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

v

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

vi

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 Fi

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Re

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Impact Orientation

http://en.wikipedia.org/w/index.php?title=Critical_goods&action=edit&redlink=1

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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

Interi Interim Report MBA Project: Acumen Fund

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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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COTTON

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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 world-

wide 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 channelsxxii

is 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 20

th 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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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


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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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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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


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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.


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Five Forces Seed Pesticides Fertilizers Farmer Dehydration Oil Extraction

Rivalry between existing competition L L L L L L

Threat of substitutes H H H L H L

Bargaining power of customers L L L H H L

Bargaining power of suppliers N/A N/A N/A L L L

Threat of new entrants L M M L L H

Inputs

In apricot value chain the input stage does not enjoy any power and since very few players are

operating in this space the rivalry between existing enterprises is low. With respect to inputs of

apricots (specifically seeds), farmers are able to acquire the seeds from local forest or agriculture

departments and local nurseries. Grafting and budding is done at farm level without the proper

intervention of nurseries. Due to the unplanned plantations of apricot and low levels of literacy

rates in the region, farmers do not seek proper input supplies to increase yield or obtain better

apricot prices. The outdated methods of producing apricots are slowly evolving with the help of

NGOs and Rural support programs and impacting the income and yield of farmers. Even though

fertilizers and pesticides lead to higher yields; the absence of adequate infrastructure affects the

availability of these essential input substitutes.

Grower

With the help of agencies such as Agha Khan Rural Support Program (AKRSP), a relatively

small portion of farmers are better equipped with knowledge and basic tools which in turn has

increased the yield and income of these farmers. The bargaining power of the farmer’s customers

is high due to the low yield and quality prevalent in the region. The processing units are able to

buy apricots from the farmers at cheap rates since the farmers are desperate to sell their output.

Wastage of crop is also another important determinant of low bargaining power of farmer. The

threat of new entrants is low as the northern regions have extreme living conditions therefore

nature creates certain entry barriers which reduce the threat of new entrants considerably.

Processors/Brokers

Primitive methods for dehydration are the norm in this region of apricot production. This makes

any processing unit a threat. Modern processing units increase the market price of apricots from


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Rs. 2-3/kg to Rs. 40/kg aforementioned. Moreover, outdated methods limit the yield of apricot

production. Threat of substitutes and bargaining power of customers in processing is

considerable due to the potential of apricot processing using latest technology and the volatility

of apricot output. Within processing, there is a huge opportunity for kernel oil, cosmetics, juices,

fruit spread (jam/jelly) as few significant players are actively working in the market. However,

due to extreme weather conditions, underdeveloped infrastructure, primitive farming methods

and fluctuating yields, capitalizing on these opportunities requires investment, education of

farmers, uniform yield and quality of apricots.


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Nurseries

The apricot varieties found in Northern region is popular for texture and sweetness. Thirty years

ago researchers cross bred local varieties with California Apricots to improve their quality and

yield. Unfortunately the unplanned grafting and budding procedures have put some varieties in

danger and to preserve quality of apricots it is necessary to have a planned plantation and

grafting mechanism. Private nurseries that undertake the process of root-stock block, bud-wood

block and stock plant block would preserve the quality of apricots and exported.

Bee Pollination

The prevalent method of pollination is just through wind and natural mechanisms. Farmers are

unaware of other pollination mechanisms and therefore do not employ proper pollination

mechanisms. Micro-enterprises can provide proper bee management system using honey bees

which is the most common pollinator specie in Pakistan. This would induce pollination and

increase yield of apricot orchards and uniform production. Additionally, these microenterprises

can also earn added revenue from honey production.

Dried Apricot

A small proportion of farmers have adopted this technique due to the training and efforts of

AKRSP in this region. With this technique, dried apricots contain more moisture and hence have

a better taste than the prevalent method of sun-dried techniques. Another reason for adopting this

technique is that dried apricots produced through this method have lesser contaminations than

the traditional sun-dried ones.

For average farmer production, this intervention can be achieved at minimum capital investment

as it entails a small sulphur drying room which has a life of five years. The variable costs include

plastic sheets which needs to be renewed every year and sulphur which is an inexpensive

chemical. International markets have strict regulations on the chemical usage in final product and

with controlled sulphur content it is very easy to comply with international standards.

Furthermore, solar powered heaters or ovens can be used to dry apricots as it produces higher

quality uniform product relative to traditional method.


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Fresh Fruit

Firstly, with a simple procedure fresh apricots can be canned through small scale enterprises.

After harvesting, apricots have to be sliced and placed in juice syrups. The juice syrups are basic

syrups of pineapple juice, apple juice or even water. Through simple canning device fresh

produce can be canned and sold in the market.

Secondly, cold storage requires capital and basic infrastructure and it is not easy to implement

cold storage facilities in the Northern regions. Basic techniques can be used by small enterprises

to freeze fresh apricot. There are three basic methods which can be used for this process: syrup

pack, sugar pack and puree.

Processing Units

Apricot Pulp

Although the retailers and middlemen get maximum margins through sale and trade of fresh

apricots there is still 60% of the produce that gets wasted as it is not effectively utilized in the

value chain. This wastage can be avoided by adding processing units in apricot. Small scale

enterprises can add units to manufacture jams, jellies and preservatives. With simple ingredients

like sugar, lemon juice and water apricots can be crushed and prepared to be used as jams, jellies

or preserves.

Furthermore, fresh apricot can be de-stoned and cooked on a small scale. This cooked nectar can

be canned using simple pressure canners. Canned and nectar apricot can be stored up to 48

months which would reduce waste considerably and a sustainable income to small scale

enterprises as the raw materials used are readily available and the methods highlighted are not

capital intensive.

Kernel Oil

Apart from the current utilization of kernel oil, it can be employed in cosmetic and cholesterol

free edible oil industry. This can be achieved through addition of units in local cosmetic

enterprises to manufacture apricot flavored fragrances, scrubs, massage oils, etc. Additionally,

the existing or new enterprises in olive oil industry can add units to manufacture kernel oil as

well.


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CITRUS


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Secondary Research

Citrus Industry in Pakistan

Pakistan is the 6th

largest producer of Kinnow (mandarin) and oranges in the world, with 185

thousand hectares under citrus cultivation and annual production of 2.00 Million tonnes.

Pakistan’s world mandarin and oranges market share is 0.9 percent and 3.6 percent in terms of

value and volume respectively. Citrus is grown in 52 countries; Brazil is the largest producer of

citrus in the world followed by USA, China and Mexico. Pakistan has a prominent position

among citrus producing countries because of its distinct taste, color and size. Citrus fruit is

grown in all four provinces of Pakistan but Punjab produces over 95% of the crop because of its

greater population, favorable growing conditions and adequate water. Citrus is divided into

different groups such as sweet oranges, mandarine, grape fruit, lemon and lime which are being

grown commercially.

Citrus is at the top among all the fruits for its production and trade in Pakistan. Pakistan exported

approximately 350,000 tonnes of citrus in 2010, earning valuable foreign currency amounting to

$120 Million. Sargodha district and its adjoining districts are main sites of citrus industry of

Pakistan.

Citrus Production (‘000 Tonnes)

2006 2007 2008 2009 2010

2,458 1,472 2,294 2,132 2,203

Area Under Cultivation (‘000 Hectares)

2006 2007 2008 2009 2010

192,274 193,211 199,400 199,940 192,200


Table 21: Citrus Production Table 20: Citrus Area under Cultivation


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Primary Research

Value Chain of Citrus

Seeds

Citrus is grown in orchards whereby farmers don’t need to sow seeds every season. Citrus plants

are nurtured in nurseries and it takes around 5-7 years for a tree to start producing. Traditionally,

the role of seeds is not of paramount importance but recently seeds have started playing an

important role when demand of citrus requires certain size and characteristics in the fruit. For

example, there is an increasing demand of citrus with small size from countries like Ukraine and

Russia. Similarly there is a new trend of modifying the seeds to produce seedless produce.

However, in Pakistan there are very few growers who are aware of technological advancements

in seeds and usually they are content with what they grow.

Fertilizer

Fertilizer plays an important role in increasing the productivity of citrus. Urea and DAP are both

necessary for a better produce but due to the increasing prices of fertilizers, farmers are not able

to fertilize their crop sufficiently which lead to low yield.

Fuel

In the recent years, increasing fuel prices have also resulted in financial stress for farmers. Fuel is

used in tractors, tube wells, peter pump etc. There has been advancement in alternative energy

sector in past few years which is a positive sign. New entrants are expected to capitalize on this

opportunity by various means. The increasing non-availability of canal water in Sargodha district

creates an opportunity to invest in alternative energy that could help the farmers to draw water

from tube wells.

Pesticide

Similarly, pesticides also play a vital role in protecting the crop from pest attacks. Pesticides are

available to farmers through various distributors and companies. However, due to lack of

education, farmers often do not spray their fields according to the best practice which again is

another factor of low productivity.


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Post-Harvest Distribution

The season of citrus harvesting starts in November and continues till February. Due to its

perishable nature and shelve life of only 15 days, it is often a challenge for the farmers to have

their produce reach the lucrative urban markets in time. At the time of harvesting farmers have

three options to sell the produce. Firstly, farmers have the option to sell their produce on the farm

gate. Due to financial constraints small farmers are compelled to sell their crop before the

harvesting season at low prices to meet their daily expenses. These sales are normally performed

by the middlemen who have the orders from exporters and local grading companies. This puts

additional financial burden on the small farmers. The second option for farmers is to take the

output to factory gates directly. This option is usually used by small farmers who either do not

have access to market or their crop is not of good quality. The third option for them is to take

their crop to local market through middlemen. Demand for local market is usually fulfilled by

this channel. When the harvesting period is over, citrus is graded into three categories A, B & C

at the grading factories. There are around 250 grading factories in Sargodha district only. These

factories grade, wash, wax and pack the citrus. While the best quality (grade A – 50% of the

produce) is either exported or supplied to various chain stores in Pakistan, medium quality (grade

B – 25% of the produce) is consumed by open / local markets, it is the small sized & de-shaped

quality (grade C – 25% of the produce) which is left in the fields to perish. It is estimated that

approx. 287,000xxxi

tonnes of C grade citrus perishes every year due to lack of processing

facilities. The current utilization of C grade is only by an existing juice concentrate factory in

Sargodha, which consumes about 700 tonnes of grade ‘C’ citrus per day, whereas, a capacity of

4000 tonnes per day is required to harness the entire 350,000 tonnes C grade citrus produced by

20,000 small farmers.

Retail Channels

The grading companies either sell to local markets or export to other countries. Local

distribution is performed by various middlemen and distributors who purchases from grading

companies and sell them to local whole sale market and then further distribution is done by small

fruit sellers. Not much competition is seen among the local distributors.


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Fertilizer

Pesticides

Seeds

Water

Inputs

Landowner

OR

Contractual

Agreement

Grower

1. Farm Sales* 2. At factory

gate** 3. Mundi

(Market)

Distribution Channels

Procurement

Washing

Grading

Polishing

Packaging

Processing

And Grading

Factories

Processing

factories also

sell to different

wholesalers in

mundi

Local Market

A & B Grade

Citrus is

exported

according to the

demand

Export

Wastage due to lack of

infrastructure and

perishable nature of the

fruit

Wastage***

* These channels are supported mainly by Commission Agents which are known as ‘Aartis’ in the local market.

** The factories that procure citrus from farmers export the product after processing (grading, washing, polishing and packaging). Farmers usually transport their

crop to the factories. These factories normally buy through a commission agent.

*** 25% of the crop gets wasted in the fields due to lack of cold storages and processing units. Perished crop is mostly the C-grade citrus which does not have any such

demand and market.

Figure 5: Value Chain of Citrus


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Inputs

As the demand for unorthodox seed grows, the awareness among the farmers is also likely to

grow. This is a potential threat to existing nurseries that cultivate the plants and sell it to the

farmers. The role of seeds in citrus is growing and there is an opportunity for new entrants with

better technology in future. However, seeds remain an insignificant input for the majority of the

farms that have mature trees.

