This background reading was written by Dr Muhammad Ahsan Rana at the Lahore University of Management Sciences to serve as basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. This reading will supplement the technical note Increasing Agricultural Productivity in Pakistan: Use of Improved Seeds LUMS No: 13-102-2014-2. This material may not be quoted, photocopied or reproduced in any form without the prior written consent of the Lahore University of Management Sciences. This research was made possible through support provided by the United States Agency for International Development. The opinions expressed herein are those of the author and do not necessarily reflect the views of the US Agency for International Development or the US Government.

2014 Suleman Dawood School of Business, Lahore University of Management Sciences

HIGH VALUE HORTICULTURAL CROPS IN PAKISTAN - MANGOS, CITRUS AND VEGETABLES

INTRODUCTION Pakistan has an agro-based economy. Agriculture contributes around 21% to Gross Domestic Product (GDP) annually, employs 45% of the total labour force and is the largest source of foreign exchange earnings (Ministry of Finance 2013). It has backward and forward linkages with the manufacturing sector, which thrives on agricultural raw materials and an effective demand for its goods and services. Out of about 5,000 industrial units in Pakistan, about 60% are agro-based (Pakistan Bureau of Statistics 2011). Of the various sub-sectors in agriculture, high value horticulture1 is emerging as a key future growth area for increasing income per unit of land (Nadeem 2010). Current average yields of horticultural crops are generally low due to low quality planting material, poor land preparation, incorrect fertilising, high incidence of pests and diseases, poor canopy management and bad harvesting methods (Nadeem 2010). Fortunately, the means and capacity to improve yields are already there, as indicated by the large variation in individual farmer yields. There exist the opportunities to reduce post-harvest losses estimated at 35-40 % (Picha 2009) and greatly increase production per unit of land, water or labour. 1 Horticulture refers to production of fruits and vegetables. Cultivation of flowers and medicinal plants is sometimes included in horticulture and at other times treated separately as floriculture.

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Furthermore, the emergence of a large middle class in Pakistan has created opportunities for the design of market channels that serve this more affluent market segment with higher quality produce. Similarly, advances in sea-freight technology are opening up opportunities in international markets that are becoming increasingly competitive and quality conscious. This note focuses on mango, citrus and vegetables, which are emerging as key drivers of growth in the horticulture sector. It is divided in five sections. The following three sections discuss production challenges and market opportunities for mango, citrus and vegetables respectively. Up to date data on production and area of each crop are presented to give an idea of their relative importance. A few reform areas are also identified in each case for the federal and provincial governments to support growth in this sub-sector. The last section concludes the note. MANGO Production Mango is an important horticultural crop in Pakistan. Pakistani mangoes are famous worldwide for their sweetness. Sindhrri and Chaunsa are two leading varieties in Sindh and Punjab respectively, but Ratul, Dusehri and Langra are also extensively grown. In 2012, Pakistan ranked 5th in terms of total global mango production and 2nd in terms of yield per hectare (Table 1). India was by far the largest producer of mangoes (around 40% of total global production) merely because of the very large area that it allocated to mango cultivation. In comparison, Pakistans mango production was 13% of Indias, with only 7% of the area used in India.

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Table 1 Area and Production of Mango Global Comparison (2012)

Country Area (000 hectares) Production (000 tonnes)

Tonnes per Hectare

India 2,300.0 15,250.0 6.6 China 475.5 4,567.2 9.6 Thailand 318.0 2,650.0 8.3 Indonesia 233.0 2,376.3 10.2

Pakistan 174.0 1,950.0 11.2 Mexico 195.7 1,760.6 9.0 Brazil 73.3 1,175.7 16.0 Nigeria 132.0 860.0 6.5 The Philippines 197.01 783.2 4.0

Source: Constructed from FAOSTAT 2013.

