul><li>over 23 US$ per 100kg in Bangladesh </li></ul></ul><ul><ul><ul><li>This high price seems to stem from a high demand for milk as opposed to relatively low volumes of production and limited availability. </li></ul></ul></ul><ul><li>Globally, milk yields per cow range from 960 to 10,000 kg/year </li></ul><ul><ul><li>Within South Asia, interesting trends and opportunities for development appear to exist: </li></ul></ul><ul><ul><ul><li>Small farms in Pakistan yield around 40 percent more than those in India and Bangladesh </li></ul></ul></ul><ul><ul><ul><li>Only the larger Indian farms, which are very well managed and rely on European dairy genetics reach milk yields around the 4,000 kg mark </li></ul></ul></ul>
  14. 14. Factor Conditions-Capital <ul><li>ZTBL will disburse Rs 23M to dairy farmers under a micro finance scheme </li></ul><ul><li>The Government initiated projects to the tune of Rs. 7.1 B for strengthening </li></ul><ul><ul><li>livestock services </li></ul></ul><ul><ul><li>improving disease control </li></ul></ul><ul><ul><li>milk and meat production </li></ul></ul><ul><ul><li>breed improvement </li></ul></ul><ul><ul><li>animal husbandry management practices </li></ul></ul>
  15. 15. Factor Conditions-Cost of Production <ul><li>Pakistan is ranked among the countries with lowest cost of production in the world </li></ul><ul><li>In all small farms the main cost component are the opportunity costs of family labor </li></ul><ul><li>The Pakistani milk producers are more competitive than those of Europe and US. </li></ul><ul><ul><li>The cost difference is more than 10 US $ per 100 kg milk. </li></ul></ul><ul><ul><li>Large dairy farms in Pakistan have lower costs than rest of the world farms and can be competitive milk producers in the future </li></ul></ul><ul><ul><li>Farms in Bangladesh will have difficulties to compete against imports from the world market and also from Pakistan. </li></ul></ul>
  16. 16. Factor Conditions-Foreign <ul><li>Real competition stems from producers in Oceania and Latin America that have very low production costs </li></ul><ul><li>Qatar Livestock Company is investing $1B in corporate farms in Pakistan </li></ul><ul><li>DFID of UK has granted a £ 25M project for dairy and agriculture infrastructure investment </li></ul><ul><li>Engro Chemicals will be investing $1.6B in agriculture during next three years </li></ul><ul><li>5-10 major UAE groups will explore Pakistan's agriculture sector in corporate farming, livestock and dairy sectors </li></ul>
  17. 17. Factor Conditions
  18. 18. Productivity and Business Environment Factor Conditions Related and Supporting Industries Demand Conditions Firm Strategy 􀁺 Sophisticated and demanding local customer's 􀁺 Local customer needs that anticipate those elsewhere 􀁺 Unusual local demand in specialized segments that can be served nationally and globally
  19. 19. Demand Conditions - Domestic <ul><li>Demand levels are closely associated with income growth and urbanization and linked to </li></ul><ul><ul><li>increased demand for quality, food safety and standardization </li></ul></ul><ul><ul><li>changes in consumption habits and lifestyles </li></ul></ul><ul><ul><li>demand for convenience </li></ul></ul>
  20. 20. Demand Conditions - Foreign <ul><li>Gulf countries imports 90 per cent of its food requirements from the West and other countries </li></ul><ul><li>The Arab countries' farm import bill is of more than $200 billion (Dh734 billion) </li></ul><ul><li>Demand for food in Arab world grew by around four per cent between 2002 and 2006. </li></ul><ul><li>With reduction of subsidies in the wake of WTO, the local livestock sector should have better opportunities to compete. </li></ul>
  21. 21. Productivity and Business Environment Factor Conditions Related and Supporting Industries Demand Conditions Firm Strategy 􀁺 Access to capable, locally based suppliers and firms in related fields 􀁺 Presence of clusters instead of isolated industries
  22. 22. Supporting Industry
  23. 23. Supporting Industry <ul><li>This sector provides raw material for the industry and livestock creates market and capital. </li></ul><ul><li>Pakistan has well-developed poultry feed industry. However, the cattle feed industry is now emerging. </li></ul><ul><ul><li>There are now about 22 cattle feed production units, which cater for less than 5 per cent of the required concentrate needs </li></ul></ul><ul><li>Livestock also provides security against crop failure particularly in Barani areas </li></ul><ul><li>These animals produce </li></ul><ul><ul><li>29.472 M tons of milk </li></ul></ul><ul><ul><li>1.115 M tons of beef </li></ul></ul><ul><ul><li>0.740 M tons of mutton </li></ul></ul><ul><ul><li>0.416 M tons of poultry meat </li></ul></ul><ul><ul><li>8.528 B eggs </li></ul></ul><ul><ul><li>40.2 T tons of wool </li></ul></ul><ul><ul><li>21.5 T tons of hair </li></ul></ul><ul><ul><li>51.2 T skins and hides. </li></ul></ul>
  24. 24. Recommendations <ul><li>There is a strong rationale for Pakistan to promote small-scale dairy production and if need be protect dairy markets from unfair and harmful competition. </li></ul><ul><li>Pakistani government should resort to applying the safeguards provided in the WTO legislation to protect their dairy markets against subsidized imports from the EU or US. </li></ul><ul><li>Use of exotic cattle genes for sustainable path to higher productivity </li></ul><ul><li>National and local breeding strategies need to address the realities of climate and disease risk </li></ul><ul><li>Services of artificial insemination should be extended. </li></ul><ul><li>Superior fodder should be identified and propagated </li></ul>
  25. 25. Recommendations <ul><li>Farmer organization has to be strengthened to ensure that their interests are better represented on a national scale </li></ul><ul><li>Promote co-operatives and farmer groups for collection, bulking and marketing milk </li></ul><ul><ul><li>Irrespective of whether targeted to the processing industry or informal raw milk market. </li></ul></ul><ul><ul><li>Introduce licensing to informal traders and provide them with simple, appropriate technologies to extend shelf-life of raw milk </li></ul></ul><ul><ul><ul><li>This will dissuade traders from using harmful additives </li></ul></ul></ul><ul><ul><ul><li>Will encourage consumers to pay a price premium for assured quality </li></ul></ul></ul><ul><ul><ul><li>Public policy should discourage concentration and scaling-up of peri-urban dairy and encourage rural dairy for more equitable development </li></ul></ul></ul>
  26. 26. Recommendations <ul><li>While the market for UHT milk is expected to expand, there is need to diversify the products </li></ul><ul><li>Setting up livestock business advisory service centers will be a good investment for professionals. </li></ul><ul><li>Establishment of milk collection centers in the milk pockets with chillers offer a good investment </li></ul><ul><ul><li>This will result in improved quality and quantity of milk </li></ul></ul><ul><li>Not necessary to establish large dairy farms , to promote commercialization of dairy. </li></ul><ul><ul><li>If the necessary technologies are provided and market institutions are promoted for small-scale milk producers and market agents, overall employment and income generation can be increased. </li></ul></ul><ul><ul><li>This may create a momentum for change in dairy production and marketing structure in the country, propelled by general structural changes in the agricultural sector and the economy and most production units may gradually become larger. </li></ul></ul>