There is an oligopoly in fertilizers among few big players which makes them powerful in terms

of price control and maintaining supply and demand. Price of urea is not expected to fall due to

gas shortage in the country and this is a barrier to entry due to the high investment cost. Since

fertilizer is critical to the crop yield, farmers are always in search of better and cheaper options.

This is one area in the value chain where new entrant could come up if they have any alternate

cheaper solution. Bargaining power of fertilizer manufacturers is very high which gives them

more power.

Pesticide industry consists of many small and few large companies. Syngenta is market leader,

whereas Monsanto has recently entered the market as a tough competitor. Along with that there

are many small local pesticides manufacturers which are geographically spread in the Sargodha

district. Farmers are only willing to switch to other pesticides only if they get any cost

advantage, hence the bargaining power of pesticide manufacturer is on lower side. Threat of

substitute is high because of large number of suppliers and wide range of different variants in the

pesticide industry.


Five Forces Seed Pesticides Fertilizers Water Farmer Grading Polishing

Rivalry between existing competition L M H H L M M

Threat of substitutes M M L M L L L

Bargaining power of customers L M L L H H H

Bargaining power of suppliers N/A N/A N/A H L L L

Threat of new entrants L M L M M M M


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Post-Harvest

In order to reduce post-harvest losses, there is need to improve the infrastructure in order to

protect the produced crop. Cold storage is one solution which can significantly reduce the losses.

There are few cold storages already in the area which does not satisfy the requirements. This lack

of cold storage facility has given the bargaining power to existing cold storages which are able to

dictate their terms. Cold storage requires capital of around PKR 5-7 million which is a significant

barrier to entry. The huge unmet demand suggests that the estimated payback period is around 2

years. This opportunity is ideal for the grading factories in the area to expand forward in the

value chain.

Juice concentrate unit is the other intervention point to reduce the post-harvest losses. There are

currently two juice concentrate units in the whole Sargodha district while the demand is a lot

more. The current units have significant bargaining power as farmers have limited options to sell

the crop. The threat of substitute is medium as there are also other means to preserve the citrus

such as cold storages. However, threat of new entrant is low due to the size of investment

required.

Grading and Distribution

The demand for Pakistani citrus is high in Europe, Central Asia and Canada. There is a tough

competition among grading companies to get the orders from abroad. Hence, the customers of

grading companies have high bargaining power. The interesting fact is that bargaining power of

suppliers of grading companies is low as they are bound to sell their crop to prevent them from

getting perished. However, many exporters have also been able to maintain long term

relationship with clients. The margins on export are three times high than that of local market.

There are two ways to export, one is to export to middlemen who further sell to the retailer; the

other is to sell directly to retailer, these retailers are usually large multinational grocery stores.

The price in local market is determined by supply and demand. Grading companies, after

fulfilling export requirements, sell the crop to local wholesale markets. Small fruit retailer does

not have bargaining power as a customer of wholesaler. However, if any extra margin is charged,

fruit retailer easily passes on to the end consumer.


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Inputs

As mentioned before the biggest challenge farmers are facing is the rising cost of inputs.

Increasing prices of fuel, fertilizer and pesticides have significantly reduced the profitability of

farmers. Any intervention in alternative energy sector could provide cheap energy for farmers to

run their tube-wells and tractors.

Post-Harvest

Processing Facilities

Due to the perishable nature of the fruit, it is a huge challenge for the farmers to protect their

crop from post-harvest losses. This challenge is more related to the C grade citrus which lacks

notable demand. Farmers are currently unable to get a price for C grade because of lack of

adequate processing units & technology to convert this product into valuable juice concentrate.

Grade C citrus, which is approximately 25% of the entire citrus produce of the country, is

perished in the fields, resulting in huge losses to small farmers. This product, approximately

500,000 tons per year, has little or no value in the fresh export and local market for citrus fruit

due to its small size, irregular shape, inconsistent color and damaged skin. However, its juice

contents are same as that of grade ‘A’ citrus and by using fruit processing technology this can be

converted into citrus juice concentrate which can be sold in the international market as well as to

local producers of juices at attractive prices. The juice concentrate factory would significantly

reduce the post-harvest losses and farmers will also be given a new avenue to sell their C grade

citrus.

Cold Storage

Again the perishable nature causes citrus to waste in the fields. There is a dire need of cold

storages that can store and preserve the citrus and reduce post-harvest losses. It requires

approximately PKR 5 million capital investment but cold storage can be run all over the year to

store different fruits and vegetables.


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Access to Markets for Small Farmers

Small farmers have limited capital to meet their running expenses and they want to sell their

produce at earliest which fetches low prices. There entire farm-to-market chain is influenced by

the role of middle men. Middle men provide the access to market for small farmers but they also

exploit them by not giving them the right price. If government or any private entity would

intervene in order to provide farmers easy access to market. Better supply chain, transportation

and opening up of new markets could all be done in order to improve farmers’ life and also to

add value to the produce.


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The land holding per farmer has shrunk with each passing generations due to large family sizes.

According to our field survey and information provided by farmers, about 70% of the total citrus

growers have an average acreage of 6 acres. The average monthly income of a 6 acre farmer is

approximately Rs. 11,492 ($135).

(For sensitivity analysis, please refer to Exhibit 6)

Selling Price (PKR/ton) Revenue (PKR)

Average Land Holding (acres) 6

Average Yield Per Acre (ton) 9

A' grade 50% 10,000 45,000

B' grade 25% 7,500 16,875

C' grade 25% 3,750 8,438

Total Annual Revenue 70,313

Expenses Per Acre 41,000

Annual Profit 29,313

Monthly Profit 2,443

Table 22: Financial Analysis (Per Acre) - Citrus


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Gantt Chart – Project Progress

Sargodha Sukkur

Khairpur Kheri

1 day 1 day

Figure 6: Deliverables Timeline


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Exhibits

Exhibit 1: Breakup of Cultivable Area

36%

9%

14%

4%

5%

6%

5%

21% Wheat

Rice

Cotton

Maize

Sugar Cane

Pulses

Fruit/ Vegetables

Others


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Wheat

46%

Cotton

23%

Sugar Cane

11%

Rice

5%

Maize

2%

Fruit/Vegetables

6% Others

7%

Exhibit 2: Fertilizer Use


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Exhibit 3: Sensitivity Analysis of Cotton

Sensitivity Analysis

Farm Size (Acres) Total Profit Monthly Profit

1 PKR 12,188 PKR 2,031

5 PKR 60,938 PKR 10,156

10 PKR 121,875 PKR 20,313

15 PKR 182,813 PKR 30,469

20 PKR 243,750 PKR 40,625

25 PKR 304,688 PKR 50,781

30 PKR 365,625 PKR 60,938

35 PKR 426,563 PKR 71,094

40 PKR 487,500 PKR 81,250

45 PKR 548,438 PKR 91,406

50 PKR 609,375 PKR 101,563


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Exhibit 4: Marketing Channels of Dates

Grower

Pre- Harvest Contractor

Processor (Dry/Fresh) Commission Agent

Wholesaler Wholesaler

Importer

Exporter

Retailer Retailer

Retailer

Consumer

Ex

po

rt M

ark

etin

g

Do

mes

tic

Ma

rketi

ng


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Exhibit 5: Sensitivity Analysis of Dates


Farm Size (Acres) PKR 333,550 Monthly Profit

1 PKR 333,550 PKR 27,796

5 PKR 1,727,750 PKR 143,979

10 PKR 3,470,500 PKR 289,208

15 PKR 5,213,250 PKR 434,438

20 PKR 6,956,000 PKR 579,667

25 PKR 8,698,750 PKR 724,896

30 PKR 10,441,500 PKR 870,125

35 PKR 12,184,250 PKR 1,015,354

40 PKR 13,927,000 PKR 1,160,583

45 PKR 15,669,750 PKR 1,305,813

50 PKR 17,412,500 PKR 1,451,042


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Exhibit 6: Sensitivity Analysis of Citrus


Farm Size (Acres) Annual Profit Monthly Profit

1 PKR 29,313 PKR 2,443

5 PKR 146,563 PKR 12,214

10 PKR 293,125 PKR 24,427

15 PKR 439,688 PKR 36,641

20 PKR 586,250 PKR 48,854

25 PKR 732,813 PKR 61,068

30 PKR 879,375 PKR 73,281

35 PKR 1,025,938 PKR 85,495

40 PKR 1,172,500 PKR 97,708

45 PKR 1,319,063 PKR 109,922

50 PKR 1,465,625 PKR 122,135


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Exhibit 7: Comparative Financial Analysis of Cotton, Dates & Citrus

Comparative Financial Analysis - Profitability

Cotton* Dates Citrus

Revenue PKR 54,688 PKR 500,000 PKR 70,313

Expenses (PKR 42,500) (PKR 166,450) (PKR 41,000)

Profit PKR 12,188 PKR 333,550 PKR 29,313

Monthly Profit PKR 2,031 PKR 27,796 PKR 2,443

* Monthly profit has been calculated over 6 months for cotton since wheat is grown in the remaining six

months.


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Exhibit 8: Comparative Sensitivity Analysis of Cotton, Dates & Citrus

Comparative Sensitivity Analysis - Monthly Profit

Farm Size (Acres) Cotton* Dates Citrus

1 PKR 2,031 PKR 27,796 PKR 2,443

5 PKR 10,156 PKR 143,979 PKR 12,214

10 PKR 20,313 PKR 289,208 PKR 24,427

15 PKR 30,469 PKR 434,438 PKR 36,641

20 PKR 40,625 PKR 579,667 PKR 48,854

25 PKR 50,781 PKR 724,896 PKR 61,068

30 PKR 60,938 PKR 870,125 PKR 73,281

35 PKR 71,094 PKR 1,015,354 PKR 85,495

40 PKR 81,250 PKR 1,160,583 PKR 97,708

45 PKR 91,406 PKR 1,305,813 PKR 109,922

50 PKR 101,563 PKR 1,451,042 PKR 122,135

* Monthly profit has been calculated over 6 months for cotton since wheat is grown in the remaining six

months.

Appendices

Appendix 1: Cotton Transcriptions

Rahim Yaar Khan– Haji Faqeer, Farmer

Hammad: The piece of land that you are working on, is it on contract?

Haji: Yes

Umair: Do you have your own land as well?

Haji: Yes, I also have my own piece of land.

Umair: Ok for now we are interested in your land... Please tell us the area of your land

holding?

Haji: 50 Acres

Umair: What is the production per acre?

Haji: Of what?

Umair: Of cotton. You do plant cotton right?

Haji: Yes …About 40-42 Mounds

Umair: How do you sell your cotton , do you bring it here, Of course due to being the middle

man you must be bringing it here. But do tell us from the land owner’s point of view?

Haji: As a land owner I have no issues because I am also a middleman but by and large

Landowners face a lot of problems and their state in this country is not very promising.

Umair: Yes we are coming to that point; we understand that landholders having land areas of

over 100 acres ranging to 1000 acres are doing relatively well. But the small farmers, having

landholding of below 100…in fact tell us how would you categorize a small farmer?

Haji: We would categorize him as someone having no ownership of land, having 5-10 acres

of land is as good as having no land.

Umair: How much profits do you a small farmer, who owns 5-10 Acres of land, makes per

Acre?

Haji: In my opinion he doesn’t make any money at all. If he doesn’t have the right support or

the timely access to fertilizer or pesticides , even a one day delay in availability of pesticide

can make a great deal of difference . The yield is hardly 8-10 mounds. If I am able to yield 42

mounds an acre it is because I have the required facilities. A small farmer can barely get 10

mounds/Acre.

Umair: Yes, we observed the same problem in the case of Citrus also, as in a big farmer has

enough running cash available to take care of these expenses regularly which he can recover

later whereas a small farmer is unable to afford it.

Haji: Yes, Exactly.

Umair: Suppose if I am to start my own business of growing cotton, how much do you think I

can earn?

Haji: You can actually earn a lot. The farmers in our country usually lack the required

experience for farming.

Umair: Let’s just assume that I have all the required experience and the resources like

pesticide, and if I have 1 Acre, then how much can I earn.

