Final Report - Acumen Fund -Group 11-

Value Chain Analysis &Identification of Sustainable Investment Opportunities
MBA Project Report
Submitted to MBA Projects Coordinator
Dr. Kamran Ali Chatha
Faculty Advisor
Dr. Syed Mubashir Ali
Project Team Members
12010054
12010071
12010083
12010092
12010111
Suleman Dawood School of Business
Lahore University of Management Sciences

Acknowledgements
The MBA Project has been a true learning experience. We have gained valuable insights of the agriculture sector and understood the challenges keeping this industry from its true potential. This report would not have been possible without the help of certain individuals and organizations. We would like to extend our sincere thanks to them.
Firstly we would like to thank Allah the Almighty for helping us throughout this project by ensuring and protecting us throughout arduous times.
Secondly, our client, Acumen Fund, for the opportunity to work on this interesting project which enabled us to combine our business skills and passion for agriculture sector and plight of farmers.
We would further like to thank our project coordinator, Mr. Kamran Chatha for the interim deadlines and evaluations which enabled us to work efficiently on our client’s deliverables.
Lastly, we would like to offer our deepest gratifications to our advisor, Dr. Syed Mubashir Ali for his continued guidance and support. He not only helped us with the project but also made us re-evaluate and analyze the same issue with multiple dimensions which added depth and breadth to our analysis.

Table of Contents
Exhibits ............................................................................................................................................ i
List of Tables .................................................................................................................................. ii
List of Figures ................................................................................................................................ iii
Executive Summary ....................................................................................................................... iv
About the Company ........................................................................................................................ 1
Project ............................................................................................................................................. 3
Agriculture Industry ........................................................................................................................ 4
Project Highlights ........................................................................................................................... 8
Project Scope .................................................................................................................................. 9
Value Chain Analysis Framework ................................................................................................ 11
COTTON
Secondary Research .............................................................................................................. 14
Primary Research .................................................................................................................. 17
Value Chain of Cotton ........................................................................................................... 17
Porter’s Five Forces Analysis ................................................................................................ 22
Points of Intervention ............................................................................................................ 25
Financial Analysis (Per Acre)................................................................................................ 27
DATES
Value Chain of Dates ............................................................................................................. 32

Financial Analysis (Per Acre)................................................................................................ 40
APRICOTS
Value Chain of Apricots ........................................................................................................ 46
CITRUS
Value Chain of Citrus ............................................................................................................ 57
Financial Analysis (Per Acre) ............................................................................................... 64
Gantt Chart – Project Progress ...................................................................................................... 65
Exhibits ......................................................................................................................................... 66
Appendices .................................................................................................................................... 74
Appendix 1: Cotton Transcriptions ....................................................................................... 74
Appendix 2: Dates Transcriptions ....................................................................................... 103
References ................................................................................................................................... 113
Contacts…………………………………………………………………………………………….

i
Exhibits
Exhibit 1: Breakup of Cultivable Area ......................................................................................... 66
Exhibit 2: Fertilizer Use ................................................................................................................ 67
Exhibit 3: Sensitivity Analysis of Cotton ..................................................................................... 68
Exhibit 4: Marketing Channels of Dates ....................................................................................... 69
Exhibit 5: Sensitivity Analysis of Dates ....................................................................................... 69
Exhibit 6: Sensitivity Analysis of Citrus ...................................................................................... 71
Exhibit 7: Comparative Financial Analysis of Cotton, Dates & Citrus ........................................ 72
Exhibit 8: Comparative Sensitivity Analysis of Cotton, Dates & Citrus ...................................... 73

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List of Tables
Table 1: Primary Research Details ................................................................................................. 9
Table 3: Cotton Area under Cultivation........................................................................................ 14
Table 2: Cotton Production ........................................................................................................... 14
Table 4: Province-wise Yield........................................................................................................ 15
Table 5: Input Data - Cotton ......................................................................................................... 27
Table 6: Financial Analysis (Per Acre) - Cotton .......................................................................... 27
Table 8: Date Area under Cultivation ........................................................................................... 29
Table 7: Date Production .............................................................................................................. 29
Table 9: Province-wise Share and Production - Dates .................................................................. 29
Table 10: Date Exports ................................................................................................................. 30
Table 11: Production of Fresh and Dry Dates .............................................................................. 30
Table 12: Export Breakup - Dates ................................................................................................ 31
Table 13: Input Data - Dates ......................................................................................................... 40
Table 14: Financial Analysis (Per Acre) - Cotton ........................................................................ 41
Table 15: Apricot Production and Area under Cultivation ........................................................... 43
Table 16: Top Districts - Apricots ................................................................................................ 43
Table 17: Apricots Imports ........................................................................................................... 43
Table 18: Apricots Exports ........................................................................................................... 44
Table 19: Apricot Varieties ........................................................................................................... 44
Table 20: Citrus Area under Cultivation ....................................................................................... 56
Table 21: Citrus Production .......................................................................................................... 56
Table 22: Financial Analysis (Per Acre) - Citrus.......................................................................... 64

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List of Figures
Figure 1: Business Model of Acumen ............................................................................................ 1
Figure 2: Value Chain of Cotton ................................................................................................... 19
Figure 3: Value Chain of Dates .................................................................................................... 34
Figure 4: Value Chain of Apricots ................................................................................................ 46
Figure 5: Value Chain of Citrus .................................................................................................... 59
Figure 6: Deliverables Timeline ................................................................................................... 65

Executive Summary
The primary objective of this report is to help Acumen Fund find suitable investment opportunities which would have a sustainable financial and social impact along the value chain of an agricultural crop. The objective was achieved through a) identification and analysis of the value chain to highlight the relationships and roles of various players in the value chain b) identification of power balances through the porter’s five forces framework c) highlighting suitable intervention points and d) identifying specific ventures which can add to Acumen’s investment portfolio. This framework was employed on four different crops – citrus, cotton, dates and apricots.
Among the crops analyzed Cotton is the most significant part of Pakistan’s economy. It contributes 2% to GDP and Pakistan’s cotton exports rank third in the world. Despite this, there are multiple challenges faced by key players in this value chain. At the input level outdated infrastructure, non-uniform seed quality and scarcity of water are the problems faced by growers. At the farm level, capital constraints coupled with fluctuating margins and negligible bargaining power adds to the growers’ problems. Nature related issues such as late wheat harvest and rampant pest attacks add to farmer problems. From the ginner’s perspective, irregular grades of quality is one of the primary challenges. To complicate the existing competition from big companies ginners have to face power shortages and rising fuel costs. The financial analysis per acre reveals that monthly profit of cotton is PKR. 2,031. The sensitivity analysis reveals that large farm sizes enjoy better margins as they can approach the ginners directly and totally eliminate the middle men and mandi. Fertilizer and seed players regulate prices and Ginners and middle men have considerable power and dictate prices and post-harvest dynamics. The inventions include procurement centers, technological up gradation of ginners and technical training institute of ginners.
Pakistan is the 6th largest producer of dates and also one of the significant date exporters in the world. There is a significant gap in production and export of dates due to lack of processing and packaging facilities. The dearth of grading and sorting facilities results in inconsistent export quality which results in unfavorable prices relative to other countries. 70% of dried dates are exported to India and the rising transportation costs are adversely affecting the profit margins of exporters. Apart from this exporters and processors are also affected by the prevalent primitive

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methods. The traditional processing methods employed in processing and storing not only comprises the quality of dried dates but it also results in wastages of up to 60% of the total production. Unlike other crops, rainfall adversely affects the crop which at times forces farmers to sell the lower value Chuwaras as compared to fresh dates. Apart from rain, growers face significant challenges in the form of powerful banyas operating in the markets. These banyas dictate market prices and also exert influence through loan agreements with growers extended to meet the working capital requirements of farmers. Despite all these challenges Date is high potential crop as it enjoys healthier per acre margins with PKR 27,796 in monthly profits. The bargaining power at input stage and farmer is considerably low. In post-harvest management, drying has a lot of alternatives however due to prevalent methods the players are not under threat. Unlike drying, polishing enterprises enjoy considerable power. The interventions highlighted in date include training institutes, modern methods of drying, automated processing plants, processing value added products and financing options.
Unlike the aforementioned crops Apricot is not a significant contributor to Pakistan’s export. The production of Apricots is ranked 6th in the world and 12th largest importer in the world. Although 60% of production is from Baluchistan the good quality produce is from the Northern regions of Pakistan. Due to lack of proper infrastructure facilities farmers do not have access to modern inputs and techniques. Furthermore, growers face the added constraint of variable yield due extreme weather conditions, lack of pollinators, outdated harvesting methods and scattered and mixed plantations. An average of 40-60% of the produce is wasted in the northern regions due to inaccessibility and lack of proper processing facilities. The primitive methods employed by majority of the farmers in drying apricots results in low quality and lower value dried apricots. There is limited value addition in this crop as limited players are operating in this region. Due to inaccessibility, limited knowledge of farmers and lack of infrastructure the input stage does not enjoy any power in the apricot chain. Due to limited players, high wastage proportions and low entry barriers the apricot industry is an attractive industry. The interventions include nurseries, bee pollination system, canned fruit, and kernel and pulp processing units.
Citrus is also an important crop of Pakistan as it contributes 95% to the global Kinnow produce. Pakistan is also the 6th largest producer of citrus in the world. In the input stage high costs of fertilizer, pesticides and diesel adds to the running expenses of farmers. As is the case with Date

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growers citrus producers end up in adverse loan agreements and commitments with lenders. 25% of the crop is wasted due to lack of processing units and storage facilities. The monthly income at source is PKR 14,656 per acre. At the input stage players operate in oligopoly market structures which enable them to control prices but also provide attractive intervention opportunity as farmers are looking for cheaper alternatives. The post-harvest processing units enjoy considerable power in the value chain. The interventions include processing facilities, cold storage and access to market for small farmers.

