VALUE ADDITION IN HORTICULTURE SECTOR

Harvest TradingsApril 2013

Web: www.harvesttradings.com

economic use of water)

hi h h

B t t t f bli l d tt ib ti ti l f i

Horticulture Potential

• Horticulture is a major economic opportunity with a large global export market (USD150bn) and fast growth (12% per year). It also has the potential for tremendous socialimpact (employment creation and income generation) as well as sustainability (e.g bettereconomic use of water)

• Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs.12% per year). It still remains a net importer of horticulture products (-USD 250m)

• The issues of the sector in Pakistan are well recognized (i.e. low land dedicated tohorticulture, low productivity, high losses, low value add) however these are only symptoms ofthe issue

• The real problem is that with the current industry structure, Pakistan cannot fulfil therequirements of the large global buyers who dominate this increasingly sophisticated market.Specific challenges include the:– Lack of sophisticated/ professional players– Lack of integration in the value chain

• The current set of solutions being undertaken in Pakistan focus on piecemeal interventionswhich have limited impact and limited scalability

• The government should facilitate a private-led integrated approach, with 3 specific initiatives:– Attraction of one key foreign importer– Development of an integrated pilot contract farming scheme– Beauty contest for public land attribution, promoting nucleus farming

• If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from thehorticulture sector within the next 5 years

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B t t t f bli l d tt ib ti ti l f i

Pakistan Missing the Opportunities

• Horticulture is a major economic opportunity with a large global export market (USD 150bn) andfast growth (12% per year). It also has the potential for tremendous social impact (employmentcreation and income generation) as well as sustainability (e.g better economic use of water)

• Pakistan has not captured this opportunity yet, growing slower than the world market (6%vs. 12% per year). It still remains a net importer of horticulture products (-USD 250m)

• The issues of the sector in Pakistan are well recognized (i.e. low land dedicated tohorticulture, low productivity, high losses, low value add)

• The real problem is that with the current industry structure, Pakistan cannot fulfil therequirements of the large global buyers who dominate this increasingly sophisticated market.Specific challenges include the:– Lack of sophisticated/ professional players– Lack of integration in the value chain

• The current set of solutions being undertaken in Pakistan focus on piecemeal interventionswhich have limited impact and limited scalability

• The government should facilitate a private-led integrated approach, with 3 specific initiatives:– Attraction of one key foreign importer– Development of an integrated pilot contract farming scheme– Beauty contest for public land attribution, promoting nucleus farming

• If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from thehorticulture sector within the next 5 years

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Productivity of the horticulture sector in Pakistan can be furtherimproved to achieve the highest benchmark levels

Productivity gap vs. benchmarks1

Yield, t/ha Top 3 peer

Fruits Pakistan18.4

7.5

17.7

10.415.3

12.7

Apple Mango Tangerine

On average,Pakistan canimproveproductivity levelsby 40% on fruits

Vegetables 40.4 and vegetables

25.7

14.023.3 19.5

10.2

Onion Potato Tomato

1 Average of the top quartile of peers ranked by productivity for each item; peer group includes Bangladesh, China, Egypt, India, Indonesia, Kenya, Morocco,Nigeria, Philippines, Vietnam

SOURCE: FAOStat

Significant losses within the horticulture sector

Pakistan losses vs. best practices, %

Pakistan 30–40

2–4 timesmore

Best practices 5–15

• Level of losses vary accordingto the nature of the product

– Highly perishable products(e.g. mango kinnow,

vegetables)

– Durable products (e.g. potato,onions)

• Significant room for improve-ment with better post-harvestmanagement (e.g., rapid coolingafter harvest, packaging)

• Better varieties and ProductionTechnology

Source: Interviews

Pakistan

Pakistan has not yet fully developed its agro-processing industry

Low transformation rate

Processed food value add as share of total agriand processed food (%)

Philippines 31

Vietnam

China

Morocco

Indonesia

29Pakistan only

19 processes little ofits produce

18 compared tobenchmark

14 countries

Bangladesh 9

Pakistan 7

Egypt 7

India 4

Peer average: 14

SOURCE: Global Insight

Pakistan fresh products fetch much lower prices than otherexporting countries

Export unit value, $/kgFruits Vegetables

Spain 1.8 Morocco 0.4

Kenya 1.5

Philippines 1.3

Indonesia 0.8

Vietnam 0.4

Indonesia 0.3

Egypt 0.3

Peru 0.8 Bangladesh 0.3

Tanger-ines(incl.Kinnow)

India 0.7

Egypt 0.6

Pakistan 0.3

Kenya 1.0

India 0.9

Morocco 0.7

Indonesia 0.6

Egypt 0.4

China 0.4

Philippines 0.3

Pakistan 0.3

Toma-toes

China 0.2

Pakistan 0.2

India 0.1

Kenya 0.9

Morocco 0.7

Indonesia 0.4

China 0.3

Nigeria 0.3

India 0.3

Egypt 0.3

Pakistan 0.2

Pakistan freshproduce fetcheslower prices ininternationalmarkets thanother countries

SOURCE: FAO statistics

low productivity high losses low value add) however these are only symptoms of the issue