Haji: Even if everything is in place, the situation in the country is such that there is hardly any

water timely availability of water. Even though the cotton crop may be ready, with all the

flowers blossomed, 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, but where will the water come from if the streams are dried up and the

ground water is saline.

Umair: How many water cycles does one crop require?

Haji: During the summer months, the crops require a water cycle at least every 15 days under

any circumstances. Some fields are more fertile then others however.

Umair: Are 8-10 water cycles sufficient?

Haji: No, they require more. The cotton crop has a cycle of 6 months; a good fertile field

would require at least 12 water cycles whereas a less fertile requires water on a weekly basis,

failure to provide water would result in the withering of the crop. Other expenses will also be

exhausted.

Umair: What is the expenditure for administering one cycle of water?

Haji: Spending on water will only be useful where there are tube wells available and where

the water is sweet. It won’t make any difference in areas which don’t have sweet stream

water. There is a shortage of stream water country wide.

Umair: Now tell us from your own perspective as a land owning farmer, your cost of inputs

per acre of land. Can you give us the break up also with regard to how much each input like

Pesticide costs?

Haji: For the whole year?

Umair: For one crop…

Haji: Pesticide is Rs.7000/acre

Umair: And for Water?

Haji: I don’t usually have to spend on water, since I have access to the streams.

Hammad: But assuming you didn’t have access, and you were using an alternative system,

how much would the cost be?

Haji: That would range between Rs.1000 to Rs.1200.

Umair: And Fertilizer?

Haji: The routine at which we are consuming fertilizer costs us Rs.10, 000/Acre.

Umair: And which fertilizer do you use?

Haji: 2 bags of DAP and at least 3 bags of Urea.

Umair: Is it consumed all at once?

Haji: No, Step by Step

Umair: And is it by Engro?

Haji: Yes, from Engro.

Hammad: So what is the total cost of fertilizer?

Haji: It comes out be around Rs.12, 000/Acre.

Umair: And what about the seed cost?

Haji: We extract our own seeds.

Hammad: But what would it cost a typical farmer/Acre.

Haji: It would cost a farmer about Rs.1000/Acre to Rs.1500/Acre

Hammad: Any other costs besides this?

Haji: There are fuel (Diesel) costs for running the tractor and tilling the land.

Umair: But not everyone would own a tractor and would be renting it?

Haji: Yes they rent it, and the cost turns out to be Rs.5000/acre for one crop cycle.

Umair: Does it also include the Diesel Cost?

Haji: Yes it does.

Umair: Any other expenses that we may have overlooked?

Haji: The labour cost, they take 1/8th

fraction of the crop for themselves.

3rd

Person: It is not the picking labour but the labour which has been working throughout the 6

months.

Umair: Ok, the ones who have been adding the fertilizer to the fields and watering it? So

what is the total labour cost over 1 Acre?

3rd

Person: 1/8th

of the total value of the output.

Hammad: Isn’t that a little low? General output is this much only.

Umair? Under the perfect conditions, if one adds the best fertilizer, water and pesticides

timely and in the required amounts then what is theoretically the maximum yield possible?

Haji: It is possible to have a maximum of 40-45 mounds of Cotton Output but where will we

get the water from?

Umair: So in an ideal condition, its 40-45 mounds.

Hammad: Keeping in consideration all these expenses, an output of 20-30 tons and market

prices, how much do you think a small farmer makes.

Haji: Zero.

Hammad/Umair: We believe the numbers will also reveal Zero Profit.

Haji: Only the good Landowners realize profits. When the Wheat crop is harvested at year

end, a farmer can barely take some wheat home and take care of few expenses. The truth is

that, this is the actual state of the small landowners by and large.

3rd

Person: We are talking about the small land holding farmer here. The large farmers do

pretty much get by, one way or the other.

Umair: How many cotton markets are there in Punjab?

Haji: There must be one market at ever Tahseel Level.

Umair: Are there any major differences between Sindh and Punjab in terms of the rate of the

crops or the setup?

Haji: The rate of cotton depends on its quality. Rate will be higher wherever the output is

superior and lower wherever the quality is inferior.

Rahim Yaar Khan Cotton Mundi – Haji Faqeer, Commission Agent

Umair: What is the process of buying cotton being an agent?

Haji: Zamindars have a lot of issues so they usually contact the pesticide provider, fertilizer

provider, aartis etc. This means that they already have contacts on which they can rely upon.

Umair: What is the percentage of interest charged by the aartis?

Haji: They don’t take any. The purchaser who comes to the mundi gives 1.25% to the agent.

No margin is charged by us to the seller. Although there are markets in which there is a

commission at both ends of the transaction. The rate given to the farmer is determined by the

market. There is a lot of variability in rates but it is uniform across qualities of cotton. The

entire market will quote one rate for one grade of quality.

Umair: Do you buy cotton from the farmers?

Haji: We do not buy any cotton. We don’t have many finances because the Zamindars

sometimes take money from us for their running finances during cultivation and harvesting. If

a Zamindars wants fertilizer or pesticides, he will contact aartis who will provide them with

the needed inputs. In return, the Zamindars are liable to give the ‘entire’ output to that

particular aarti. This is like a promise that the aarti will ensure that their output is taken by the

specific aarti.

Umair: Do you contact the ginners on the quantity and quality of cotton that you have here at

the mundi?

Haji: No. The ginners come to the market and buy it from here. They have their own agents

who provide them the cotton. We have firm commitment with certain ginners as far as there is

honesty in the transaction from both sides.

Umair: Who bears the transportation cost?

Haji: The ginners are responsible for the transportation. If we provide for the transportation

i.e. truck and workers, we bill them for that amount. This is over and above the 1.25%

commission that we are earning. Since the ginners place some liability on us we charge them

0.30-0.50% over the commission. The payments are made the next day as this is a word of

mouth and relationships are based on trust.

Hammad: What are the issues that you face in this business model?

Haji: There are numerous issues for instance sometimes the Zamindars are unable to get hold

of water on time which affects the crop adversely. Moreover, our money is stuck with

Zamindars which make it difficult for us. The level of competition is not very common here in

the mundi.

Umair: How many of the agents here are landowners as well?

Haji: Most of the agents here 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. We give

them money if there are pressing needs of the workers. However, the concept of salary is not

common.

Hammad: Do large players (agent) play dirty in the marker for example decreasing the price

considerably?

Haji: No one offers the same grade of cotton at a significantly low rate as it will hurt the

agent himself. Since there the level of competitiveness is low and the market for all of the

cotton exists, demand problems are not present.

Hammad: This market caters to the local market only or does it satisfy part of the exports as

well?

Haji: Yes all of the cotton here is taken by 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.

Hammad: In your opinion how can income levels of agents increase?

Haji: Firstly, this depends on the level of investment which may be in the form of credit

being forwarded to Zamindars or the investment in transportation for instance. Another

method which is prevalent in other markets (e.g. fruit) is take the purchaser pays 6%

commission. This is fixed by the government. The government can increase our commission

which will directly increase our income. The commission we can take from purchases is 3%

but the level of competition dictates that the commissions are so low.

Umair: What if all the agents sit together and ensure that the commissions are increased to

3%?

Haji: This is very difficult since there is no unity in the market. Even if an understanding is

reached, agents one by one will slip from this and will lower their commissions to increase

their volume and pull the customers.

Umair: What is the percentage of cotton being sold directly to ginners and to the mundi?

Haji: Roughly this is 50-50. The presence of agents as the middlemen is advantageous to the

Zamindars but the ginners are at t disadvantage. The reason why ginners come here is because

they do not get the quantity of cotton with uniform quality from a few farmers. This increases

their cost since they will have to find farmers who satisfy their quality standards and provide

their with good enough quality. Dealing with multiple farmers will be costly.

The volatility in price affects the purchasing and stocking of ginners significantly as a price

rise will even prompt small ginners to buy and stock large quantities of cotton.

Bilal Agro Seed Corporation – Mr Hussain, Senior Manager Operations

Umair: Please start by summarizing what we just talked about, what your sources are and that

you buy them. Also whether they are on credit or do you pay immediately?

Hussain: They products based on the unfixed contract are just handed to us, in which case

there is no payment. There is a short term unfixed and a long term unfixed. For long term we

don’t pay immediately but for short term, we have a period of 7 days in which we have to pay

80% to 90% of the amount. The remaining 10% is paid on the 4th

or 5th

day after the cutting.

Umair: And what is the rate for that?

Hussain: That is determined by the market rate.

Umair: And that is also how the Lint rates are determined right?

Hussain: Yes.

Umair: I checked out the market rates for cotton and there are separate rates for both.

Umair: Do you also buy directly from the farmer?

Hussain: Yes, both directly from the farmer and also from the middle man.

Umair: By middleman, do you mean from the market?

Hussain : You may think of the market as an intermediary(middleman) but we are talking

about a Beopari who purchase directly from the landowners at for instance Rs.2400 and trim

off the saangli etc. and sell it to me at Rs.2450(per mound) after giving me the saangli.

Umair: What is the sangli?

Hussain: It is the black collared shell. So they come to me and inquire about the rate and I

offer Rs.2450 so the Beopari makes Rs.50/mound. In case of the market, I send my own

representative, who purchases it from there and brings it to us here.

Umair: When you have the output in form of Lint, what is the arrangement for selling it

further up the chain?

Hussain: The textile mills offer their rates during the evening time; their market opens during

the evening on a daily basis except on Saturday and Sunday when the international markets

are closed. They are observing the market during the whole day while they purchase at night

mostly. Sometimes purchasing also takes place during the day time.

Umair: So the rates fluctuate everyday according to the international market?

Hussain: Yes, exactly.

Umair: What is the level and extent of fluctuation? Rs.100-Rs.200?

Hussain: On some days there is no fluctuation while on others it is as much as Rs.500-

Rs.1000. Like in last season, rates were increasing by Rs.500-Rs.1000 by the hour and then

suddenly rates would drop by Rs.500.

Umair: Aren’t you into the export business?

Hussain: No, that is done mostly by the textile mills.

Umair: So the ginning mills are not generally into export?

Hussain: They do, (import?) in case they are able to import at a lower rate compared to

what’s available locally.

Umair: But that must not be the case usually?

Hussain: No actually it is the case sometimes; sometimes there are inconsistencies in quality

at our end. If our quality is not up to par despite a higher rate than the textile mills resort to

import without regard to Rs.100-Rs.200 difference which is actually superior cotton. With

local cotton, there are issues pertaining to proper cleaning, our processes are not as good as

the foreign players. We tend to have “PP (Poly Propylene)” and “contamination” related

issues. They are willing to pay over Rs.100 in excess of the regular rates if we can supply

contamination free or “CAF” cotton. But it is not possible for us to provide completely

contamination free cotton.

Hammad: What is the contamination usually caused by?

Hussain: Impurities can be Polyester or Polypropylene fibres. In case of impurities like PP,

the yarn making process is adversely affected at the textile mill end because it results in the

breakage of the yarn requiring rework and also compromises the strength of the yarn.

Hammad: So what you are saying is that local textile industry is very quality conscious with

regard to the lint they procure?

Hussain : Yes , they usually check by hand when they visit here which is followed by further

laboratory checks like length , strength , RD and colour .Colour is also very important.

Umair: We also visited Sapphire textile mills earlier and they showed us their lab in which

length strength, colour and RD were being measured.

Now this information may be a little confidential but could you please give us some idea

regarding the margins in this industry, for ginners, textile mills and the cotton growers?

Hussain : We can’t really give you a per mound figure for profit margins because we don’t

have any idea ourselves because due to varying daily rates , we sometimes make

Rs.10/mound ranging to Rs.100/mound and at times we are also losing money.

Umair: So it is all very vulnerable?

Hussain: Yes, it all depends on the international market rates. Like few days ago we were

selling at Rs.4700-Rs.4800. and yesterday the rate was Rs.6000.

Umair: So a rising rate always benefits you?

Hussain: Of course, we would prefer the rate to be doubled.

Hammad: So your final product is Lint, all of which is sold to the textile market and not

exported at all.

Hussain: If you want specific information with regard to export, you may consult my

brother’s office in Lahore which deals with the textile office directly. His office is in St.John’s

park Cantt Station...

Hammad: Are the cotton seeds being purchased by the farmers? Through the market?