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About the Company
Acumen Fund is non-profit global venture which was incorporated in 2001. The company uses entrepreneurial approaches to solve social/poverty problems around the world. Its aim is to invest in financially sustainable and scalable social enterprises that deliver affordable critical goods and services the poor need including affordable Housing, Health, Water, Energy, Education and Agricultural inputs and services. Acumen Fund uses patient capital to build transformative businesses. The fund makes disciplined investments – loans or equity, not grants – that yield both financial and social returns. Any financial returns received by the company are recycled into new investments.
Figure 1: Business Model of Acumen
The organizational model of Acumen Fund is based on the concept of patient capitali. In order to bridge the gap between the efficiency and scale of market-based approaches and the social impact of pure philanthropy, apart from debt and equity, patient capital is Acumen’s Way of raising funds and investing in avenues that are directed towards poverty reduction and social uplift without any geographical restrictions. Acumen Fund provides investments, not grants which is at the core of the company’s model. The company envisions such partners/enterprises to
Maximize
0% IRR
No Return
No Focus Primary Focus
Traditional Venture Capital
Maximizing financial return by betting on innovation
Patient Capital
Blending social and financial returns
Traditional Philanthropy
Maximize social return
Financial Return Orientation
Impact Orientation

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be financially stable even when Acumen Fund exits after five to seven years and continue to operate as a going concern.
The projects being undertaken by Acumen Fund have to go through a stringent set of rules and evaluation criteria which includes financial, operational and social metrics. An imperative criterion to this is the environmental and social impact without which the projects are rejected in spite of high returns. The company employs state-of-the-art web-based tool called “Pulse” which is used to gather and manage the aforementioned criteria to gauge the real impact of prospective projects.

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Project
The first objective of the project undertaken is to study the value chain of selected crops (cotton, citrus, dates and apricots) in the agriculture industry. This will be an in-depth analysis of the value chain of the crops aforementioned in order to identify the challenges faced by key players. The analysis of these four crops will serve as a case study for generalizing points of intervention in the value chain. The framework which has been chosen as the foundation for analyzing the value chains is the Porter’s Five Forces framework. In addition to the basic framework, the analysis of each force within the Porter model has been further broken down in to relevant measures which have served as a yardstick to judge the relative power differentials in the value chain.
The second objective of the project is to find sustainable investment opportunities within the value chain which will help our client, Acumen Fund, to partner with private local entrepreneurs. Being a private equity, the ultimate goal of Acumen Fund is to invest in enterprises that are not only inclined towards the social sector, but see it as a solution to the current state of the country. Acumen Fund encourages social entrepreneurs to bring in innovative solutions and technology to improve the life of the poor. This objective entails identifying areas in the value chain where entrepreneurs can play an important role to align social up gradation along with financial returns of the farmers’ community. Rooting out major challenges and highlighting them for our client will cover the operational inefficiencies that are deep rooted within the agriculture system of Pakistan. The social aspect of the project will be to work upon these issues unearthed by the initial findings in order to find sustainable investment opportunities which will not only have financial rewards for the entrepreneurs but will also alleviate the living standards of the farmers by providing them with a) greater access to the market b) relatively higher returns c) infrastructure support, if any, depending on the investment and scope of the identified opportunity.

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Agriculture Industry
Pakistan is predominantly an agri-based economy where this sector contributes 22% to the national GDP and about 60 % to the total exports earnings. The major crops of Pakistan are Wheat, Cotton, Rice, Maize, Sugarcane, Mango and Citrus. About 27 percent land of Pakistan is currently under cultivation. Of this area, 80 percent is irrigated. In this regard, Pakistan has one of the highest proportions of irrigated cropped area in the world and a major part of the economy depends on farming through production, processing and distribution of major agricultural commodities. This vast sector provides employment to 47% of the total workforce of Pakistan. Despite its economic significance, agriculture sector is not yet well structured and sustainable because of the lack of attention shown by public sector.
Since 1947, every successful government’s mandate has been to promote the manufacturing sector at the expense of the agriculture sector. While this policy worked during the 50’s and Ayub’s era, it has had led the agriculture to be ignored in policy formation in the coming decades. During the 50’s, agriculture’s contribution towards the GDP was more than 40%. However, sidelining it has resulted in the demise of this sector which is evident from the fact that the contribution of agriculture in 2010 was a mere 22%. Issues ranging from natural calamities to unfavorable policies have marred this sector to realize its true potential. A major issue that has stunted the growth of agriculture sector is the lack of financing to small and medium farmers and the situation has been worsened by the inadequate agricultural infrastructure. Despite such predicaments, the agriculture sector has maintained a sustainable growth rate of 4% historically unlike other developing countries. With the global economy facing recession and downturn since 2008, it is time that leaders and entrepreneurs alike should realize that the current economic condition can be taken as a positive catalyst to jump-start the economy by giving the agriculture sector its due importance not only on paper but in the budget as well.
Government Policy of Cotton
Cotton also known as ‘white gold’, represents 2% of the country’s total GDP. The government therefore has always paid special attention to facilitate the production of cotton and the thriving textile sector. Punjab and Sind agricultural departments have continuously rolled out plans not

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only to improve the irrigation facilities to farmers but reduce the prices of the costly inputs required for a high yield crop.
Support prices of the cotton have always been relatively higher as compared to the other crops. The government is currently considering boosting the textile sector by announcing a support price of as high as PKR 7000 per 40kg.
The farmers lobby has recently received full support of the Punjab Government against Monsanto’s plea to control the agrarian economy in Pakistan. As giving Monsanto the sole right to BT cotton seeds would create a monopoly and increase the likelihood of exploitation. Favorable government policies in 2007-2008 were launched to promote the fertilizer industry. Since fertilizer use was a key component in high cotton yield, subsidies were provided in the form of gas and low cost resources. Easy credit loans were also given making the fertilizer industry highly profitable.
The Pakistan’s Cotton Ginner’s Association is a formal body formed to align the interests of the ginning industry with the federal and provincial government. Much of the ginning industry has grown as a result of encouraging credit disbursements given by the government and the subsidies on the machinery. The government with the Punjab and Bahawalpur Cotton Control Act has tried to address the issue of standards and uniformity of quality of cotton lint to make the product more competitive in the international market. The objective was to educate and advise the ginners so that international best practices could be replicated.
A Project of Cotton Ginning Training Research Institute is underway with the collaboration from the Textile Ministry of Pakistan. Projects such as this will convert the ginning sector from being more of an art into a science. It will enhance efficient production of standardized quality of lint with the grades being scientifically tested rather than judged via experience.
Government Policy of Horticulture
The government is currently following an aggressive policy towards the horticulture in order to assist in the promotion of Pakistani horticultural products. The purpose of establishing ‘Pakistan Horticulture Development and Export Company” under the Ministry of Commerce is to make Pakistan more responsive to the challenges of globalization. The role of PHDEC is to improve

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the supply chain of horticulture production in Pakistan by filling in gaps of infrastructure required and hence increasing exports. WTO has hit Pakistan like a double edged sword. Pakistani products fetch a price far less compared to other countries. For example, the "per ton value of Pakistani dates is $430” according to official sources; whereas as Tunisia, Libya, China and Italy get $2,251, $2,000, $1,350 and $5,000 respectively for the same weight. Hence in order to enhance the quality of horticulture products in Pakistan PHDEC was formed. Currently it is working on a two pronged strategy, bridging the gap between the importing countries and Pakistan by replicating good agricultural practices in Pakistan. The policy revolves around dissemination of basic agriculture skills to the farmers backed by incentive schemes. Government is training farmers by hiring master trainers from abroad to improve the quality and hygiene of fruits and vegetables. Emphasis is being given on establishment of fruit processing and packaging units. The use eradiation process is being encouraged by the government as it ensures that the product gets the true value. The Japanese VHT treatment model being is used on an experimental basis. This VHT treatment ensures that the freshly picked fruit which looks good from the outside is free from food flies and worms internally as well. After passing the fruit through this treatment the good fruit is packaged and exported. Hot water treatment units serve a similar purpose, and the PHDEC is promoting private investment in this area of post-harvest treatment and packaging of goods. The government is also paying attention to the issue of proper certification and need for grading of produce in order to facilitate export. The export of potatoes has been improved due to establishing clear certification and grading standards.
The lack of cold chain structure is another issue facing Pakistan. More than 50% of cherries perish during transportation. The government has evolved a policy to establish cold storages at all major production areas in Pakistan. This would help minimize the post-harvest loss incurred by the farmer. Apart from perishability, the government is also paying attention to the appearance of the fruit that is exported. The Pakistani oranges have a superior taste but due to their unattractive appearance lose out on the price. The need to have polishing and cleaning units before packaging has been forwarded to the concerned authority. In order to resolve the shelf life problem faced by the horticulture industry, the government is considering to develop more hybrid seeds varieties which are resistant to disease and pests. In view of the increasing demand of seedless kinnows abroad, PHDEC is promoting the cultivation of seedless ‘kinnow’ varieties. Pakistan’s agriculture sector is specifically weak in research area. In the citrus industry, the

