Tuesday, September 11, 2012

Dairy Revolution Draws Investors to Pakistan's Agribusiness

US venture investor Tim Draper, Swiss food giant Nestle, and American beverage titan Coca Cola are investing heavily in Pakistan's agribusiness.

Silicon Valley private equity investor Tim Draper, a well-known international venture capitalist, is quietly investing in Pakistan's agribusiness, the largest provider of food commodities in the Middle East, according to San Francisco Examiner.

The share of livestock in Pakistan's agriculture output nearly doubled from 25.3 percent in 1996 to 49.6 percent in 2006, according to FAO. As part of the continuing livestock revolution, Nestle is investing $334 million to double its dairy output in Pakistan, according to Businessweek. Reuters is reporting that the company has already installed 3,200 industrial-size milk refrigerators at collection points across the country to start the kind of cold storage chain essential for a modern dairy industry, and give farmers a steady market for their milk. In another development on the infrastructure front, Express Tribune has reported that  Pakistan Horti Fresh Processing (Pvt) Limited has invested in the world's largest hot treatment plant to process 15 tons of mangoes per hour for exports.  Hot water treatment  will also help reduce waste of fruits and vegetables by increasing shelf-life for domestic consumption.
 
The Coca-Cola Company is planning to invest another US$280 million by 2013 in Pakistan, according to BMI's Q3 2012 Food & Beverage Report for Pakistan.  Coke plans to channel the bulk of its capital expenditures towards increasing the production of its existing brands as well as expanding its overall beverages portfolio. Coca-Cola plans to introduce more juices and mineral water in the Pakistani market over the coming years. This strategy could diversify Coca- Cola’s presence beyond the carbonates sector and help it secure early footholds in the higher-value bottled water and fruit juice segments, which boast tremendous long-term promise.


In addition to foreign investors, big name Pakistani companies like Dawood Group's Engro, billionaire industrialist Mian Mansha's Nishat Group and former minister Jahangir Khan Tareen's JK Dairies are placing big bets on food and beverage market in the country. Annual milk consumption in Pakistan reached 230 kg per capita in 2005, more than twice India's per capita consumption, according to FAO.

Business Monitor International expects "Pakistani agriculture sector to reap record harvests for key crops such as rice, sugar and cotton owing to favorable weather in 2011 and the year-on-year increase in crop area following floods in 2010". "We expect the dairy, poultry and wheat industries to be the biggest beneficiaries of increased investment in the agriculture sector", adds BMI's report.

 Pakistan is world’s eighth largest consumer of food and food is the second biggest industry in the country, providing 16 per cent employment in production, according to report published in Express TribuneIn addition to rising domestic demand, growth in agribusiness is supplemented by increased exports as Pakistan expands trade with new partners. BMI expects basmati rice to take up a greater share of the trade as production increases. Cotton production to 2015/16: 45.5% to 12.8 million bales. Increased demand from Europe and emerging markets will drive output. BMI also expect an increase in domestic farmers switching from rice and sugar to cotton cultivation. Sugar production to 2015/16: 22.1% to 4.8 million tons. Large-scale consumers such as confectioners, candy makers and soft drink manufacturers account for about 60% of the total sugar demand and will be the main drivers of growth.

Pakistan witnessed a livestock revolution follow Green Revolution. Here's how International Livestock Research Institute puts the dramatic changes in Pakistan's agriculture sector since the mid 1960s: 

 Since the mid 1960s, investment in Green Revolution technologies – high-yielding varieties of cereals, chemical fertilizers, pesticides, irrigation and mechanization of farm operations – significantly increased cereal crop productivity and output. Success in the crop sector created a platform for diversification of farm and non-farm activities in the rural areas including the livestock sector, especially the dairy sector. Some of the Green Revolution technologies had a direct impact on the dairy sector while others had an indirect impact. Increased cereal productivity and output helped to reduce prices of cereals relative to other commodities in both rural and urban areas. This, along with increased income from high crop-sector growth, created  demand for better-quality foods including livestock products. This created market opportunities and incentives for crop producers to diversify into higher-value products, such as milk, meat, vegetables and fruits.

Pakistan has made significant progress in agriculture and livestock sectors showing that it has the potential to feed its people well and produce huge surpluses to fuel exports boom. The continuation of this progress will depend largely on success in making needed public and private investments in energy and water infrastructure and education and health care.

Related Links:

Haq's Musings

FMCG Consumption Boom in Pakistan 

Music Drives Coke Sales in Pakistan

World Bank Report on Pakistan Agribusiness

Pakistan's Sugar Crisis

FAO Livestock Sector Brief 2002 

Recurring Floods and Droughts

Poll Finds Pakistanis Happier Than Neighbors

Pakistan's Rural Economy Booming

Pakistan Car Sales Up 61%

Resilient Pakistan Defies Doomsayers

Land For Landless Women in Pakistan

Growing Water Scarcity in Pakistan

Political Patronage in Pakistan

Corrupt and Incompetent Politicians

Pakistan's Energy Crisis

Culture of Tax Evasion and Aid Dependence

Climate Change in South Asia

US Senate Report on Avoiding Water Wars in Central and South Asia