Hussain: Not through market but through dealers. We sell the seeds to the dealers who in turn

sell to the farmers.

Hammad: Are the farmers who sell to you the same one who eventually buy seeds from you?

Hussain: Actually, with regard to our seed business, we usually develop our own growers; we

provide them the seeds...

Umair: As in a pool of growers are developed from whom the cotton is bought and seeds are

provided in order to have standardization.

Hussain: It is important because if a seed of a different variety is planted in a certain pool, it

results in about 4 plants of that type and results in mixing and thus inconsistency. To address

that we also clear his field of all unnecessary plantations which are of different variety or

character? After the picking, the output is brought here and the seeds are separated. Then we

provide the seeds to various growers on the guarantee that well will purchase the final output.

Umair: And do they usually agree?

Hussain: Yes they usually agree,

Umair: What about BT Cotton, please elaborate .We have only heard about it but never

actually seen it.

Hussain: All this was BT cotton that you just saw. BT cotton is usually immune to the attacks

of pests like American Sundi etc. as opposed to other varieties?

Hammad: Is the quality better and what is the possible drawback? Does BT cotton have any

drawback?

Hussain: Everything has drawbacks.

Umair: We know that it not attacked by pests…

Hussain: No, in fact, there are pest attacks on BT cotton also, it is also vulnerable to viruses

and yellow fly, but they are less lethal compared to the other attacks.

Umair: Does the productivity per Acre also go up?

Hussain: Yes the average figure is quite good.

Umair: For a regular grower, what is the average yield per acre?

Hussain: About 30 mounds some get 20 mounds, some get 30 mounds while some get output

up to 40 mounds. In Punjab, 40 mounds are rare while in Sindh some areas can yield up to

100 tons per acre.

Umair: What is the reason for that?

Hussain: The weather is more suitable, the moisture levels are favourable.

Umair: But recently the Sindh crops suffered a lot of damage.

Hussain: That was due to the floods, but if you consider sites like Badeen, Thatta are

favourable since they are close to the sea and the moisture level is optimum and farmers are

thus able to grow cotton for about 6-7 months and year which is why they are able to achieve

such a high yield.

Umair: With regard to the holding structure in RYK, what is the land holding size of a typical

farmer? Or is there a lot of variation?

Hussain: The land holders are both big and small. It is not possible to come up with an

average figure easily.

Umair: How do you define a small land owner?

Hussain: He may have one or two Acres .While some have landholdings in the order of

Canals also. There are also farmers owning up to 400 acres to 1000acres.

Umair: But such cases would be rather less?

Hussain: Yes

Umair: How would you divide the percentage between the large and small farmers?

Hussain: I don’t have a very clear cut idea with regard to this.

Hammad: Farmers having landholding of 500-1000 acres, must not be more than 20%?

Hussain: About 2%-3%.

Umair: 500-100Acres is actually quite a lot.

Hussain: In Punjab, having 500 acres is relatively quite common.

Umair: But not in Sindh?

Hussain: When I went to Sindh for the first time, I asked a farmer how much land he owned,

he replied: 2000 Acres. But the crop only grows on 250 Acres. In Punjab, the land value is

also quite high as compared to Sindh.

Umair: Is water availability the main issue?

Hussain: There are no proper systems in Sindh. Plus there is a major issue of salinity in

Sindh.

Hammad: Can we get a rough idea with regard to the cost of the seed. If he is selling

merchandise to you worth Rs.100, then what would be the cost of the seed for him whom he

is purchasing from the market? Is it Rs.10?

Hussain: He buys a 10Kg bag of seed for Rs.2000-Rs.3000 whereas the current rate for raw

cotton (Putty) is Rs.2700-Rs.2800

Umair: What we are trying to work out is how much is a farmer able to earn per acre.

Hussain: Everything depends on the market; if the market prices are high like last year then

they make money like it was the case last year. Some have earned tens of millions. There was

a landowner who benefited from the high rate of cotton last year. He bought one Hilux Vigo

and 5 Corolla Gli’s. We were surprised that he was making more money than us. This year he

told us that have sold the Hilux since he or other farmers hardly made any money.

Umair: Because of the floods?

Hussain: Not because of the floods, but due to the rates. In Sindh it was the floods and in

Punjab it was the rates which affected the farmers.

Umair: I know someone in Badeen whose entire cotton crop has been damaged due to the

rains just before it harvests time.

Hussain: We will only get payment once we sell our product. We cannot sell to anyone else

because there are few textile mills and there is hardly any competition. If one mill offers

Rs.5700, then all others follow suit. For ginners like us, there is significant level of

competition and all of us buy cotton at different rates which may range between Rs.2700-

Rs.2750 but the mills only buy at one rate, Rs.5700.

Umair: So they have a strong Alliance?

Hussain: Alliance, that’s right. Also if they decide not to purchase lint on a particular day,

then no other mills buy on that particular day and we end up losing.

Umair: So they have significant bargaining power?

Hussain: Yes

Umair: Has it ever happened that your quality was poor and there were either no buyers or

you were offered a very low rate?

Hussain: We are able to sell but at a very low rate.

Umair: So do you ensure the quality while purchasing cotton? So that you get good rates.

Hussain: Yes we do: This problem not only occurs in Lint but also cotton seeds.

Umair: How can one identify the quality of the seed?

Hussain: They break it open and if it’s brown from the inside it means it is heated but if it’s

green or yellows its fine.

Hammad: So the ginning output is lint, and this is sold to the textile mills?

Umair: And the international prices represent Lint right?

Hussain: Yes

Hammad: And the other output being cotton seeds, does it have any special term?

Hussain: They are known as cotton seeds only.

Umair: You also get oil from them?

Hussain: Oil and Oil Cake. When it goes to the oil mill, it is then called Oil cake and Oil

Seed.

Hammad: So 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.

And what about the shell and other wastage?

Hussain: It is usually used as fuel in brick kilns, and we don’t get any value out of it.

Hammad: What kinds of wastage are there? At this stage?

Hussain: There is “moth”: It is like cotton seed but the cotton seed is a little hard unlike

“Moth”. There is also dust, small pebbles which are filtered out through Jamba.

Hammad: So what is the percentage of wastage per a certain quantity of input? Is 2-3%.

Hussain: Wastage is very minimal. Out of 40Kg Phutti (raw cotton), 14Kg of Lint and 23kg-

24kg of seeds are extracted while remaining is waste. So waste is negligible.

Hammad: So across the ginning companies, wastage is not that great of a problem?

Hussain: No wastage is not an issue; basically it is taken care if by the landowner.

Umair: What kind of problems or challenges does a typical ginning business face?

Hussain: Electricity is a big problem since we run it on Wapda, and when the power is shut

down, our operation shuts down too.

Hammad: What about Generator?

Hussain: Generator proves to be very costly due to Diesel prices. To run a ginning factory,

we need a 400 KvA generator. And per hour diesel consumption are 10-15 litters or 20-25

litters I am not sure.

Umair: That means Rs.2000 to Rs.2500 per hour.

Hammad: Does this apply to the average factory size or big factory size.

Hussain: No, it the average factory size.

Jullundur (Pvt) Limited – Muhammad Akram, Chemist

Akram: This is our instrument room. Inside the instrument room is the GC (gas

chromatogram). These are the latest techniques that we have. We have purchased 2014 the

latest model. It is the Japanese model and it provides the latest techniques in research and

quality control.

Umair: What jobs does it perform and what is its overall purpose?

Akram: Its purpose is to analyze.

Umair: Analyze chemicals?

Akram: Yes all the chemicals, actors, and everything else that we require; we use this to

perform tests. As you can see over here, we have conducted a test of opportunity cost.

Umair: This being the report…

Akram: Yes this is the complete report; it is the whole set of beeps etc.

Umair: Okay. And in this you enter some…

Akram: This is the injection code. This machine contains an injection; kindly have a look at

it. We use it at 0.05. It has a very fine needle.

Umair: Okay.

Akram: The preparation of the sample comprises of time to time dilution and only 0.05 of

injection.

Umair: Only 0.05

Akram: Yes and after that this is the result we get. Alright?

Umair: Absolutely

Akram: This has a long column which runs on methane gas solely. It has a complete system

installed in it with three supply lines of methane gas other than oxygen. Understood?

Umair: Yes

Akram: After that we…

Umair: Perform all the tests and formulate a report.

Akram: Yes after the sample preparation and everything else we get the result. Okay now

after that we have water chromatogram or HBNC. This is a lower quality compared to the

former.

Umair: Is this the same thing in terms of its function?

Akram: Yes its function is the same. The only difference is that the procedure of preparation.

The same things are determined and detected using this tool as they were with the previous

one. This runs on a solvent.

Umair: On a solvent?

Akram: Yes on solvent. We have to prepare a solvent mixture along with a mobile phase.

After that we perform a holistic analysis. This is its injection port and the other components.

Then after analysis we draw out the conclusions and the results. Over here you can see some

samples that have already been prepared.

Hammad: Is this sample ready?

Akram: Yes this is ready.

Umair: Now you will perform tests on it?

Akram: Yes now we will test it and after that we will obtain the results.

Umair: On what basis do you prepare a sample, is it your own knowledge or some research

that you follow?

Akram: The procedure for preparing a sample is standardized. The German procedures and

the method are followed. We have made sure that those procedures are consistent with the

rules and regulation passed by the Government of Pakistan.

Hammad: Do you require permission from the Government of Pakistan if you are launching

a new

Akram: Yes we do require permission by the Government. We send them our research.

Umair: Who approves this, the PARC (Pakistan Agriculture Research Council) or who does

it, is it one body or does each area have its own?

Akram: There is a department made for this purpose, from there we have to get a form and

send in our details. The department has it calculated and verified and after six months we

receive an approval.

Umair: Okay. So if you launch a new product about which the farmer is unaware, in order to

inform him are you involved in farmer training programs?

Akram: Yes. Farmer training programs is a part of our operations; we have separate team for

this very purpose. Our team visits the farmers and tries to resolve any problems that they are

facing.

Hammad: You stated that you send the product for testing for getting it approved. To which

government department do you send it to, ministry of health, ministry of agriculture, etc.?

Akram: We send it to the ministry of agriculture. They are the ones that have the product

applied via a form. They give us the result of six to twelve months, the time to produce it, the

production levels and everything. Then we get the permission to produce.

Hammad: Has it ever happened that you didn’t get the permission to produce some product?

Akram: Yes, products do fail. But what we do is we start our research again in order to

improve the quality.

Jullundur (Put) Limited – Muhammad Saleem, Distribution Manager

Saleem: All this setup is an automatic plant , for Pesticide , all the worker has to do is keep

the bottle, and filling , gas and stopper , is all automatic and no manual intervention is

required at all.

Hammad: Which crop is this Pesticide used for? Can it be used for any crop?

Saleem: It can be used for all crops. It is presently being used on almost all crops.

Hammad: How many different types of Pesticides do you produce? Are there many types?

Saleem: There are many types, which will be explained to you when you go up to the

laboratory. Now let’s look at this: It’s completely automatic, the measure is completely

automatic. We can have 200ml, 250ml, 500ml or 1 Litter as per requirement and it’s done

automatically. It is set as per our requirement.

Hammad: Is the demand high in the peak season and low in the off seasons?

Saleem: Yes, it’s all seasonal.

Hammad: Once the pesticide is manufactured, does the packaging and branding also take

place here?

Saleem: Yes everything is completely done here.

Hammad: Then who takes over from this point?

Saleem: Then we have dealers and a sales team which reports to the national sales manager,

the sales team sells the product to the distributor which distributes it nationwide.

Hammad: So it doesn’t directly reach the farmer? And goes through the distributor?

Saleem: Yes that’s correct.

Hammad: There are also multinationals like Monsanto and major local players like Engro in

the fertilizer business, are they in direct competition with your company or do they serve

different markets?

Saleem: No they are different.

Hammad: Can you give us an estimate with regard to the market share of the large

companies like Engro and Fauji?

Hammad (2): But Engro is not in the pesticide business right, we have Monsanto and …..

Saleem: Monsanto is also is not in Pesticides, it is specializing in Seed …

Hammad: Seed Germination?