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government has laid down policies which encourage improvement of infrastructure, investment in research facilities to carry out research and development (R&D) and market access to small farmers.
Greater access to markets and resolution of issues such as inadequate cargo space are the highlights of the current policy for this segment of the market. Moreover, the government has opened up financing options for farmers and exporters in the shape of loans, guarantees and revolving credit lines which is in line with the objectives of the current policy. Non-profit organizations such as Agha Khan Rural Support Program (AKRSP) have taken innovative measures and initiatives in order to facilitate value chain players at the initial stages.

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Project Highlights
Project Background
Value chain identification of selected crops
Challenges of players in crop specific value chains
Identifying sustainable investment opportunities Project Phases
Secondary research on apricots, citrus, cotton and dates
Primary research on citrus, cotton and dates market
Assemblage and recommendations Research Methodology
Primary research
Secondary research Crop-Wise Value Chain Identification & Analysis
Apricots
Citrus
Cotton
Dates Points of Intervention
Identification of interventions using best practices
Finding investment opportunities for Acumen Fund

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Project Scope
 Secondary Research
 Ministry of Food and Agriculture Government of Pakistan (MINFA)
 Pakistan Horticulture Development & Export Board
 Food & Agriculture Organization of the United Nations (FAOSTAT)
 United Nations Asian and Pacific Centre for Agriculture Engineering and Machinery (UNAPCAEM)
 Planning & Development Department Gilgit-Baltistan
 Pakissan Forum
 Pakistan Cotton Ginners Association (PCGA)
 State Bank of Pakistan, Handbook of Pakistan’s Economy 2010
 Economic Survey of Pakistan 2010
 Primary Research
 Conducted in-depth interviews with the farmers of the selected crops to gain an understanding of the value chain. Details and the number of interviews are given: Cotton (RHK, FSD) Citrus (Sargodha) Date (Sukkur, Kheri, Khairpur)
Respondents
Interviews
Respondents
Interviews
Respondents
Interviews
Pesticide Producer
2
Farmers
5
Date Specialists
2
Farmer
8
Exporters
2
Farmers
6
Commission Agents
2
Processing Units
2
Commission Agents
2
Ginners
3
Juice Concentrate
1
Processing Factories
2
Experts
5
Experts
2
Specialists
3
Total
20
12
15
Table 1: Primary Research Details
 Conducted in-depth interviews with the other intermediaries in the value chain
 Conducted in-depth interviews with engineers, agriculturists and economists
 Finding viable investment opportunities within the value chain.
 Data Analysis
 Value chain analysis of the selected crops from the procurement of raw materials to the processor
 Review & Analysis of trade channel members
 Competitive analysis of the market

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 Agriculture industry analysis including recent trends and challenges
 Porter’s Five Forces Framework
 Strategy Formulation
 Identifying the challenges in the value chain faced by key players
 Recommendations based on the analysis, for finding sustainable investment opportunities

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Value Chain Analysis Framework
The value chain of a crop can be generalized as the flow of seed to farmers to the final processing unit or the end consumer. The product moves from one chain player to another such as from the farmer to the agent (aarti) to the consumer. Value chain can be defined as the full range of activities which are required to bring a product from its initial raw form to its final delivery to consumers. For the agriculture industry, a number of players are involved in this process which includes seed supplier, fertilizer/pesticide supplier, farmer, market agents (aarti), processors, wholesalers, retailers and final consumer.
The concept of value chain and studying it in detail is pertinent to the globalizing world. Distances between producers and consumers have been shortened and unprecedented levels of efficiencies have been achieved by making the value chains leaner. In a global world, competition is between value chains rather than global enterprises. Realizing that the value chain acts as an alliance is of immense importance. This is because of the complexity of the relationship between the players in the value chain. The players, in today’s world, play a role of synergistic partners rather than competitors as was common in contemporary value chains.
After the identification of key players and the relationships within the industry, our analysis has been executed using Porter’s Five Forcesii framework in order to identify gaps within the value chain. The identification of these gaps will enable us to identify appropriate points of intervention. This framework allows the determination of competitive industry and the attractiveness of the market in terms of profitability using the five forces based on the following criteriaiii:
1. Rivalry between existing competition
a. Exit barriers
b. Degree of differentiation of products (commodity vs. highly differentiated)
c. Industry costs
2. Threat of substitutes
a. Buyers willingness to switch
b. Preference between local and foreign substitutes

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3. Bargaining power of customers
a. Number of suppliers versus number of buyers
b. Level of integration (vertical, horizontal) of buyers
c. Level of customization of products
4. Bargaining power of suppliers
a. Number of buyers versus number of suppliers
b. Level of integration (vertical, horizontal) of suppliers
5. Threat of new entrants
a. Capital requirements
b. Access to distribution channels
Intervention
The identification of points of intervention was based on three criteria:
1. Export potential
2. Production potential
3. Best practices
For every crop, our analysis included observing practices of the top exporter and producer of the world. Additionally, further refinement of this analysis was based on practices such as Better Cotton (BC) which was aided by expert opinions and supranational agriculture enterprises. Moreover, the points of interventions highlighted are in line with the investment criteriaiv set forth by our client, Acumen Fund. The investment decision of Acumen Fund relies on fulfillment of three underlying principles.
1. Social Impact
2. Financial Sustainability
3. Potential for Scalability

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Secondary Research
Introduction
Cotton which is also regarded as ‘white gold’ by the agricultural community contributes to 2% of the overall GDP of Pakistan. In the financial year 2010, approximately 13 million tonnesv of bales of cotton were produced from 3.1 million hectares of land. It is a source of raw material to 337 textile mills which contribute to 65% of the country’s GDP. Therefore the yield of the cotton crop is directly linked with the financial health of the country. Apart from the textile sector, the bi-products of the crop serve as inputs to 5000 oil mills, 1500 ginning factories, and several soap and pharmaceutical mills. Cotton cultivation is also the source of livelihood of 1.5 million farming families which constitute to approximately 50% of the country’s labor forcevi.
There are several issues and challenges that need to be addressed in order to boost the cotton crop yield. Primitive farming practices, pests and diseases, late harvests, poor irrigation facilities and environmental concerns all stand in the way of a stable cotton yield cycle.
Cotton Production
Pakistan is the 5th largest producer and the 3rd largest exporter of cotton; with a record production of 13 million tonnes of bales. The recent figures however depict a declining trend of cotton productionvii. Cotton Production (‘000 Tonnes)
2006
2007
2008
2009
2010
13,019
12,856
11,655
11,819
12,914
Areas of Cultivation
The total area under cultivation in Pakistan is 22.2 million hectares, out of which 14% is dedicated for cotton cultivation.
The major cotton producing areas are the plains of lower Punjab and upper Sindh. The canal irrigation network inherited from the colonial times tends to supplement water deficiencies due to scanty rainfall. Area Under Cultivation (‘000 Hectares)
2006
2007
2008
2009
2010
3,103
3,075
3,054
2,820
3,106
Source: Food and Agriculture Organization of the United Nations
Table 2: Cotton Production
Table 3: Cotton Area under Cultivation

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In Punjab region, the Multan division is the most prominent producer of cotton. The other regions of cotton production are Bahawalpur, Dera Ghazi Khan, Faisalabad, Sargodha, Lahore, Gujranwala and Rawalpindi. In Sindh artificially irrigated areas of Sukkur and Hyderabad are the main areas of cotton productionviii.
Major Varieties of Cotton
Two main types of cotton varieties are generally sown in Pakistan; ‘American Medium Staple Cotton’ and the Local varieties. In the Punjab region, mostly the ‘American Medium Staple Cotton’ is grown by farmers and a few of the ‘Desi’ varieties are grown. However, in Sindh the ratio of ‘American Medium Staple Cotton’ to the ‘Desi’ varieties exists on a more equivalent basis. The recent government initiative of cotton vision 2015 is actually the introduction of widespread use of ‘Bacillus Thuringiensis’ type of cotton seed. The first Bt Cotton was grown in financial year 2005 over a portion of land; the high yield of the crop has now tied much of cotton’s future with the BT varietiesix.
Cotton Yield
Pakistan is 13th on the world’s list of cotton yield per hectare. With the rising demand of cotton by the textile sector itself, the current levels of production are unable to fulfill the gap. Therefore the country has to import 1.5-2 million billion bales approximately on an annual basisx. Increasing the yield per hectare can prove to be critical as more than US$3 billion worth of textile goods are being exported. Provincexi Kg/ha
Punjab
542
Sindh
759
NWFP
436
Baluchistan
502
Pakistan
579
Fertilizer Use in Cotton
Cotton crop requires the application of different fertilizers with the growth stages of the crop. The use of Nitrogen, Phosphorus and Potassium is extremely important to get the result of a better crop. Nitrogen is usually applied at all three stages, when the seed is sown, at the time of
Table 4: Province-wise Yield