Time series data presented in Table 2 illustrate a substantial increase in production during the last two decades. Most of this increase has resulted from rise in area under mango cultivation but mango yield a function of cultivar, age of the tree and farming practices has also grown slightly over the years.

Table 2 Area and Production of Mango Pakistan (1991 - 2012)

Year Area (000 hectares) Production (000 tonnes)

Tonnes per Hectare

1991-95 (5-year average) 86.0 816.0 9.5 1996-00 (5-year average) 92.1 918.7 10.0 2001-05 (5-year average) 110.7 1158.3 10.5 2006-10 (5-year average) 166.2 1760.0 10.6 2011-12 (2-year average) 173.0 1919.0 11.1

Source: Constructed from FAOSTAT 2013

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Major mango producing districts in Pakistan are Rahim Yar Khan, Multan, Bahawalpur, Khanewal, Muzaffargarh, Sanghar, Hyderabad, Tando Allah Yar and Mirpur Khas. Per hectare yield varies from 16.6 to 5.6 tonnes in these districts (Table 3). Together, these districts produce more than 70 % of the total national mango crop in Pakistan (Nadeem 2010). Mangoes from these areas are marketed throughout Pakistan and in several other countries.

Table 3 Top Mango Producing Districts in Pakistan (2010-11)

Area (000 hectares)

Production (000 tonnes)

Tonnes per Hectares

Multan 30.8 431.2 14.0 Rahim Yar Khan 22.3 369.5 16.6 Muzaffargarh 19.0 219.3 11.5 Khanewal 13.1 144.7 11.0 Hyderabad and Tando Allah Yar 14.4 106.9 7.4 Mirpur Khas 12.1 67.3 5.6 Sanghar 7.8 62.1 8.0 Bahawalpur 4.45 59.4 13.7

Source: PAMCO. Developing a Sustainable Export Industry for Punjab Province Horticultural Product. Lahore: Punjab Agricultural Marketing Company, Government of Punjab, 2011, 23.

Farm productivity is relatively better in Punjab than in Sindh province (Table 3). One probable reason is the agro-climatic difference. Production related issues that negatively impact yield and fruit quality include diseased planting material, lack of pruning, poor irrigation and fertilisation practices, and the high incidence of disease and insects. In the last few years, mango orchards were affected badly by mango sudden death syndrome, fruit malformation, fruit flies and mango midges. Treatment of these problems increased farmers

production cost and decreased their profit margins.

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An important production-stage problem is the unavailability of certified, true-to-type, disease free plant saplings. Not even a single nursery in Pakistan has the capacity to produce such plants. Farmers buy their root stock either from ordinary nurseries or grow these under mango trees. In the absence of any system of genetic testing, the true character of a plant will be evident only after it has grown into a tree. If it is not true-to-type or does not meet his expectation, the farmer will have to replace it. A few years effort and investment, thus, may go to waste. Despite demand from mango growers, nursery owners have failed to make the required investment in upgrading their systems and capacity. The long payback period discourages investment in establishing controlled environments to avoid any transmittable disease. Their capacity to develop and operate a nursery at par with international standards is also questionable. This calls for government support that not only helps build nursery owners capacity but also incentivises development of nursery infrastructure whose payback period is long. Export Pakistans share in the global mango trade is very small. According to a report prepared by

the Islamabad Chamber of Commerce and Industry (ICCI 2012), Pakistans mango export in 2010-11 was only 89,551 tonnes (approximately US$ 28.9 million), which comprised only 2.2% of the global export. In comparison, India and Mexico had 18% and 13% shares in global export respectively. Major export destinations of Pakistani mangoes are United Arab Emirates and the United Kingdom. In these and other markets, Pakistani exporters target price sensitive, low-end market segments. A great chunk of mangoes in these markets is consumed by the Pakistani diaspora, Indians and other Asians. Due to poor quality, Pakistani mangoes fetch only about US$ 0.5/kg on average, whereas mangoes from Australia and the Philippines are sold in the range of US$ 1.5 2.0/kg (Picha 2009). Pakistan is unable to fully exploit the export potential of its mangoes. It is estimated that due to high incidence of disease/pests and poor harvesting techniques, only 30% of the mangoes are exportable: 4-5% are actually exported on average (Picha 2009). Experts believe that Pakistan can increase its exports to above 30% of total production if it can help its farmers improve their harvest and post-harvest operations (ICCI 2012).