Saleem: Hybrid Seeds.

Hammad: Who are the big players in the Pesticides Business?

Saleem: There’s Sygenta, FMC, UDL and Pak-China.

Hammad: So basically are these your competitors in the Pesticide market?

Saleem: Yes, they are competitors.

Hammad: So who is the biggest player amongst these and why is it the biggest? Because of

Price? Or quality?

Saleem: See being big depends on how much business volume one can achieve in Pakistan.

There were Players, who came in early, and then some came in later, but we have been able to

catch up with them.

Hammad: As in your growth has been rapid?

Saleem: Yes our growth has been rapid and we keep on growing. Quality wise also, we have

the complete setup and we compare and tally with them. The chemistry is also as advanced as

theirs, as far as the marketing is concerned, it depends on the marketing team, and how much

grip they have. Also, the quality directly helps our distributors and our marketing team.

Hammad: Are the distributor’s employed by the company or some other party?

Saleem: The distributors are employed by the company.

Hammad: So does the company approach the farmers through the distributors?

Saleem: Basically we distribute it through the dealers. Then we have people who ride

motorcycles and vehicles into the field to check the crop and then prescribe what pesticide is

actually required.

Hammad: As in he identifies the requirement and prescribes the specific pesticide to be used?

Saleem: Yes, he species which pesticide will be the most suitable and yield good results.

Then the worker goes to the dealer, acquires the pesticide and then sprays it himself. This is

how it works.

Hammad: So your company has access to the direct customer?

Saleem: Yes exactly. Our employees do have access to the end user of the pesticides.

Hammad: The work that is being done in your lab, and the products which are formulated,

are they customized according to the needs of the end user and the pests currently posing a

threat?

Saleem: Yes exactly.

Hammad: Do you ask the farmers what kind of problems they are presently facing and do

they tell you whether a new type of insect is threatening their crops or any other problem?

And do you work back to solve these specific issues?

Saleem: Yes exactly, that is how it goes….See we will only be able to sell if the product

meets the requirement. If the prevailing problem is that of “Sufaid Makkhi”, then we have to

alter the product accordingly. The farmer is quite literate and if we sell him something that

doesn’t work, he will not buy from us again. Even they know about the active ingredients in

Pesticide and how it will affect the pests.

Hammad: What is the production figure for Pesticides? In Litters or any other measure?

Saleem: According to the unit measure, we have two fully automated plants in which we can

achieve production of 1600 to 2000 Packs. We however, give the production order according

to our requirement because we get the order for what is required. Then we receive the order

from the office to pack specific items.

Hammad: Are all your sales limited to Pakistan only?

Saleem: Yes Exactly.

Hammad: Does it ever happen that the demand exceeds the supply? And you end up with

leftover or unsold stock?

Saleem: No this ever happens?

Hammad: That means you produce only as per the requirement.

Saleem: Yes as per requirement.

Hammad: Are the raw material chemicals for the Pesticide imported or acquired locally?

Saleem: No they are imported.

Saleem: This is our plant, both of these are auto, this is the safety glass, on each side there are

8. This is where the labour sits, first they attach the caps, after the caps they put on the label,

then the label is shrunk to fit, then it is sealed and the workers transfer it to the cartons. Here’s

the carton sealer; we have a 20 unit carton for 500ml bottles and a 12 unit carton for 1 Letter

bottles. After passing through the automatic sealer, the carton is ready.

Hammad: Are both the units the same?

Saleem: Yes both of these are same and we have complete safety measures in place.

Hammad: For what area coverage are 8 sprays sufficient? 1 Acre?

Saleem: 8 Sprays are required for one crop over the entire season.

Umair: The second question is, if we are to administer 8 sprays over 1 Acre, then what would

be the cost? Do you have any idea in this regard?

Saleem: Approximately…it can turn out to be around Rs.20, 000-25,000 or even Rs.15, 000

Umair: That is for 8 sprays over 1 Acre? Ok

Hammad: Is this the cost?

Umair: Yes, Rs.20, 000-Rs.25, 000 for 1 Acre.

Saleem: It’s not necessary that 8 sprays will always be required; sometimes even 2 might be

sufficient depending on the weather. If the weather is favourable than 2 sprays are sufficient.

Umair: So it depends, like in case of an attack we will need more sprays?

Saleem: Yes, like in case of an attack, or if there is rainfall shortly after a spray.

Umair: But then there’s always a recommended amount for every crop. For instance, if I am

planting cotton, then you may suggest that 6 Sprays are the recommended amount for your

crop to be safe. So I just wanted an idea if 8 sprays are usually what people go with?

Saleem: See if you are planning to plant Cotton, your first selection will be that of the “seed”,

following that the selection will be of the “land”. Then you will have to study the fertilizer

option with regard to the amount of input required. Then we will have to consider the water

(or irrigation requirement). Then we will consider the number of sprays and finally we will

have the output figure available.

Umair: So on average, how much cotton does 1 Acre usually yield, if all the steps described

are carried out properly?

Saleem: On the higher side (EARLY KAAST), it can range between 50-60 mounds, even 70

mounds.

Umair: But this is the higher side, is 40 mounds to 50 mounds the norm?

Saleem: 40 mounds to 50 mounds are easily obtainable, if he is a good farmer, smart and

educated then he can easily obtain this much output.

Umair: Do these farmers mostly sell to the ginning industries?

Saleem: Yes they do but through the middleman (or Beopari).is

Umair: What is the rate/mound that a farmer is able to charge from such transactions?

Saleem: They have recently been able to fetch Rs.2400 to Rs.2500/mound and presently it is

around Rs.2700/mound

Umair: Is the rate determined by the market laws of demand and supply?

Saleem: Yes, the fluctuations are determined by the market. Last year farmers were able to

sell at rates up to Rs.5000 to Rs.6000/mound especially during the period of the floods. This

year, however they have planted cotton in excess and are unable to sell so the rates are down

to Rs.2700.

Hammad : So a good farmer , can extract about 40-50 mounds of cotton from 1 Acre and his

expenditure is about Rs.15,000 to Rs.20,000 on pesticide , in addition he will also have to

spend on seeds , fertilizer , water etc….

Saleem: This Rs.15, 000 to Rs.20, 000 expenditure includes pesticides, seeds and fertilizer.

Umair: Does it include water as well?

Saleem: To a certain degree, Water costs more; the tube well charges are Rs.500/hour

Umair: What is the water requirement for Cotton?

Saleem: There are 5 water cycle requirements.

Umair: And one cycle costs Rs.1000/acre? I have verified this from some other source also.

So it’s Rs.5000/Acre/Crop/Season.

Saleem: You will get different figures from different information sources.

Umair: Yes this is what we are doing, we are approaching multiple sources and we intend to

take the average figures.

Hammad: If we consider all these calculations, can you give us a very rough estimate with

regard to the profit a farmer earns per acre from his operations?

Saleem: The profit comes out to be about Rs.18, 000-Rs.20, 000.

Hammad: As in this is his earning after taking care of all expenses like fertilizer, water etc.?

Umair: It’s not too much if you consider an year’s worth of effort …

Saleem: No its 6 months….

Umair: So he switches to Wheat?

Saleem: Yes, then he switches to wheat.

Hammad: If we consider the farmers who are approached by your sales team, what do you

think comprises of a small land holding, as in how much land holding does a farmer own to be

categorized a small farmer?

Saleem: A small farmer would have around 15 Acres of Land,

Hammad: And a large farm holder would have 100 Acres?

Saleem: It would actually exceed 100 Acres, even 200 Acres.

Umair: Do you also manage the seeds here?

Saleem: No there’s another system for that.

Umair: But you must have an idea regarding it?

Saleem: Yes, we do infect….

Umair: First please tell us, what Jullundar’s role in seeds is. Is it germination?

Saleem: We carry out complete tests of seeds …

Umair: Do you also have a laboratory for seeds?

Saleem: Initially the seeds are planted; this can be on one’s own farm or at a third party.

There is a whole team focusing and constantly monitoring the purity. They check the size of

the crop and also ensure homogeneity by trimming (or picking) off the excess portions (the

shorter and longer ones) where required. This contributes to the purity of the plantation. Then

the plantation is harvested and a rate is negotiated with the farmers, this rate is slightly

different and higher than other rates. Then we bring the plantation here and Ginning is carried

out.

Umair/Hammad: Ginning of the seed?

Saleem: The cotton flower in case of cotton and similarly the process is also followed for

wheat. The seed is then extracted and tested in the laboratory.

Umair: What attribute of the seed is checked?

Saleem: Basically the germination is checked …

Umair: Whether it is capable of reproducing or not?

Saleem: We check up to what percentage it can reproduce. The healthy seeds are then

segregated.

Umair: To make a gene pool?

Saleem: Yes, they are then put into storage and then make their way to the market from...

Umair: So this trial and error process continues with XYZ seed planted in a certain area while

simultaneously planting different types of seeds in different areas? I have learned about this

process from another source so I am just reconfirming it. The seeds from the different sites are

then compared, and the best seeds are cross bred to make superior seeds.

Saleem: That is cross breeding process and it is different. That process is used only when a

new variety of seeds needs to be developed.

Umair: Is this cross-breeding process to develop new seed varieties practiced by any

company in Pakistan?

Saleem: Definitely, in fact, we do also do it for cotton breeded seeds.

Umair: I have also heard of Aziz Group which specializes in this process.

Saleem: Yes, there’s Aziz Group from Multan.

Umair: Are these groups certified from the government?

Saleem: Yes not only are they certified but they are also checked before being sold in the

market.

Hammad: Moving on to the farmer , once he has acquired the seeds , and plants it and when

finally the crop output is ready to be harvested , does he have the option of selling it in the

market or to any other party which he may prefer?

Saleem: Yes it depends on the rate and it’s his own choice whether to sell it in the market or

sell it on the stop from his field to any party.

Umair: What is the cotton flower called before it is handed over for ginning?

Saleem: It’s called “Phutti”; it is the end fruit of cotton also the raw form of cotton. And then

it is converted into Lint.

Hammad: The farmer usually has the option of selling his end product in the market or he

can send directly to any party. Is there any other option available to the farmer?

Saleem: Sometimes, he 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. We, on the other hand have all the required systems in place. In the

absence of such systems, the seed will cease to germinate if the temperature or moisture levels

fall below a certain limit.

Umair: So the farmer doesn’t have this kind of control.

Saleem: No he doesn’t, he doesn’t have the required knowledge so pretty much fails if he

tries and retains the seeds and then after one year he comes back to us in order to acquire the

seed.

Hammad: For our last question, we would like to know the potential pitfalls in the whole

process within every stage such as procurement of seed, selling of seeds to the farmer and

farmer selling his final product. We would like to know the major problems in every state

except most that of quality control. Please explain in terms of your company’s point of view

as well as the farmer’s point of view, also explain you customer’s point of view. Please

elaborate with regard to the most pressing issues.

Saleem: If we consider the floods that affected Sindh last year that has resulted in rain

affecting the crop from the top. The seed is usually made in the “first picking”…

Hammad: Please Clarify…

Saleem: See for instance you have a cotton plant; the fruit that grows from that plant for the

first time is called the “first picking”. It is usually at the bottom of the plant and is picked

during the first round of picking, it is usually from this picking that the seed is extracted and is

more likely to be very successful and superior. But when there is rain from the top and flood

from below, the moisture level rises dramatically rendering the seed useless. So the seed life

is thus shortened. It is then useless for us and the farmer and cannot be sold at the planned rate

at which the farmer would have been able to cover his costs. And for us the quality is not

acceptable.

Umair: Are there any issues from the sales, marketing and distribution side?

Saleem: Yes definitely, a lot of issues spring up on that front. Sometimes the farmers/end

users complain that the seed did not germinate. Our representative then visits the site to check

the seed. He is usually equipped with all the necessary lab equipment in order to detect any

defect in the seed. We usually don’t release any seed from our facilities without proper quality

qualification but the farmer is usually not very knowledgeable and they tend to mishandle the

seeds thereby ruining it. The farmer then pressurizes us to accept the blame for the damage.