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the first irrigation and also at the pre-flowering stage. Phosphorus can either be applied at the initial stage or at the first irrigation. Potassium is to be applied at the initial stage when the seed is sown. The method used for application of fertilizers is ‘band placement’xii. It should be noted that the rising cost of fertilizers and their decreasing effectiveness is a major hindrance to a good crop yield. Moreover elements such as Boron should be used carefully by farmers as little deviation from specified levels can prove to be toxic. As farmers usually grow multiple crops on the same land they should monitor the nutrient level of the soil before fertilizer application.
Cotton Market in Pakistan
The total market of cotton in Pakistan is approximately Rs. 74.10 billion. According to the average KCA spot rate of sawgin cotton which is Rs. 5700 per moundxiii. With the promise of increased production in the future, the market size is likely to increase. This year Pakistan’s average monthly exports declined from 44,000 tonnes to a mere 16,000 tonnes this year due to bad weather.
International Market of Cotton
There was an upsurge in the prices of cotton owing to the crop destruction in Australia and Pakistan. A record price of $2.197 was reached at the New York marketxiv. The demand for cotton is still going strong despite the statement by a Bloomberg survey that cotton will drop by 51% by the end of December 2011. The farming community in the States and worldwide is responding to this increased demand by planting more cotton for the coming year. The expected price of the new crop is between $70 and $75 per 170kg bale as opposed to $59 last Julyxv.

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Primary Research
Value Chain of Cotton
Fertilizer
Urea and Dap are the major fertilizers used for cotton. Effective use of fertilizer is important for increased output. Rising cost of fertilizer has post a huge challenge for the farmers as they could not afford to fertilize their crop appropriately. The other concern is the farmers’ education that means farmers are not well informed about the best practices which can actually help them in reducing the use of fertilizer without lowering the yield. Over use of fertilizers has made the soils either highly acidic or highly saline. Almost 6.3 million hectares of fertile land in Pakistan has been wasted due to salinity.
Pesticides
There are two kinds of pests; one is biting and the other is sucking. The sucking pest drinks away the nutrients from the plant whereas the biting pest eats away the leaves and the buds of the cotton flower with both being harmful for the cotton crop. The biting pest category includes American ball worm, pink ball worm, spotted ball worm which are the major attackers of the cotton crop. When these ball worms bite the cotton crop, the toxic effect in the pesticide kills the ball worm leaving the cotton flower unharmed. It is important for the farmers to spray the pesticide at the right time. Another finding of our research showed that due to lack of the knowledge, farmers often mistakenly kill the friendly pests which provide the defense mechanism for harmful pest.
Seeds
On average almost 40,000 tons of cotton seed is used every year by Pakistani farmers. The seed extracted by the farmer is from the ‘first picking’. The farmer tries to retain the seed, but that is not usually successful since the farmer is not familiar with the process. He has no idea about the environmental conditions required to store the seed. As the moisture level rises, the seed loses its ability to germinate. The manufacturers on the other hand have all the required systems in place in order to preserve the seed. The cotton seeds have two uses; one is to be replanted by sending to the distributor and the other to be sent to the oil mill.

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Almost 25% of the seeds planted come from the companies operating in Pakistan. It was found out that use of BT cotton is very limited and there was resistance in the farming community to accept BT cotton due to its high price and risk of damaging the soil quality. “Bt” stands for Bacillus Thuringiensis, a toxin-producing bacterium found naturally in soils. Scientists have isolated certain genes responsible for the production of these toxins and have then used genetic engineering techniques to insert them into cotton. It kills the pest when it attacks the plant. Monsanto is the company that has produced this BT cotton seed and now it is demanding protection by the government. On grounds of attempt to take over the Pakistani agricultural sector via monopolistic competition the company’s plea to stop exchange of BT seeds among farmers was dashed.
Water
The availability of water is another issue which adversely affects the crop. Even though the cotton crop may be ready with all the flowers blossomed; the failure to receive a timely water cycle results in the output to drop by an average of 15 mounds. During the August-September months, the crop requires a water cycle once in 15 days. The question arises where will the water come from when the streams are dry and the ground water saline. Therefore the expenditure on water is only advisable where there are tube wells and the water is sweet.
Water remains to be the key issue even for the middlemen. If the zamindaars are unable to get hold of water on time, that affects the crop yield adversely, and since the output is the middleman’s earning it is a direct blow to the investment. A good fertile field would require at least 12 water cycles whereas a less fertile requires water on weekly basis. The failure to provide water results in the withering of the crop.
Grower - Landowner or Contractual Agreement
Most of the agents are either Zamindars or have taken land on ‘theka’. The workers who help the Zamindars are not paid but rather the output is shared amongst them which are predetermined for instance one eighth or one ninth of the output is given to them. Money is only given if there are pressing needs of the workers. However, the concept of salary is not common.

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A small farmer having a landholding of a mere 5- 10 acres just has the muscle to barely break- even let alone to earn profits. Small farmers who don’t have cash to invest in the crop usually suffer. The average expenditure required to produce 40-42mound of yield per acre is approximately PKR 27000 per acre. The pesticides cost is PKR 7000, fertilizer at PKR 12000, Diesel cost and tractor rent at PKR 5000, seeds around PKR 1500 and water expense PKR 1200. Although the potential for earning big money is immense, the lack of credit, experience and knowledge act as major hindrances.
* These channels are supported mainly by Commission Agents which are known as ‘Aartis’ in the local market.
Distribution Channels
Purchasing Cotton
Acquiring cotton from the Zamindars is a big challenge as they already have contacts with aartis, pesticide and fertilizer providers which decrease the negotiating power of the middlemen. The Zamindars sometimes take money from the middlemen for their running finances during cultivation and harvesting. For instance if a Zamindar requires fertilizer or pesticide, he will contact aartis who will provide him with the needed inputs. In return, the Zamindars are liable to give the ‘entire’ output to the aarti.
Fertilizer
Pesticides
Seeds
Water
Inputs
Landowner OR Contractual Agreement
Grower
Distribution Channels to reach Ginners
1. Farm Sales*
2. At Ginning Gate
3. Mundi* (Cotton Market)
Ginning
Raw cotton Conversion to Yarn
Spinning
Thread Conversion to Grey Fabric
Weaving
Grey Fabric is processed i.e. dying, printing etc.
Processing
Stitching and Finishing to Final Product
Finishing
Figure 2: Value Chain of Cotton

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Transportation Costs
The ginners are responsible for the transportation. If the aartis provide for the transportation i.e. truck and workers, a bill for that amount is sent to the ginner. This expense is over and above the 1.25% commission charged. Since the ginners place some liability on the middlemen, they are charged 0.30-0.50% over the commission. The payments are made the next day as this is a verbal contract and relationships are based on trust.
Ginning
Farm sales
The role of the middlemen is tilted towards the benefit of the zamindaar. It is the ginner who faces procurement challenges. Roughly 50% of the cotton is sold by the middlemen via the mundis and 50% is bought directly by the ginners from the farmers. The issue for the ginners arises when they do not get a specified quantity of uniform quality of cotton. This increases their cost as they have to find farmers who would meet their quality standards as well as their quantity requirements. The volatility in price also affects the purchasing and inventory holding power of the ginners. A slight rise in price will prompt the ginners to stock large quantities of cotton.
Ginning gate
The farmers take their cotton via trolley to the ginning factories with the transportation cost being borne by the farmer. The farmer has to ensure that their output is at least one trolley (200 mounds) in order for small farmers to make this channel financially viable. The merit of this channel is that since there are no middlemen, the farmer does not pay any ‘commission’ or ‘fee’ to anyone. However, the farmer has to ensure that he has large enough volumes to satisfy a significant portion of the ginning factories requirement. This channel is mostly used by large farmers since there output volume is significant and they are able to dictate prices as well. Large farmers are able to sell their output easily wherever they feel they are getting a justified price. Since the ginning factories are not dealing with aartis in this channel and not using their own logistics, the factories are

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willing to give a higher rate than the mundi. Moreover, with the increased concern for quality, ginners are more inclined to buy from one source which ensures similar quality of cotton unlike the Mundi where cotton of all grades is mixed together.
Mundi (Markets)
There is one market for cotton at every Tahseel level. Mundi is place where the ginners and the aartis interact. Most ginners have pre-established relationships with aartis or agents from whom they are going to purchase the cotton. Honesty is an important factor in the entire business transaction and it is required on both ends. The mundis are not very competitive and the price bargained for cotton varies according to its quality and the output level. The prices set by the government are barely followed and the rate given to the farmer is determined by the market. Although the variability of rates exists, it is uniform across the qualities of cotton; meaning that one market will quote one price for one particular grade of quality. The aartis are not in a position to charge interest to the grower. It is at the time of the sale in the mundi that a commission of 1.25% is charged by the aarti to the purchaser. There are some markets in Pakistan where commission can be charged at both ends of the transaction.
Export Potential
All of the cotton is taken by the ginners who in turn export cotton in the form of Lint. Since raw cotton ‘phutti’ has impurities and contaminations, its export is not feasible due to its weight.