Specific Problems

• Horticulture is a major economic opportunity with a large global export market (USD 150bn) andfast growth (12% per year). It also has the potential for tremendous social impact (employmentcreation and income generation) as well as sustainability (e.g better economic use of water)

• Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs.12% per year). It still remains a net importer of horticulture products (-USD 250m)

• The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture,low productivity, high losses, low value add) however these are only symptoms of the issue

• The problem are• Lack of sophisticated/ professional players• Lack of integration in the value chain• Poor product post harvest management• Technology

• The current set of solutions being undertaken in Pakistan focus on piecemeal interventionswhich have limited impact and limited scalability

• The government should facilitate a private-led integrated approach, with 3 specific initiatives:– Attraction of one key foreign importer– Development of an integrated pilot contract farming scheme– Beauty contest for public land attribution, promoting nucleus farming

• If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from thehorticulture sector within the next 5 years

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Pakistan has large traditional marketing structure which does notlink with product differentiation, quality and safety

standards (e g powerhouses over the last

requires increased d l ti hi ith l

Horticulture is no more just farming, its an industry!

Customers are more demanding• Certification

New countries are competingaggressively• Development of very

Safety according tostandards (e.g.,CAC; SPS; PrivateStandards)

• Importance of

Being successfulas a nation in thehorticulture sector

aggressive horticulturepowerhouses over the lastdecade in countries such asChina, Kenya, Turkey

• Countries have developedQuality appearance,

packaging and taste

• Consistently high

requires increasedinvestment andsophistication

good relationships with largebuyers, who have investedheavily in those countries

Volumes volumes with timelydelivery

low productivity high losses low value add) however these are only symptoms of the issue

Th t h ld f ilit t f ith 3 ifi i iti ti

What needs to be done

• Horticulture is a major economic opportunity with a large global export market (USD 150bn) andfast growth (12% per year). It also has the potential for tremendous social impact (employmentcreation and income generation) as well as sustainability (e.g better economic use of water)

• Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs.12% per year). It still remains a net importer of horticulture products (-USD 250m)

• The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture,low productivity, high losses, low value add) however these are only symptoms of the issue

• The real problem is that with the current industry structure, Pakistan cannot fulfil therequirements of the large global buyers who dominate this increasingly sophisticated market.Specific challenges include the:– Lack of sophisticated/ professional players– Lack of integration in the value chain

• The government should facilitate reforms, with 3 specific initiatives:– Institutional development– Marketing & Agribusiness– Research and Technology Development

• If Pakistan does this successfully, it can aspire to have a ~$1 to 1.5 bn export market from thehorticulture sector within the next 5 years

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The Options for Value Addition!

D

I

NT

PARTNERSHIPS d

P T h l ChE

The Chain Integration !!! (Three to Five Years)

EPLOYMENTINDUSTRY

INVESTMENTS

UNIVERSITYRESEARCH

PUBLICPRIVATE

PARTNERSHIPS

- Institution Reforms- Market Reform- Technology Change- Entrepreneurship- Model CRC’s

BASIC+APPLIED

season

d

Public sector may make investments through ExportDevelopment Fund (EDF)

NON EXHAUSTIVE

Technology needed Expected impact

Labs

Cool chain

• Modern Labs (for testing quality)• In main producing areas for export

• Cooling stations at production site• Cold storage at packing sites• Cool chain for transportation (e.g. reefer,

controlled atmosphere)

• Quality Assurance

• Higher quality• Lesser losses

Exporttreatment

• Irradiation facility for e.g. USA• Vapor heat treatment facility for e.g.

Japan• Hot water dip for e.g. South Korea

• Access to higher-end more profitablemarkets

ProcessingPackaging

• Modern Processing, washing, waxing,grading, de-greening equipment

• Packaging and branding

• Higher price fetched

Govt charge the rental from the exporters of the above facilities

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B t t t f bli l d tt ib ti ti l f i

Conclusion/Recommendations

• Horticulture is a major economic opportunity with a large global export market (USD 150bn) andfast growth (12% per year). It also has the potential for tremendous social impact (employmentcreation and income generation) as well as sustainability (e.g better economic use of water)

• Pakistan has not captured this opportunity yet, growing slower than the world market (6% vs.12% per year). It still remains a net importer of horticulture products (-USD 250m)

• The issues of the sector in Pakistan are well recognized (i.e. low land dedicated to horticulture,low productivity, high losses, low value add) however these are only symptoms of the issue

• The real problem is that with the current industry structure, Pakistan cannot fulfil therequirements of the large global buyers who dominate this increasingly sophisticated market.Specific challenges include the:– Lack of sophisticated/ professional players– Lack of integration in the value chain

• The current set of solutions being undertaken in Pakistan focus on piecemeal interventions whichhave limited impact and limited scalability

• The government should facilitate a private-led integrated approach, with 3 specific initiatives:– Attraction of one key foreign importer for fruits– Development of an integrated pilot contract farming scheme for vegetables– Beauty contest for public land attribution, promoting nucleus farming

• If Pakistan can manage the value additions successfully, sky is the limit; Country may bringin ~$2 to 2.5 bn foreign exchange from the horticulture sector within the next 3 years