We dissect the seed in our labs and examine it further to identify the cause of failure. If we are

unable to do so, a committee usually decides how the damage is to be shared.

Hammad: Do you think that in the last 10 years or so, a typical farmer’s knowledge level,

regardless of his education has improved and he now more open to adopting modern aids like

fertilizers and superior seeds?

Saleem: Yes definitely, his awareness level has improved considerably. He doesn’t

necessarily adopt anything in excess. He now tends to think through before adapting any

solution. He also has a much better understanding of the land properties and he can identify if

there are mineral deficiencies in his land such as nitrogen, phosphorus, zinc or gypsum and

whether he needs to add aids like growth regulators etc. The farmer thus is quite well aware.

Umair: Do you think there are risks of your products being counterfeited and sold in the

market? Has there ever been such an incidence?

Saleem: See there are many thieves in the market…

Umair: Yes thieves who steal someone’s brand and are willing to go to the market with it are

greater thieves.

Saleem: In fact, we caught such a case once. He has filled “Choona” in our packaging and

was selling it.

Umair: Did he also print your brand and used the same type of bottles?

Saleem: Yes exactly, it is very difficult to spot.

Umair: So, is u able to spot it only when a complaint comes through?

Saleem : See we have people in almost every market, We can find out by the volume of

material that has been shipped , then we have people going all the way to the farmer so they

also bring in their input. Like in this case, the box was slightly larger in size then that of the

original one, so we were able to catch him.

Umair: One way or the other, some details are always over looked...

Saleem: Now some times, farmers complain that the product doesn’t have any smell .Every

pesticide is supposed to have a certain door. Then our representative goes there and brings

the product back to our laboratory and we are able to identify it as fake.

Hammad: We have two more questions, firstly it would be great if you could share the

margins with us, and it’s ok if you don’t want to disclose it.

Saleem: See Margins in Pakistan are different for every player and they are usually

confidential.

Hammad: Ok, in that case, please tell me if there’s a farmer having 5 acres of land and you

are providing fertilizer and seeds to him. Is this cost suitable for the farmer?

Saleem: Yes, in fact the costs are going down, we are reducing our margins as more

competitors are making their way into the market. We have to overprice them because of

inflation but in reality we are not charging them higher.

Umair: Can you at least tell us how much margin the distributor charges?

Saleem: 3% to 5 % retail margin depending on the product.

Umair: Does the distributor sell directly to the farmer or to someone else?

Saleem: He sells directly to the end farmer.

Hammad: And what margin does he charge to the farmer?

Saleem: Again...3% to 5%...

Heera Pesticides – Muhammad Khurram, COO

BT Cotton

Khurram: Bacillus Thuringiensis is a bacterium. Understood?

Umair: Yes.

Khurram: There is a toxic factor in this bacterium. What they have done is that going into

the genetics of this bacterium and modified it. They have introduced a toxic factor, due to

which the bacterium attacks only one kind of pest. I will write it for you. There are two kinds

of pests; one is biting and the other is sucking. The sucking pest is the one that sucks. The

biting pest eats away the leaves and the buds of the cotton flower. In the biting pest category

is the American ball worm, pink ball worm, spotted ball worm; these are the major attackers

of the cotton crop. When these ball worms bite the cotton crop, due to the toxic effect in this

pesticide the ball worm die and the cotton flower and crop is unharmed. That is why this

pesticide is named ‘BT Cotton’, as BT is the name of the technology. There are many

varieties of BT available.

Umair: Okay so what you do is that you make the BT bug save the cotton crop from the harm

of the pests

Khurram: As its color is lush green, it attracts the sucking pests. The leaves of the crop are

white and broad; and the pesticide tends to rest on the leaf. When the sun shines on the leaves,

the lush green color on white attracts the sucking pests a lot.

Umair: Does this stop the sucking pests?

Khurram: It invites the sucking pests and stops the biting pests.

Umair: It is useless against the attack of the sucking pests?

Khurram: Yes. It cannot harm the sucking pests.

Umair: Using ‘BT Cotton’ can it be said that apart from protection against the biting pests,

your cotton crop yield also increases, the size of the flower?

Khurram: Yes the yield increases because the hard fact is that the biting pest is deadlier and

more harmful to the crop than the sucking pest. The sucking pest only weakens the crop but

the biting pest ruins it, it eats away the cotton flower. And yes BT does improve the yield of

the crop.

Umair: Okay.

Khurram: However one side effect of using it is that due to its toxic element, it is difficult to

multiply after two or three years.

Umair: Okay. I heard that as BT Cotton has a toxic element in its seeds it has a negative

impact on the next crop such as wheat that is sown after the cotton is picked. Does that

happen?

Khurram: No that cannot!

Hammad: So basically the soil remains unaffected.

Khurram: The BT Cotton has no impact on the soil; I don’t have further information on the

toxic capability and whether it dissolves into the soil or not.

Umair: It remains in the seed?

Khurram: Yes the toxic element is in the seed.

Umair: I have heard that BT Cotton is not widely acceptable round the world because there

are some environmental issues associated with it

Khurram: Yes it is true

Umair: In the developed countries a lot of research is being carried out on this

Khurram: In the developed countries they have used and fore gone this. Any new technology

when it is not in use anymore abroad it makes its way into Pakistan. The people abroad

dismiss it, on the pre-text that it is not good enough and better modifications can be made

whereas the Pakistanis readily adopt it without giving much thought. This is the issue we face

at the back end. The next thing is the ‘sawgin machine’, it is a ginning machine with saws in

it.

Heera Pesticides – Major (r) Sarfraz Ahmed, Chief Executive

Cotton Issues

Umair: My first question is that are there any harvesters here with specialized machinery?

Major Sarfraz: If you search it on the internet you will see that land holdings in this area are

free. There are people with huge landholdings. If the picking of the cotton is made mechanical

a lot of expenses can be curbed.

Umair: I spoke with a few people regarding this and they were of the opinion that

mechanizing the picking of cotton would render many people unemployed.

Major Sarfraz: As far as the labor is concerned, first of all it is not readily available and

secondly we have to make the effort of providing them transport from the other side of the

river. Our focus is towards the farmer as to how better he can earn and not anything else.

Hammad: The people you employ for the picking season what do they do the entire year?

Major Sarfraz: All the women folk are involved in the picking of the cotton and not the men.

Then just prepare the crop till it is ready to be harvested or picked. The women prioritize their

household chores over the work in fields during the picking season; they take their time. They

complete their chores before coming to the fields, pick the cotton flowers and then after a set

time they head home. It is the farmer who is sitting idle and wants the crop to be harvested

soon; so that he can plough the fields again to sow a new crop.

So for picking purposes machinery can be brought into the picture. The second thing is that

the entire field post-harvest is a sunk cost to the farmer; as the farmer had invested on the crop

and the soil. The only thing that it can be used for by the farmer is ‘firewood’.

Umair: Yes I saw bundles of stems and leaves of the cotton crop post-harvest tied together. I

asked the farmers how would they use them and they responded ‘firewood’.

Major Sarfraz: The farmer has made a lot of investment on even the nourishment of these

stems and leaves and using it as firewood is a sheer waste.

Umair: So what according to you can the farmer do, some better way of using this?

Major Sarfraz: If it can be converted into bio gas, energy or fertilizer.

IKEA Trading (Hong Kong) Ltd. – Syed Rizwan Vajahat. Project Manager BC

Hammad: What is your role in the value chain of cotton after the ginning process?

Rizwan: IKEA is at the retailer end. We are at the last point of the value chain. Samples of

textile products are placed in the room next to this conference room. Some of the large

suppliers include Gul Ahmed, Al-Karam etc.

Gul Ahmed is a vertical unit which is procuring cotton directly from the ginning factories. Al

Abid silk mill is in processing so they go to weaving.

Umair: Do you buy directly from the end of the value chain i.e. manufacturers of finished

products?

Rizwan: Yes. We have our suppliers which have their own suppliers and so on so forth. The

value chain of the textile sector is:

Farmers -> Ginning -> Spinning -> Weaving (Grey Fabric) -> Processing (dying, printing

etc.) -> Finishing (stitching units) -> Retail (example IKEA) -> End Consumer

IKEA performs two functions Retail and Buying. Buying is procurement of final goods from

various suppliers. This is IKEA Hong Kong Trading Company. So basically we are only

buying the final products based on our own quality measures.

Umair: How many units are vertically integrated in Pakistan?

Rizwan: There are a lot of them but we do not deal with every one of them.

Chenab, Gul Ahmed, Nishat, Al Karam, Indus, Fazal Textiles (is only up to weaving),

Sapphire to name just a few. These are in bed linen. We are representing IKEA

Nida: Do you actually partner with weaving firms?

Rizwan: This depends on company or business policy. IKEA does not involve themselves

with sub-suppliers.

Levi’s has a different policy where they nominate their sub-suppliers. Levi’s has direct

linkages with stitching units which goes back significantly in the value chain. Nishat,

Sapphire and Indus are manufacturing denim fabrics. They make agreements with suppliers

on annual basis which is derived from the annual demand. The suppliers will deliver the

fabric to Levi’s. Similarly, Levi’s will also have contracts of similar nature with stitching

units. IKEA works only with its suppliers which in turn select their own suppliers.

Hammad: Is there any quality check or quality assurance by IKEA which goes all the way

back to the farmers? What link, if any, do you have with farmers?

Rizwan: No, we are not directly involved with ensuring quality at every level of the value

chain. However, it is understandable that we require a certain level of quality from our

immediate suppliers who in turn will ensure that the level of quality is maintained by their

suppliers and so on so forth. This will ensure that quality is maintained at every level of the

chain. IKEA has recently developed a concept of Better Cotton (BC) initiative which is

linking IKEA’s knowledge on cotton with the farmers. Currently, there are no active players

which are directly involved with farmers with respect to quality, environment or social

responsibility. IKEA is the pioneer of this concept which ensures quality by assimilating

better practices of cotton growing to farmers.

Quality matters for IKEA. There are certain quality parameters for our final product which are

comprehensively explained in the IWAY Standards for our suppliers. This covers various

aspects which included social, health, safety, environment, discrimination etc.

Adeel: Is it your suppliers’ responsibility or is IKEA directly involved in this process?

Rizwan: IKEA is involved in three key business areas. There are business developers, quality

developers and supply planner. The role of business developer involves purchasing, volumes,

orders, buying price who acts as the team leader. He is supported by quality developers who

ensure quality parameters are maintained. Quality developers work closely with a quality

team of suppliers.

Nida: In what volume does IKEA procure for local suppliers? What is the percentage of the

local supply do you procure? Is it enough to influence the quality of the value chain?

Rizwan: IKEA is a €26 ban company. In Pakistan, we did €200 MN of businesslast year. Our

percentage is significant. I will not give an exact figure but it lies in the range of 70-80%

which is enough to influence the value chain.

Adeel: If we compare IKEA to Habitt or other local retail chains, what is the volume and

price differential?

Rizwan: Habitt’s volume is meagre relative to IKEA. Our competition is with Walmart,

H&M, and Marks & Spencer.

Nida: Does the competition also procure from the local suppliers?

Rizwan: Yes these retail companies also procure from Pakistan.

Umair: Can you please shed some light on the challenges that farmers face since you are also

associated with the BC initiative? If someone wants to invest

(We shared all calculation of per acre per crop details of cotton with Mr Rizwan)

Rizwan: If we take the average output of 30 mounds per acre with an average cost of Rs.

50,000 for all the inputs and work required for that one acre, an average price of Rs 2,500 per

mound, the profit comes out to Rs. 25,000 per acre per crop. One-eighth of the output is taken

by the labour. With this amount, an entire family has to survive apart from other running

expenses and utility bills which mean that the farmers’ are hardly breaking even.

Landholdings in Sindh are larger as compared to Punjab. 10-15 acre in Sindh is considered

small whereas a landholding of 5-6 acre in Punjab is considered small.

(Umair: We saw similar demographics in citrus where the small farmers were suffering and

the big farmers were enjoying fat profits. We found out that this is due to better practices,

access to various markets and better timing which results in higher yields.)

Details of RYK Cotton Mundi were shared with Mr. Rizwan in order to verify and get a

second opinion on the working of the market.