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Porter’s Five Forces Analysis
Inputs
Even when using Monsanto’s BT cotton, the seed alone does not work wonders to the crop. First of all the seed has to be adapted with the local soil and then with the management of the other elements a good crop is harvested. The efforts of Monsanto have been rendered fruitless due to the presence of German and Chinese alternatives. There is also an informal sector whereby ginners post processing resell the seed back to the farmers.
Fertilizers have low switching costs but the power of the grower is limited from finding substitutes to switching between brands. The government promotes regularly the use of fertilizers to the farmers via the national television and radio network and there is a continuing high demand for the commodity. It has also provided subsidies to the fertilizer industry to boost the agriculture sector. However due to the rampant gas shortage the manufacturers could not capitalize on the opportunity and most fertilizer manufacturers are running below capacity. The policies have turned the seller into ‘king’ and the grower has to bear the brunt of the price fluctuations.
The pesticide industry is relatively fragmented with both international and local players fighting for market share. The international manufacturers have a combined market dominance of 25% and the majority of the market dynamics are being dictated by local manufacturers. The threat of new entrants is high as little capital investment is required. The credit sales especially to unfair growers have posed as a big problem to many pesticide distributors. High frequency of pest attacks and prevalence of diseases have made pesticides irreplaceable for the growers. High profit margins at the manufacturer end dictate exorbitant prices which tend to squeeze the growers. Input Grower Processing
Five Forces
Seed
Pesticides
Fertilizers
Farmer
Grading
Rivalry between existing competition
H
H
M
L
M
Threat of substitutes
M
H
L
N/A
L
Bargaining power of customers
L
H
L
H
L
Bargaining power of suppliers
N/A
N/A
N/A
L
H
Threat of new entrants
M
H
L
H
L

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Water which is also known as the source of the crop profitability is scarce due to outdated irrigation system; yet it is wasted and mismanaged by most farmers due to its comparatively low price. Tube-wells have destroyed almost 11.8% of cultivable area in Pakistan. The fund investment in this sector is particularly low. Any initiative to improve the irrigational network requires close coordination between two government departments (Irrigation Department and the Agriculture Department). A sustainable solution cannot be reached without the involvement of both.
Farmer
Analyzing the growers of specifically the Punjab area, it is generally observed that the ‘farmer s’ have comradeship amongst them and hence no or little rivalry. However most farmers are unable to leverage this fellowship in economic terms and convert it into lobbying power to control the prices of their harvest. Mainly due to lack of proper storage for the ‘phutti’, most farmers unwillingly sell their produce to middle-men at exploited rates which are mostly below those fixed by the government. Improper storage contaminates the ‘phutti’ which harms the value hence immediate sale is quite important for a grower. Cultivation of cotton is considered as a profitable investment due to the thriving textile industry in Pakistan and the growing demand of cotton in international markets. The barriers to entry are low and the numerous small landholdings in Punjab support the claim. The generally fertile soil and low cost of water have actually provoked people towards agriculture.
Post-Harvest
When it comes to the sale of the produce via distribution channels the most exploited is the grower, having the least bargaining power. It is the ‘aarti’ or the middlemen who tend to exploit the situation of the grower; capitalizing on the fact that the longer the produce stays with the grower the more the chances of it losing value. Because of limited storage facility of the grower there is always a fear of perishing and wastage of the produce. Therefore the middlemen leverage this weakness of the grower and often make procurement deals at far lower rates than those prevalent in the market.
“The ginning industry has mushroomed in the cotton growing areas of Pakistan”xvi. Due to lack of adequate regulations, the ginning industry has flourished due to entrepreneurial activity rather

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than process innovation. Many of the mundi agents themselves have invested in saw gins to go deeper into the chain. The threat of entry remains low as the industry is capital intensive; moreover the ginner has a lot of risks to play with including electricity shortage and volatile demand from textile industry. The majority of the already existing ginners operate on local saw gins that have low productivity. The absences of testing labs have also given rise to a new issue pertaining to quality of lint.

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Points of Intervention
Grower
Procurement Centers
Cotton cultivation is faced with not only economic and cultural challenges but also environmental uncertainties. Establishing of procurement centers within cotton growing regions can actually facilitate the stability of income to growers and supply of uncontaminated cotton to ginners. Farmers or growers can sell their produce at a fixed support price to these procurement centers established at every cotton district. This move would eliminate the exploitation created by aartis or middlemen. Since the phutti will now have a direct channel to the ginning factories, the probability of it being contaminated will decrease. The farmers knowing that they have to sell to their specified procurement center would then be incentivized to meet the standards of quality required by the procurement center. This intervention would serve as an opportunity for a better quality produce hence a better income for the grower and side by side an easy access to good quality raw material for the ginner.
Ginning
The ginning sector of Pakistan is technologically deprived and labor intensive. With no formalized training of the human resources, the quality of the product is compromised. Moreover the scope of contamination doubles between the transport between the ginning and pressing process.
Technology
The current technology used by most ginners in Pakistan is the locally manufactured version of the American Saw-Gin machine Lummus. The local version has a few key faults, due to which its productivity is 2bales/hour compared to 7-9bales/hour of the American original. Apart from poor productivity Saw-Gin, latest research has shown a better retention of fiber length to be attained by using roller ginning. Double rolling ginning machines are now being used worldwide due to their efficiency, productivity and high quality of lint. In India 94% of cotton is ginned on ‘DR’ machines. The use of high capacity double rolling machines can not only increase the efficiency of the entire process but the pre-cleaners can also make the cotton

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uncontaminated and of a higher quality. Such technological interventions can help the ginners produce standard better quality lint and not only compete in the local but also in the international market.
Technical Training Institute for Ginning
The workers in ginning factories are also an obstacle to efficient operations management. Having little knowledge about the material composition of the ginning plant, these workers are generally unable to make the necessary adjustments to the saw, pipes and the ribs causing more electricity consumption and low productivity. Ginning skill is currently learnt via experience similar to an art that is passed down; it needs to be formalized.

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Financial Analysis (Per Acre)
Cotton is either grown by growers who own the land or farmers who rent out the land on ‘theka’ from Zamindars. For the purpose of our calculation, we have assumed that the land is owned by the grower. A farmer is able to sell his product at the prevailing rate in the market or ‘mundi’. However, there are two other channels aforementioned. Among the major expenses, inputs form a significant part of the total expenses which are in excess of 70%. Labor for picking is employed and is paid in kind-basis (1/8th of the output for example). With a farm size of 1 acre, our calculation shows that the monthly profitability of the farmer is expected to be Rs. 2,031.
Average Farm Size : 5 Acres
Average Selling Price : Rs.2500 per Mound Average Output: 25 mounds per Acre
The financial analysis shows that the farmer is living on less than $22 on a monthly basis with a farm size of 1 acre. However, as the farm size grows, the total profit and the monthly profit increase to levels at which farmers can easily sustain themselves.
(For sensitivity analysis, please refer to Exhibit 3)
Inputs Costs
Pesticides
PKR 7,000
Water
PKR 12,000
Fertilizer
PKR 12,000
Seeds
PKR 1,500
Tractor Rent
PKR 5,000
Labor (mounds)
3.13
Picking
PKR 5,000
TOTAL
PKR 42,500
Sales
PKR 54,688
Profit
PKR 12,188
Monthly Income
PKR 2,031
Table 5: Input Data - Cotton
Table 6: Financial Analysis (Per Acre) - Cotton

Terms of Reference
Project: Acumen Fund
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DATES

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Secondary Research
Total Market Size
Pakistan is one of the major date producers and exporters in the world. The soil fertility and the climate of Pakistan contribute to it being the 6th largest date producer in the world. The following table provides information with regard to the area cultivated and the corresponding production figures for the period mentioned.xvii
Date Production (Tonnes)
2006
2007
2008
2009
2010
426,281
557,524
680,107
735,276
759,200
Date Growing Regions
Dates are grown in all four Provinces of Pakistan, with Baluchistan the leading producer followed by Sindh, Punjab and KPK. The distribution of provinces and the major corresponding districts are outlined below. The data corresponds to the production figures in 2005-06xviii.
Province (000 Ha) Production (000Tons) % Share Major Districts
Baluchistan
48.1
252.3
50.80%
Turbat & Panjgoor
Sindh
26.7
192.8
38.80%
Khairpur & Sukkur
Punjab
5.8
42.6
8.60%
Muzaffar Garh & Jhang
NWFP
1.4
8.9
1.80%
D.I. Khan
Varieties of Dates
Date varieties in Pakistan having significant commercial importance are Aseel, Karbalai, Fasli, Muzawati, Hillawi, Begum Jangi, Dashtiari, Sabzo, Jaan Swore, Kehraba, Rabai and Dhakki. However the most popular and sought after varieties are Aseel from Khairpur, Dhakki from D.I.Kkan and Begum Jangi from Mekran.xix
Area Under Cultivation (Hectares)
2006
2007
2008
2009
2010
84,695
90,135
93,336
74,465
71,600
Table 7: Date Production
Table 8: Date Area under Cultivation
Table 9: Province-wise Share and Production - Dates

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Export Markets
The worldwide demand for dates is rising in the midst of trade liberalization which has resulted in the date exporting countries to increase their efforts in order gain market share. The world import figure stands at around 0.63 Million tones. Date Exports (Tonnes) Date Exports ($000)
2006
2007
2008
2009
2006
2007
2008
2009
84,055
89,349
104,090
93,137
29,627
32,201
38,271
32,499
Pakistan ranks among the top 10 date exporting countries in the world. Export volume was 93,137tonsin 2010 and this figure includes both fresh and dried varieties of dates. However the volumes are heavily tipped in favor of dried dates as compared to fresh dates and there is a significant gap in the production and export figures which results in most of the production to be consumed either locally or wasted. This wastage and failure to achieve the true export potential is attributed to the lack of infrastructure especially modern processing and packing facilities due to which dates are processed using traditional methods thereby compromising overall quality and increased wastage. The following table provides a breakup of fresh and dried dates from 2001 to 2005.xx Fresh Dates Dried Dates
Year
Tons
Value ($000)
Tons
Value ($000)
2001-02
4,654
2,080
72,817
25,546
2002-03
3,353
1,655
67,791
23,449
2003-04
2,645
1,284
62,784
21,449
2004-05
4,108
2,037
79,946
27,114
2005-06
4,023
2,681
85,326
29,669
According to MINFAL, Fruit, Vegetables and condiments statistics of Pakistan for the year 2005-06, most of the fresh dates are exported to USA which is 49% of fresh date exports .This is followed by UK and Canada with 14 % and 10 % of fresh dates export volumes respectively. Dried dates however are mainly exported to India. The following data lists the volume of exports to the major destinations (combined figures for both fresh and dried dates). The data corresponds to year 2004 figuresxxi.
Table 10: Date Exports
Table 11: Production of Fresh and Dry Dates

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Export Destination Volume
India
80,700 Tons
USA
3,672 Tons
UK
700 Tons
Canada
500 Tons
Germany
350 Tons
Denmark
270 Tons
Malaysia
225 Tons
Indonesia
100 Tons
Marketing Channels for Dates
Dates are traded in Pakistan by the private sector whereas the role of the government is limited to providing physical infrastructure mainly wholesale markets &to facilitate communication, provide market statistics, promotion and regulatory measures to ensure smooth business operations. The marketing of the dates in the local and export channelsxxiiis illustrated in Exhibit 4.
Table 12: Export Breakup - Dates

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Primary Research
Value Chain of Dates
Manual Pollination and Harvest
The Pakistani climate is ideal for growing dates due to the desired level of soil fertility and moisture levels. The Dates plantation cycle begins in March every year when the growers initiate the process of pollinating the female trees manually. This is carried out by extracting a powder like substance from the male trees, commonly referred to as “Bor” which in turn is used to pollinate the female trees. This process typically takes place between 1st March and 20th March. The fruit is ready to be harvested by June and the harvest period lasts until August. This duration, however varies according to the variety of the fruit that has been planted.
Post-Harvest Processing
Most of the date output in Pakistan is dried and converted into dry dates, the local term for which is “Chuwara”. Chuwaras can be classified as the red type and the yellow type. An additive, called “rangkat” is imported from China or India and added to the yellow variety in order to de- color it. No additives are added to the red variety however. Both the varieties are cooked before being naturally sundried and stored in jute bags. Skilled labor is required in order to carry out this conversion process and it takes 3 days to complete. Usually the ready dates in a bunch are separated and sold as fresh dates whereas the half mature dates are converted to Chuwaras. The proportion of ready dates in a typical bunch is usually less compared to half mature dates. The Chuwaras have a shelf life of two years whereas fresh dates can be preserved up to one year. Date growers can highly benefit if they are provided training in the area of modern growing techniques while there should also be investment in R&D activities centered on continual improvement of date yield.
A major challenge also faced by the date growers is the fruit’s inherent vulnerability to rain fall while the fruit is ripe. In such cases, the fresh dates cannot be salvaged and must now be sold after being converted to Chuwaras thus depriving the grower from selling the “high valued” fresh dates. This also results in Cash flow issues for the growers since payments for fresh dates are made immediately whereas “Chuwara” sales are on 2 months credit basis.

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There is also a dearth of adequate processing facilities at this stage which results in a significant amount of date produce to be wasted every year and does not allow the true export and market potential to be achieved since the processing and packaging standards of Pakistani dates are not up to par with dates originating from other countries and hence are priced considerably lower.
Sales Channels
Dates are sold through various channels. In some cases, the growers take their produce to the market where it is auctioned off. The bidding price is dependent on the quality of the dates. The bidders are usually the date exporters and traders. The growers stack all or part of their produce in the market for which there are about 20 to 25 bidders. There are few chances of fraud or misrepresentation since the quality is thoroughly inspected before final purchase and in most cases the complete lot is stacked rather than a sample. There are various Markets (Mundis) in Khairpur and Sukkur. The buyers also visit the growers on their fields in order to strike a deal for the produce.
The fresh dates after being harvested are processed and polished and sold mostly in the local market especially during the month of Ramadan. It is also exported by the trade name Aseel (or Hoor-e-Arab) after being pitted and having its seeds replaced with almonds. Although the harvest season does not always coincide with Ramadan, fresh dates can be stored for up to one year in clay pots or cold storage facilities. Furthermore, there are also preservatives available which protects the fruit from dampness thus extending its life. The following chart illustrates the value chain of the dry and fresh dates.
Once the dates reach the market, they are graded and classified into various quality categories following which they are stored in the godowns and segregated further to the level of every piece by employing manual labor, mainly female workers from the local villages who are paid on daily basis. These workers are employed all year round except in cases when there are significant differences in rate of dates. Despite attempts at achieving standardization of quality, there is always some variance due to the manual processes involved in drying and grading which results in inconsistency in quality and therefore does not allow Pakistani date exporters to attain prices comparable to other date exporting countries.

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Following the grading process, the dry dates are filled in bags weighing up to 70 Kg net and a consignment of 340 bags is transported via trucks to their export destinations. This Packaging process is rather crude and does not ensure safe and hygienic packaging. India is the major importer comprising about 70 % of exports whereas Bangladesh, Nepal and other SAARC countries are also among the importers. The importers usually approach the agents through the internet where the latter’s details are listed. In some cases the export agents have long term contracts with their clients. The export rates are negotiated and settled with the importers in advance according to the quality of the consignment that is being ordered. The quality terminologies used by the exporting and importing parties are Chaloo, Good Chaloo, low medium, medium and good medium. The inferior quality dates are used in products like “Supari” and in some cases, even fed to cattle. The major costs incurred by the export agents are rating costs, storage costs, loading/unloading and packaging costs. For agents who don’t own their own storage facilities also pay significant rent.
Since most of the exports are to India, the exporters were shipping via trains earlier but due to the unreliable schedules, the shipments are now made via trucks due to which the transport costs are rising significantly thus adversely affecting the bottom line.
Figure 3: Value Chain of Dates

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Porter’s Five Forces Analysis
Inputs
The major inputs required for date farming are “Bor” (Pollinating agent) and urea fertilizer. Bor is usually extracted from the male date palms and is available easily. The costs of maintaining the palms are not significantly high and there is a high demand for the product which leads to low level of competition among the “Bor” suppliers. Since presently it is the most commonly used natural pollinator, there are presently no threats of alternate products in the Pakistani market. However it does not have many alternative uses and is in abundant supply, hence the bargaining power of the Bor buyers who are the date growers is considered medium. The Urea based fertilizer is also another key input and the bulk of the production is carried out by 4 major plants in Pakistan namely Fauji Fertilizer, Engro Fertilizer, Fatimah Fertilizer and Pak Arab Fertilizer (now part of Fatimah group), given the very high capital costs of setting up a fertilizer plant, and the low differentiation of the product there is high rivalry between the producers. Furthermore, the threat of substitutes to the present fertilizer industry is quite low given its cost effectiveness for the date growers while being more price competitive then imported alternatives. Due to the limited number of fertilizer suppliers, the date growers have low bargaining power and thus limited influence with regard to prices. Fertilizer plants are very capital intensive and with the current players having firm control of the distribution channels, the barriers to entry for other players are quite high.
Farmers
As the financial analysis reveals, the date growers make healthy profit per acre of produce regardless of whether the land is owned or rented. The Exit barriers are also low since the same land can be used to grow alternative crops. However although there is low differentiation between the produce of farms in a certain region, differentiation exists with regard to the types of Input Grower Processing
Five Forces
Bor
Fertilizer
Farmer
Drying
Polishing
Rivalry between existing competition
L
H
L
M
H
Threat of substitutes
L
L
L
H
H
Bargaining power of customers
M
L
H
H
H
Bargaining power of suppliers
N/A
N/A
M
L
L
Threat of new entrants
L
L
H
M
H