Rizwan: The farmer has three options when the crop is ready:

1. Direct sales to ginning factories

The farmers will take their cotton in a trolley to the ginning factories and the

transportation cost is 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

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 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.

2. Mundi (Cotton – Phutti market)

Mundi acts like an open market transaction where farmers, ginners and aartis are on

the same platform. Since all the concerned parties are pooling in resources, the market

price in this channel lies in the middle of the three channels price continuum with the

first channel having the highest price for the farmer. The farmer should have enough

volume to take it to the mundi. A demerit of mundi for quality conscious ginners is the

quality of cotton. Since the farmers dump their output in the mundi, the mix of various

grades of cotton lowers the overall quality of the entire cotton output (mix). Aartis are

not concerned with this since they are only interested in their own margins which are

linked to the sale of cotton irrespective of the grade of cotton. Farmers who are not

able to sell elsewhere come to the mundi where cotton of different grades is sold at the

same price. Mundi is considered an ‘average’ or the ‘second option’. Another problem

with mundi is the use of polypropylene bags which cause contamination in cotton. The

fibres of the plastic bags are very difficult to differentiate from the fibres of cotton.

This causes contamination during the weaving process which not only causes impurity

in the cloth but also decreases the strength of the cotton fibre.

3. Farm sales via ‘aarti’ (middlemen)

The middlemen (aarti or a direct representative of the ginning factories) will take the

output of the farmer directly from the farmer. The ginner or the aarti will use their own

resources to buy directly at the farm which means that the lowest rate that the farmer

gets will be through this channel (ex-factory rate). The ginner has two sources to

procure directly from the farmer. They can either hire an agent (aarti) or hire a selector

(freelancers or associated with the ginners). The ginners would prefer larger farmers

for the reason mentioned before since this would reduce their cost of transportation

and would ensure uniform quality.

In all the three channels, the price received by the farmer is different which depends on the

agreement/market. Similarly, the ginning factories have the same channels in the reverse

order where they can either buy at their own gate (Channel 1), buy from the mundi (Channel

2) and directly buying from the farmer (Channel 3).

Adeel: What are the parameters to measure quality of cotton?

Rizwan: Trash count, staple count, and colour. There are a lot of variations in the quality of

cotton but if you procure cotton from the same region, same crop, same time the chances of

variation are lower.

Appendix 2: Dates Transcriptions

Sukkur – Mujeeb Ullah, Land Owner/Grower

Umair: We have Mujeeb with us; we will talk about Dates with him. First tell us that what is the

timeline of date crop, when does it harvest?

Mujeeb: It starts from June and continue till end of August, it varies according to the different

varieties.

Umair: What does the grower do after harvesting the crop?

Mujeeb: They do the cleaning of dates till November; Bor (male powder to the female) is being

transferred in to the female from March 01 to March 20.

Umair: What is Bor?

Mujeeb: Bor is powder extracted from male date tree which has to be transferred into the female

tree to get the fruit. We give few tries and let the female to conceive. The fruit gets ready in 2

months and gets ready in June.

Umair: Okay I understand that production starts in June and fruit gets ready by August as you

said before. What happens once the crop is harvested?

Mujeeb: Buyers also come to the fields to get the deal done. Some growers take their crop to

mandi too.

Umair: What are the different options for a grower to sell his crop?

Mujeeb: Dates are sold in raw form and its large quantity is also converted into Chuara. Chuara

is mostly exported. Dealing is done in various mandis in Khairpur and Sukkur. They are packed

in factories and send to foreign countries.

Umair: Are there any middlemen between mandis and growers?

Mujeeb: Middle men give advance to growers for their crop in January. Middlemen have orders

from factories. For example, if a grower has a total crop of 500,000, so middlemen gives

100,000-200,000. These beoparis are mostly local Hindus. They export to India and from India

some dates are also exported to SAARC countries.

Umair: Ok now tell us about the yield per tree?

Mujeeb: Yield per tree ranges from 80 Kgs to 120 Kgs.

Umair: Who determines the rate?

Mujeeb: It varies season by season depending upon production and market.

Umair: What measuring scale is used in mandi?

Mujeeb: It is measured in mann (40kgs) and packed in Jute bags.

Umair: What is the price grower get per mound?

Mujeeb: price ranges from Rs. 1000 to 4000. This is the price of Chuara.

Umair: How many trees are plated in one acre?

Mujeeb: 100 trees

Umair: Is there any cost of inputs?

Mujeeb: No not really for dates but yes some farmers grow wheat so they have to make some

expenses on it.

Umair: So there is not any major expense involved in dates?

Mujeeb: No. we use local fertilizer which is cheap as 30-35 per kg. annual expense is negligible.

Umair: We know that large land owners give their land on rent to small farmers. What are the

mechanics of that?

Mujeeb: Yes any one can get land on contract from landowners. Rent is calculated on per tree

basis. Its costs around 1200-1300 per tree.

Umair: in case of rented land, is farmer supposed to give some part of produce as well?

Mujeeb: No produce is all farmers’.

Umair: ok now tell us about the demographics and land holdings of this region? Who are

considered small farmers and who are large?

Mujeeb: 50-100 acres land holder is considered as large farmers. But even 10 acre holder makes

enough money to meet the basic needs.

Hammad: If someone has 10 Acres or less and he is growing dates on his own land, then how

much he earns per acre?

Mujeeb: Per acre profit is RS. 200,000.

Umair: That’s great.

Mujeeb: If you give on rent (theka) then farmer can make 100,000 – 120,000.

Hammad: What are the expenses or cost of inputs if any as we found out that cotton incurs

substantial cost?

Mujeeb: As is said before, expenses are related to other crops which we grow on the same land

like wheat. If we spent 5000-6000 then we easily get 15-16 mound of wheat.

Hammad: does the land owner allow the contractor to grow any other crop on the same land?

Mujeeb: Yes! He is free to grow any crop.

Umair: What percentage of total date crop is converted into Chuara?

Mujeeb: Minimum 80% is converted in to Chuara. Chuara has more demand in the export

market.

Umair: What is the shelf life of Chuara and dates?

Mujeeb: Chuara has life of two years and dates can be preserved for one year.

Umair: How does ramzan season affect the farmers? We heard that ramzan will come before the

harvest season of dates? Is this a concern for you?

Mujeeb: No, that is not a concern as such. We can preserve dates in matka (clay pots). I think

there are still thousands of mounds stored in warehouses of factories. There is a chemical

available now which protects the dates from water and dampness. Water is harmful for crop.

Umair: So, only water is the major threat for dates? How about pest attack or any such thing?

Mujeeb: Rain is an only major threat to ready dates. What the do is that they store dates by local

means and also in cold storages and they wait for the ramzan season.

Umair: Are there sufficient number of cold storages in this region?

Mujeeb: Cold storages are mostly located in Khairpur region not in Sukkur region.

Umair: What measures do you take when rain hits the ready crop which is not harvested?

Mujeeb: That is one concern for us, we pray for not to rain. Farmers react in this condition by

harvesting the wet dates and convert them into Chuara. Wet dates can only be converted in to

Chuara.

Umair: Wet dates can’t be used as raw dates?

Hammad: So that is not your loss in any way if you can convert them into Chuara.

Mujeeb: Not really, but if you can get 1000-4000 for Chuara, you get the payment from the

mandi after two months. Whereas in the case of raw dates you get the payment next day. The

expenses incurred are around 100,000 for labour and harvesting for 300 trees.

Umair: How much labour do you need?

Mujeeb: One labour can take care of 1000-1200 trees for one season. He takes care from the

stage of transferring male powder (Bor) into female to harvesting. Labour has to climb five times

in whole season.

Umair: How much do you pay to each labour?

Mujeeb: Labour takes Rs.15000 for hundred trees. It takes responsibility for whole process.

They usually operate in teams and get hold of 300 trees. Usually 15-20 labours make a team.

Umair: Ok now tell me is this labour also involve in making Chuara out of dates or are there any

Chuara specialist?

Mujeeb: There is specialist member in the team for making Chuara. Chuara is made by the

growers and then they sell in market.

Umair: What is the difference in rates of dates and Chuara?

Mujeeb: There is less proportion of ready dates in a bunch, then ready dates are separated and

half mature dates are converted into Chuara.

Umair: How long does it take to convert Chuara into khajoor?

Mujeeb: it takes three days.

Umair: Being a grower what difficulties or challenges you face? Is is access to market? Low

rate?

Mujeeb: No there is no such problem which affects our business. We are thankful to God. There

were no roads before but now roads have been built and transportation is easy. Those who sell

early they get better rates, by early I mean before ramzan. These days prices are very low, the

Chuara used to be traded at 3000, now it is of only Rs. 1000. It is even lower than last year rate.

Umair: If I say supply is more than demand is that true.

Mujeeb: Yes. That’s true. All the banya’s are in power in mandi.

Umair: Are there any agents (banya) who owns land and produce dates.

Mujeeb: Yes but very few in numbers. You can say 5-10% of the agents have their own date

farms.

Umair: Rest of them are just traders, middlemen?

Mujeeb: 75% of the banya are Hindu and 25 % is Muslims. Hindus are mostly exporters of dates

to India, Sri Lanka and & Bangladesh. Aseel is speciality of this region which has high export

demand.

Umair: Can you grow Ajwa date which is most famous?

Mujeeb: It requires more heat, so climate of Arab countries is more suitable for Ajwa. Aseel is

our specialty, the more it is golden more rate we get for our dates.

Nirankar Traders – Jay Kumar, Commission Agent

Umair: So the grading is done in the Godowns. Please give us a brief overview of the dynamics

of the date’s business from the time the season starts. Are the dates sold locally? Or imported to

countries like India? We will ask further questions once you have given us the overview.

Jay Kumar: The tree is first cut, the dates are cooked in an open dish, one kind is the red Chuara

(dry Date) and the other is yellow to which regulate (additive) is added. The additive is imported

from India and China. The red Chuara (dry date) has no additive added to it and is all natural.

Both are sun dried and filled up in bags before being brought here.

The dates are then auctioned; the bidding is essentially tied to the quality of the dates. There is

no restriction whatsoever and any one can participate. The foreigners/outsiders are expected to

pay cash whereas the rule of the market is credit based. It can range between 15 days to 2

months.

The bidders are expected to pay Rs.5 in order to join the auction.

Hammad: Who are the actual bidders?

Jay Kumar: The shopkeepers/Retailers; for instance I am commission agent as well as an

importer/exporter.

Umair: And you operate from the date’s market?

Jay Kumar: Yes I have a shop in the market. For instance the farmer will come to the market

and I will bid for his produce. There may be as many as 25-30 shopkeepers bidding for the

produce including me, the highest bidders……

Umair: Is there a separate area for the auctions?

Jay Kumar: The farmers may pile up 5 out of 50 bags as samples in order to attract the bidders.

The pile however, maybe of 5, 10 and even up to 50 bags.

Umair: Is there potential for any kind of fraud in which the samples are different in quality from

the actual lot?

Jay Kumar: It is possible, but the usual practice involves the whole lot being piled up even if is

50 bags. The merchandise is then inspected and checked thoroughly before the transaction takes

place.

Umair: So the product is delivered on the spot and payment is done on credit as per as the

contract arrangement.

So when you have a certain quantity of dry dates, what is the next step?

Jay Kumar: It is then weighed and brought to the godown after which it is rated.

Umair: So you have an idea with regard to the quantity that is stocked in your godown?

Jay Kumar: Yes we do, it is in fact segregated according to the quality. We have assigned it

different levels of quality like 1, 2 and 3 etc.

Umair: Imagine if you buy grade 1 quality, is there any further segregation based on quality with

regard to the pieces.

Jay Kumar: Yes, there is

Umair: And the labour carrying out this task are local women belonging to this area, are they

working on daily wages?

Jay Kumar: Yes, there are only daily wages.

Umair: And do they work all year round?

Jay Kumar: Yes they do work for most of the year except for a one month shut down in case of

a significant rate difference.

Umair: Can you please give us an idea of the rates?

Jay Kumar: It can range from Rs.20-25/kg to Rs.150/kg.

Hammad: Why is there such a significant difference in rates?