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dates which vary according to the region. All these factors lead us to conclude that the competition between date growers is low. There is also a low threat of substitutes due to the significance of dates as a major export product and also an important consumable in the local market especially during the period of Ramadan. Although imported dates from Medina are available, the volume is not sufficient to serve the entire market and the prices are out of reach for most consumers. The Date grower’s customers are either the date processors who buy fresh dates for processing or commission agents who purchase and market dry dates (Chuwaras) in the foreign and local markets. The bargaining powers of these buyers is high, since they have access to the final customers and are better informed in terms of prices, moreover there is abundant supply in terms of number of date farms. Buyers may directly approach the growers and take possession of the produce on the farm or they may enter a bidding process in the date markets. The buyers also have sufficient bargaining power since the growers are eager to sell the dates at the earliest due to their perishable nature and lack of adequate storage facilities. In order to ensure steady cash flow, many growers end up taking loans in the form of advance sales agreements with their customers which stipulates selling all the produce in advance. Under this arrangement, the customers enjoy high bargaining power since the grower is compelled to sell all his produce at the pre-determined loan amount and does not get compensated for any excess production. The agreement also does not allow him to sell to any other party at potentially favorable rates. The high bargaining power of buyers is also highlighted in the fact that many commission agents are backward integrated and also own and rent date farms.
The suppliers to the date farmer are mainly the Bor and Fertilizer suppliers and their influence has been addressed above. There are low barriers to entry with regard to date farming since land is available on either ownership or rental basis on annual basis; furthermore since the bargaining power lies with the buyers, the farmers have no direct control over distribution channels thus further lowering barriers to entry.
Processing
The Dates harvested from the farms are processed in two forms. The more common form is dried dates which is mostly sold to commission agents who in turn export about 70% of the produce while selling 30% locally. Traditionally the drying or the “Chuwaras” conversion process is being carried out by the growers themselves. In that context, they face high bargaining power

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from the commission agents due to abundant supply of dates; this is compounded by the fact that if the fresh date crop is subject to rainfall, it must be converted to “Chowaras” or risk being wasted. Due to the low differentiation and the bidding process employed by buyers in some cases, the competition within players in considered medium. Substitutes to the present manual drying process are modern techniques such as solar dryers, which will make the process more effective and the output would be more consistent in quality, which will be highly preferred by the buyers. Threat of new entrants in the manual drying process is medium since the services of skilled labor are required. Dates are also sold to processing units in the fresh form to be also sold both in the local and foreign markets. There are presently about 54 processing units in Pakistan. The dynamics of fresh dates is different since a fair level of product differentiation exists with regard to market requirements; however both the exit barriers and the industry costs are high pertaining to date processing plants being highly capital intensive making competition intense. The threat of substitutes faced by the existing form of date plants exists in the form of better date processing facilities capable of value added output such as dates having higher standard of packaging , appearance and in other value added forms, substitution from imported dates is also a threat owing to their better quality. As in the case of dry dates, the date suppliers have very low bargaining power since the supply of dates is high while number of processing units are less. The dates also need to be sold timely due to their perishable nature and failure to do so would require selling them in the low value “chowara” form. The bargaining power of customers in the export market is quite high since competing exports from many countries in the region are available at comparable or better quality. The bargaining powers of customers in the local market which are whole sale markets such as “Akbari Mandi” are high owing to relatively large number of local processors. Despite the high capital requirements of a date processing plant and present player’s access to distribution channel , the threat of new entrants is still high considering the high demand for fresh dates both in the local and export market and the abundant supply of fresh dates which are either wasted or converted to “Chowaras” due to lack of processing facilities.

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Points of Intervention
Training Institutes
Since a very high percentage of date crops is wasted before reaching the sales or processing channels, there needs to be a training institute which should focus on imparting modern farming techniques to the farmers and educating them with methods to best utilize the available land, resources and manpower in order to attain the maximum amount of fresh product. It should also aim to research upon and thus train farmers regarding ways to protect or salvage fresh dates in case of rain since the present methods are highly ineffective.
Modern Methods for Date Drying
The present practice of converting fresh dates into low value Chowaras which are high in demand involves skilled labor and a drying time of about 3 days. Automated systems such as solar dryers will make this process less labor intensive while freeing up labor and also ensure consistency in quality.
Automated Processing Plants
Presently there are about 54 Date processing plants in the countryxxiii that process and package fresh dates for the local and foreign markets, however the processing quality of these dates is not up to par with international standards mainly due to inconsistent quality which leads to low prices and thus highly automated processing plants are required that will raise the quality standards of the packaged fresh dates by employing improved processes and automated machinery. Having additional processing plants will lead to maximum utilization of Pakistan’s dates production and will prevent wastage or dumping of dates at sub optimum prices.
Processing Value Added Products
There lies great untapped potential in value added date products such as date syrup, brick packaged grapes, and date spread and date paste which has high demand in the export markets. Entrepreneurial initiatives are required in order to set up such plants either independently or in addition to fresh date processing units.

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Financing Options
Since the commission agents also act as financiers in some cases, they exercise high control over the grower’s crops and at times deprives the grower of potential profit and additional sales by securing the entire crop based on loan contracts. This should be addressed by making tailored financing options available to small growers so that they have the incentive to ensure higher productivity and sell their produce at avenues providing the best prices.

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Financial Analysis (Per Acre)
Dates are grown either by growers who own the land or by growers who rent the land on a per tree basis. In either case, the grower has complete possession of the produce and has no obligation to the land owner in terms of providing any percentage of the produce. Land holders who own over 50 Acres of land are considered large land holders although those having over 10 Acres are considered to be making enough profits to make ends meet. For the purpose of our calculation, we shall consider the case wherein the land is rented out on per tree basis. A typical date farm has 100 trees per acre while each tree yields about 80kg to 120kg of output per season. A farmer is usually able to sell his produce of Chuwaras for about Rs.2500 per mound on average, this rate varies throughout the season and depends on the production quantities and market demand. . Among his major expenses is tree rent, which amounts to about Rs.1300 per tree. The grower also employs labor that tends to about 300 trees in teams of 15-20 members and their role is vital from the pollination to the harvesting stage, these teams also employ skilled members who specialize in Chuwara conversion. On average, labor costs the growers Rs.15, 000 per acre. Cost of watering the farm amounts to about Rs.10,000 per acre. The date plantation requires basic low cost fertilizer which has a modest cost while cost of other inputs are also negligible .The following calculation gives us an estimate of a typical grower’s income per acre in one season.
Average Farm Size : 20- 25 Acres Average number of trees: 100 per Acre
Average Selling Price : Rs.2500 per Mound Average Yield : 2 Mounds per tree
Although these figures are conservative, the farmers make a rather healthy annual profit of Rs.333,550 per acre which translates into monthly income of Rs.27,796. During the period when dates are not grown, the growers have the liberty to plant other crops such as wheat on the rented piece of land. A typical grower is expected to grow about 15 mounds of wheat per acre after investing in inputs worth Rs.6000.
(For sensitivity analysis, please refer to Exhibit 5)
Table 13: Input Data - Dates

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Inputs Costs
Average Rent (Tree)
PKR 130,000
Pollination
PKR 3,750
Tree Preparation
PKR 1,300
Land Preparation
PKR 1,400
Water
PKR 10,000
Labor Cost
PKR 15,000
Miscellaneous
PKR 3,000
Cutting
PKR 2,000
TOTAL
PKR 166,450
Sales
PKR 500,000
Profit
PKR 333,550
Monthly Income
PKR 27,796
Table 14: Financial Analysis (Per Acre) - Cotton

Terms of Reference
Project: Acumen Fund
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APRICOTS

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Secondary Research
Importance and Yield of Apricot
Pakistan is the 6th largest producer of Apricot in the world. As per FAO, the apricot production in 2010 was 200 million tonnes and area under cultivation was 29,000 hectares. Apricot Production (‘000 Tonnes)
2006
2007
2008
2009
2010
Production (‘000 tonnes)
177,266
240,192
237,937
193,936
200,300
Area under cultivation(hectares)
29,214
31,256
31,018
30,206
29,000
Source: Handbook of Statistics Pakistan Economy 2010
60% of apricot is produced in Baluchistan (Killa Saifullah) however the most valuable apricots are produced in Northern areas of Pakistan. Apricot production according to districts is as shown below:xxiv Top 5 Districts Area (ha) Production (Tons)
Killa Saifullah
17,700
102,285
Loralai
2,582
28,448
Zhob
1,852
15,930
Killa Abdullah
949
6,380
Swat
602
6,327
Total
28,884
197,239
In 2009, Pakistan was the 12th largest importer of Apricot with an import of 5,174 tonnes and a value of $ 980,000. Apricots imported from Afghanistan are imported at Rs. 9/kg and after re- packing they are exported at Rs. 46/kg. xxv Apricots Imports
2006
2007
2008
2009
Volume (Tonnes)
4,343
6,794
27,350
5,174
Value ($000)
598
985
3,606
980
The export potential of Apricot is relatively untapped as the export figure as of 2009 stands at 370 tonnes with a value of $ 297,000. The current export is through air transportation.
Table 15: Apricot Production and Area under Cultivation
Table 16: Top Districts - Apricots
Table 17: Apricots Imports