Jay Kumar: For the Rs.25/kg quality, it is used in fragment and cut form , especially in Suparis

and Chalias.

Umair: So it’s the relatively inferior quality with small pieces that are used in products like

Tulsi?

Jay Kumar : In fact , it is even fed to the animals.

Umair: From the point , it is available in your godown , what channels are available to sell your

product?

Jay Kumar: After mixing it, it is filled into bags of 71Kg gross or 70Kg net.(1 Kg for the bag).

The consignment is of 340 bags. It is shipped via Wahga border by road.

Umair : Is it only exported to India?

Jay Kumar: There are other countries also like Nepal , Bangladesh etc.

Umair: But is the major market in India?

Jay Kumar : Yes , about 70% of the dates are exported to India.

Umair: Doesn’t India have its own Date production?

Jay Kumar: No they don’t have any dates production at all.

Umair: Do you face any problems from the government in this regard or have they provided any

subsidies or tax concessions as opposed to business as usual?

Jay Kumar: This is considered among the major date markets of Asia, but despite this the

facilities aren’t as good as they should be. I can show you the vouchers in my car ; our payment

is usually in U.S Dollars . The revenues (for this industry) are usually in the tens of billions of

Dollars. We are quite certain our exports are higher than most industries.

Umair: How does the exchange rate fluctuation affect your business? Has the recent Dollar

appreciation proved beneficial?

Jay Kumar: Yes , We have benefited.

Hammad : How is it a benefit? Are the rates pre-determined ?

Jay Kumar : No , what happens is that our consignment of 340 bags is priced at $10,710 at

$0.45 and our payments are usually through the bank.

Umair: Is it through LC?

Jay Kumar : Mostly it is through DP , LCs is not very common in our business.

Umair: Is DP demand draft?

Jay Kumar: It is a 60 days payment period.

Umair: What percentage of your produce do you export?

Jay Kumar: 100% of our product is exported.

Umair: Is there any lack of demand in the local market?

Jay Kumar: There are different players who serve the local markets. Our business is mainly

import/export so we are unable to focus on the local market.

Umair : Are there any players who serve only the local markets? Like in Ramadan etc.?

Jay Kumar: Yes , definitely

Umair : This is a sensitive question and you may reveal this figure only if you are comfortable

that if a person is serving the local market , what kind of difference is there between the

profitability of the local market versus that of the export?

Jay Kumar: Let me tell you , the local business is limited and specific . The employees of the

local business have to make monthly trips to various parts of the country in order to collect

outstanding payments etc. In the export business , we have to make one yearly trip with the new

consignments. We meet with the various parties to have discussions about quality and for other

negotiations. With regard to the margins , they are hardly fixed, it’s not Rs.1 or Rs.0.25/kg or a

certain percentage since its usually on auction , so some times we make 5% .

Umair : But there must be a range , like 2% to 5%?

Jay Kumar: At times , it is even up to 10% . What has recently happened in India with the

appreciation of the U.S $ has resulted in a 24% loss for us. Earlier , the $ was equivalent to

Indian Rs.45 , recently it went up to Rs.54 . Presently it is between Rs.51 and Rs.52.

Umair: So the export business is quite vulnerable to the exchange rate?

Jay Kumar: Yes Exactly

Umair: As we know , most businesses face some issues . What kind of issues problems and

issues does your business face ? These may be hurdles caused by the government or the local

market. Kindly elaborate.

Jay Kumar: See , our business is done through the bank branches so it benefits both the banks

as well as the government , because we earn foreign currency in the form of dollars and

converting dollars into PKRs benefits at a certain margin benefits them. For instance , the current

rate is Rs.91 and they trade with us at Rs.90.12 , so they benefit to the tune of Rs.0.25-Rs.0.50

per Dollar and yet despite that they don’t extend many facilities to us.

Umair : Are there any problems with regard to transport? There are many shipments bound to

India so do you face any delays from the railways?

Jay Kumar : The trains are hardly ever on time . Earlier we used to transport only via train

whereas the train expense used to be very nominal. The fare from here to Lahore used to be only

Rs.11,000/wagon then they raised it to Rs.20,000 then Rs.22,000.

Umair : As diesel prices go up?

Jay Kumar: Yes, that went up to maximum of Rs.30,000 but currently we are shipping through

truck at Rs.70,000.

Hammad : How many bags per trucks?

Jay Kumar : 340 bags , one consignment.

Umair: With regard to the export market in India , do you have fixed contacts there? As in are

your customers permanent . Are new buyers added? Or do some buyers drop out? And how do

you contact them and maintain your relationship with them?

Jay Kumar : At times , we co-ordinate with them over the Internet. The concerned party

approaches us through our ID where we have our contact details listed.

Umair : Do you send samples ?

Jay Kumar: They usually request a certain quality.

Umair : Do you and your client follow the same terminology for the quality?

Jay Kumar: We may have Chaloo, Good Chaloo, low medium, medium, good medium but there

is a tendency for the quality to vary, because it is not machinery that can achieve complete

standardization. There is a lot of manual work involved . For instance, the crop yield is high this

year so the rate is normal which results in a loss. So the compounded effect of Dollar and

abundant crop affects us.

Umair: How many players are in the export market?

Jay Kumar: Must be over 100.

Umair: And do they have the same kind of setup as yours like godown etc.?

Jay Kumar : 20-30 are at our level while 5-8 are operating on a larger scale. The rest 60% are

one-fourth our size. We also have coriander here which we import/export , also saunf. Coriandor

is used is spices and condiments like Shan Masala or National Foods.

Hammad: From the point of purchasing from the farmer to exporting , what are the major

expenses that you face?

Jay Kumar: Firstly, it is the price we pay to the farmer, and then we bring it here for which we

incur storage costs, the cost of rating, and the labour cost of loading and unloading as well as

packaging costs.

Umair: Do the dry dates have seeds?

Jay Kumar: Well there is a male tree and then a female tree. One male bor(taar) is inserted

which in turn yields thousands of taars , so that’s how the production starts.

Hammad: Are the storage spaces owned by the shop keepers or are they on rent?

Jay Kumar: Some are owned , while the others are on rent , however we own our space . With

rent there is the risk of rent going up as in the owner might raise the charges to Rs.200,000-

Rs.300,000 from Rs.100,000 .

Umair : So how is the export rate determined? The rates at different periods vary, do you

negotiate the rate in advance?

Jay Kumar: Yes ?

Umair : So what was the current rate this year?

Jay Kumar : The rate this year during the initial season , of the medium quality that we sold for

Rs.70/kg is now down to Rs.40/kg

Umair: So its dealt is Kgs there and mounds here, the bidding here is based on mounds?

Jay Kumar: Yes

Umair: Are the seed(Ghtlis) removed from their Chowaras(dry dates)?

Jay Kumar: No the ghutli is not removed for Dry dates . They are removed for the regular dates

which are usually exported., those dates go through a different process in which initially the

seeds are removed , then they are washed and processed.

Hammad: So you deal only with dry dates? Not in regular dates

Jay Kumar: No we don’t deal in regular dates, it’s a different process altogether.

Hammad : Any specific reason for only being restricted to dry dates?

Jay Kumar: Well it’s better to be in the business of which one has better knowledge.

References ihttp://en.wikipedia.org/wiki/File:PatientCapitalgraphic.jpg

iiGuidelines for value chain analysis – Jon Hellin and Madelon Meijer (FAO)

http://www.fao.org/fileadmin/templates/esa/LISFAME/Documents/Ecuador/value_chain_methodology_EN.pdf iii

http://tutor2u.net/business/strategy/porter_five_forces.htm iv http://www.acumenfund.org/investments/investment-discipline.html

v Hand Book of Statistics Pakistan Economy 2010

http://sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-2.1.pdf vi The Economic Review 2-3, 2005, Cotton the major fiber crop in Pakistan, Mohammed Ali Khaskheli

vii Hand Book of Statistics Pakistan Economy 2010

http://sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-2.1.pdf viii

Cotton Cultivation Regions in Pakistan http://madebypakistan.com/2011/02/cotton-in-pakistan/ ix

First Bt Cotton Grown

http://www.pakissan.com/english/advisory/biotechnology/first.bt.cotton.grown.in.pakistan.shtml x Top Pakistani Exports and Imports http://daniel-workman.suite101.com/top-pakistani-exports-imports-a30995

xihttp://madebypakistan.com/2011/02/cotton-in-pakistan/

xii Fertilizer Use in Crops http://www.fao.org/docrep/007/y5460e/y5460e08.htm#TopOfPage

xiii KCA Spot Rate of Sawgin Cotton http://www.aptma.org.pk/CP_2004.asp

xiv Business Source Premier, Cotton: Rally was Speculative, demand is very real, Struck, Heather, Forbes.com,

3/28/2011. xv

Business Source Premier, Cotton prices drop volatility persists, Lone, Mahlia S, Ridge, Mian, Arthur Friedman,

Women's Wear Daily, 01495380, 5/24/2011, Vol. 201, Issue 106 xvi

Cluster Profile Cotton Ginning Cluster Rahim Yar Khan http://www.smeda.org.pk xvii

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 (Data adapted from Government

of Pakistan, Ministry of food and agriculture ) xviii

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 (Data adapted from Government

of Pakistan, Ministry of food and agriculture ) xix

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 xx

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 (Federal Bureau of Statistics,

Government of Pakistan, Karachi.) xxi

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 (Federal Bureau of Statistics,

Government of Pakistan, Karachi.) xxii

Pakistan Horticulture Development & Export Board Dates Marketing Plan 2008 xxiii

Sindh Board of Investment Report xxiv

Pre-feasibility Study: Establishment of Cold Chain System under National Trade Corridor Improvement Project

(Vol I – Horticulture Industry) Pakistan Horticulture Development and Export Board (PHDEB) xxv

Investment Opportunities In Gilgit-Baltistan- Planning And Development Department Gilgit-Baltistan xxvi

Cash Crop Farming In The Northern Pakistan: The Importance Of Pollinator Diversity And Managed Pollination

In Apricots; First Draft- Abdul Wahid Jasra and Muhammad Athar Rafi xxvii

Investment opportunities in GIlgit-Baltistan- Planning and Development Department Gilgit-Baltistan xxviii

Post-Harvest Technology For Various Crops Of Pakistan: Current Status, Employment Generation And

Prospects- United Nations Asian And Pacific Centre For Agriculture Engineering And Machinery (UNAPCAEM) xxix

Cash crop farming in the northern Pakistan: the importance of pollinator diversity and managed pollination in

apricots: Abdul Wahid Jasra and Muhammad Athar Rafi xxx

cash crop farming in the northern Pakistan: the importance of pollinator diversity and managed pollination in

apricots: Abdul Wahid Jasra and Muhammad Athar Rafi xxxi

Total produce= 2 Million tonnes, 25% C grade= 500,000, 70 % of smallholder farmer = 350,000

Current utilization = 700*90= 63,000 tonnes, 90 days’ season. 350,000-63,000 = 287,000 tonnes

http://en.wikipedia.org/wiki/File:PatientCapitalgraphic.jpg

http://www.fao.org/fileadmin/templates/esa/LISFAME/Documents/Ecuador/value_chain_methodology_EN.pdf

http://tutor2u.net/business/strategy/porter_five_forces.htm

http://www.acumenfund.org/investments/investment-discipline.html

http://sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-2.1.pdf

http://sbp.org.pk/departments/stats/PakEconomy_HandBook/Chap-2.1.pdf

http://madebypakistan.com/2011/02/cotton-in-pakistan/

http://www.pakissan.com/english/advisory/biotechnology/first.bt.cotton.grown.in.pakistan.shtml

http://daniel-workman.suite101.com/top-pakistani-exports-imports-a30995

http://madebypakistan.com/2011/02/cotton-in-pakistan/

http://www.fao.org/docrep/007/y5460e/y5460e08.htm#TopOfPage

http://www.aptma.org.pk/CP_2004.asp

http://www.smeda.org.pk/

final report - acumen fund -group 11-

Documents

project coordinator

interesting project

project highlights

project scope

agriculture sector

agriculture industry

mba projects coordinator

kamran chatha