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Apricots Exports
2006
2007
2008
2009
Volume (Tonnes)
131
266
541
370
Value ($000)
99
150
360
297
According to 2000 reports, market prices and income at source is as follows:
 Price of dried apricot PKR 40/kg (2000)
 Price of kernel PKR 50-70/kg (2000)
The average yield of apricot orchards is 80 kg per tree. In northern areas, Apricot is mainly used as a cash crop. The average household has 28 trees out of which 9 are apricot trees with a produce of 750 kg per annum (GoP, 1989). In Baltistan, 40% rural households earn an average of Rs. 6000 annually from apricot produce.
40% of the apricot produced gets wasted and of the 60% harvested apricot is used in fresh and dry form, domestically and commercially. The harvested apricot is used in the following ways:
 4% domestic consumption
 4% sold as fresh produce (200-400 tons in city market and 2,500-2,700 tons in the down market)
 92% processed
Overall quality of apricots is assessed by soluble solids and sweet kernels but the size of fruit is not important. The list of different good quality of varieties according to consumption category is listed below:xxvi Fresh Fruit Cultivars Dry Fruit Cultivars
Margholam
Halman
Sharakarfo
Habi
Paywand
Shakanda
Charmaghz
Paywand
Shalpawand
Karfochuli
Nelipawand
Narie
Apricot is used in both fresh and dried form. The kernel extracted from the fruit has multiple uses. Kernel is used as dry fruit, fodder, edible and medicinal oil. In commercial use kernel is
Table 18: Apricots Exports
Table 19: Apricot Varieties

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also used cosmetically for base oil and hair/massage oil. Pakistan is ranked 8th in dried apricot import. The consumption of dried Apricot in Pakistan is 12,236 tons out of which 3,514 tons are consumed in the Gilgit Baltistan region. Of all the processed output of Gilgit-Baltistan 6% is consumed locally, 8% is sold through traders in GB market and down country and 86% is sold to Mountain Gold.xxvii

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Value Chain of Apricots
Production and Gender Roles
Apricot production is divided into three tasks:
1. Field plantation and grafting: This is usually done by male members of family.
2. Protection and management: Includes tasks of water and ward including pruning, watering, etc. and is undertaken by men mostly (70%)
3. Harvesting and processing: Includes picking, washing and drying of produce, cracking for kernel production, storage, oil extraction and it is done exclusively by females.
Apricot Varieties and Propagation
Although there are many good quality varieties in the northern area but the varieties are characterized according to fresh and dry consumption categories. Farmers generally use seeds to propagate plants and the seedlings are grafted after 3-4 years of locally available improved
*Natural organic fertilizers such as manure is regularly used
Figure 4: Value Chain of Apricots

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varieties. In some cases, farmers obtain better variety seeds from local forest department, agriculture department and local nurseries.
Apricot plantations by most of the farmers are unplanned characterized by scattered and mixed plantations. Scattered plantations have implications in terms of protection, management, grading and harvesting of plantations. Although there is considerable variety at farm level but there is no clear focus or objectivity in plantations as the farmers just plant whichever variety is available to them. Farmers differentiate the produce only according to fresh and dry consumption categories. The mixing of variety is one of the reasons why farmers get a lower price for their produce. This unplanned cultivation leads to problems in market preparation and selling.
Pollination
Majority of farmers do not have any concept of pollination. Wind is attributed as the main reason for pollination. Pakistan has the lowest population of honey bees in the world. Honey bee is the most common pollinator in developed countries. Research shows that bee pollination improves the size, shape, color storage capacity and taste of apricot. All the research and policy implementation efforts of PARC, Honeybee Research Institute (HBRI) and National Agricultural Research Centre (NARC) are only directed towards commercial honey production. In developed countries proper pollinator management systems have been developed.
The farmers have observed honey bees, bumble bees, wasps, butterflies and flies in orchards. Due to extreme weather conditions, pollinators’ population gets affected. Additionally, loss of vegetation and pesticide also destroys the habitat of pollinators. There is scope to develop management of bees as micro-enterprise to increase the yield and production of apricot.
Dehydration
Primitive methods are used to dry apricots. The pits (stones) are removed by running fresh water through baskets of fruit. The pits are separated from flesh through hands and feet. The flesh is spread out on rocks, roofs and stones. This crude method which spans over 6-9 days does not consider sanitation issues, pre-treatments and maturity stage of apricot.xxviii Therefore, the quality of dried apricot is poor and farmers earn poor return on them.

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The modern apricot dehydration technique involves sulphur treatment of produce. Through village organizations (VO) five processing units were established for drying apricot produce. The market value of dried apricot showed a considerable jump from Rs. 2-3/ kg to Rs. 40/kgxxix (1994) due to quality improvements. Sulphur fumigation reduces the number of days to four.
Variable Apricot Yield and Income
With conventional farming methods, the average household production of dried apricots ranged from 73-80 kg. For taller and older trees the yield per tree is 400-500 kg whereas for dwarf trees it is 80 to 100 kg/tree. With modern practices and marketing AKRSP has demonstrated to the farmers that 20 apricot trees can produce up to 1600 kg fresh fruit which would earn an income of Rs. 19300/- and it is estimated that in Gilgit area dried apricot is around Rs. 160 m. xxx
In Northern areas, apricot yield is highly variable due to problems during blossom and fertilization. The blossom season for apricot varies according to altitude and it may happen in March or April. It lasts for 15-20 days therefore weather conditions during this short span of time can heavily influence apricot yield. Firstly, the weather condition during flowering period is not conducive during pollination as cool and warm spells shorten the flowering process as the stigmata and female gametes lose fertility before pollination. Secondly, there is considerable loss of flowers during blossom period due to wind and rain. Lastly, frost during the same month causes considerable damage to the crop.
Additionally, rust attack is cited as a contributing factor to decrease in apricot yield. Apart from this, variable inputs also affect the yield (listed below):
 lack of pollinators and insects/pests
 Farmers mainly use farmyard manure (FMY) as opposed to inorganic fertilizer. Fertilizer use in Northern areas ranges from 5 to 20 Kg/ tree depending on availability.
Marketing of Apricot
Females undertake the retail marketing activity within villages whereas men are responsible for wholesale marketing outside the bounds of villages.
The following marketing channels are prevalent in the northern areas of Pakistan:

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a) Farmer Farmer
The farmers in remote and inaccessible areas sell the kernels and dried apricot to other farmers in low apricot producing regions and obtain ghee, wheat, etc. in exchange.
Broker
b) Farmer City Market Down Country Market
Village Retail
Shopkeepers
Farmers with access to poor roads/infrastructure sell dry apricots and kernels to village retail shops and buy groceries in exchange. Secondly, Skardu/Gilgit traders buy dry apricots from farmers. Since the farmers use indigenous drying methods, the quality of dry apricots is very poor. Due to inaccessibility of markets owing to high transportation costs the farmers sell directly to the brokers. These farmers usually get very low price of apricot produce due to bad quality and market inaccessibility.
c) Farmer City Market Down Country Market
This channel exists in suburbs of cities and towns (Gilgit, Skardu, etc) where sulphur drying technique is used for apricot drying. Farmers sell directly to city traders and avoid brokers. They do the grading and packing at household level. Apricot farmers can be segregated based on the drying technique used: sulphur and traditional.
Wastage of Apricot and Kernel Processing
Around 30-40% of apricot produce is wasted. The wasted produce is washed at farms and the seeds are collected. Women crack apricot seeds at home and obtain kernels. Bitter kernels are used for fodder and oil extraction whereas sweet kernels are sold in the market.
Sweet kernels are used in desserts or snacks as a food substitute. According to informal sources, the selling price of kernel at source is Rs. 50-70/kg whereas it is sold in a range of Rs. 80 -200/kg depending on apricot season. According to one estimate annual trade of sweet kernels is

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approximately 400 to 500 tons in Akbari Mandi, Lahore and it is purchased by sweet bakers to use instead of almonds.
Additionally, oil extracted from sweet kernel is known for its healing qualities. The oil is used in massage therapy as it is rich in nutrients and texture. Apricot Oil Model Enterprise (AOE), subsidiary of Baltistan Enterprise Development and Arts Revival (BEDR), is producing oil from kernels.

Final Report - Acumen Fund -Group 11-

Final Report - Acumen Fund -Group 11-

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