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During the past decade, Pakistani exporters have been sending low quality mangoes in open containers to the Middle East, especially Dubai, at throw away prices (Knowles et al. 2010). They have dragged the market to the point where better quality mangoes may not fetch the right price. The growth of a quality-conscious supermarket segment in these countries and a recent ban on open container shipments has threatened such low-quality export by Pakistani entrepreneurs. The worldwide growing supermarket segment presents an opportunity which Pakistani exporters are unable to capitalise. To capture these markets, consistent supply of competitively priced, high quality mangoes that meet food safety standards and sanitary and phyto-sanitary (SPS) requirements of major export destinations in Europe and North America is a prerequisite. In view of current production practices and available infrastructure, Pakistan is unable to accept this challenge of getting rid of the reputation of producing low-quality and cheap mangoes (Knowles et al. 2010). Major constraints for entering the high-end US market are the failure of Pakistani exporters to meet stringent SPS requirements, pre-clearance inspection, operational protocols and irradiation process for mangoes. Pakistans first irradiation facility started functioning in

Lahore in 2010-11 but it has to a long way to go before it can meet compliance requirements in the US. Moreover, Pakistani exporters face tough competition from Latin American exporters who dominate the market with more than 99% share in the US market (ASLP-PHDEB 2007; Evans 2008). Close proximity of these countries reduces transportation costs and squeezes shipment time, resulting in longer shelf life an important attribute that supermarkets look for. The entry barrier in the European market is relatively easier to cross. But requirements are becoming stringent even in these markets. Most European importers now require Global Good Agricultural Practices (GLOBALG.A.P.) certification for all shipments. Certification requirement is gradually expanding from supermarkets to other market segments. So far, in Pakistan, only five mango orchards are GLOBALG.A.P. certified (PAMCO 2011). With less than 700 hectares area, certified orchards comprise a tiny segment of mango orchards in Pakistan (PAMCO 2011). Concerted efforts backed by financial investment are required to get more farms certified, which will require establishment of cold chains and improving standards of production, disease/pest control, harvesting and post-harvest handling.

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Development of on-farm infrastructure for processing mangoes after harvesting will greatly facilitate Pakistani farms in obtaining such certifications in particular and meeting export standards in general. Such infrastructure includes hot water treatment plants, blast chillers, cold storage and ethylene chambers to control maturity level of mango, temperature, humidity, time, etc. Currently, mangoes are picked during May August at high temperatures outside and low humidity and are transported in open trucks at bumpy roads. The absence of arrangements to decrease temperature during picking and transportation reduces the quality and shelf life. Resultantly, post-harvest losses are as high as 35-40% (Nadeem 2010; Picha 2009). Recently, the USAID-FIRMS project helped four farmers develop such on-farm infrastructure. The help included project financing and technical assistance. Hopefully, other projects can similarly help a larger number of farmers in developing the required infrastructure. The list of equipment and machinery, along with specifications, is now available. Parameters to operate and maintain these machines are also known for various Pakistani varieties, as are the irradiation and SPS requirements to export to Europe and other high-end markets. The government can evaluate various business models to establish numerous small facilities close to mango clusters, which can be operated by a single owner, by a company or as a common facility. Business propositions can become more attractive to entrepreneurs, if viable financing arrangements are offered by the government or private financial institutes. However, development of on-farm infrastructure will be of limited benefit to farmers without timely and updated advice on planting methods, farm management and harvesting. Unfortunately, there is a dearth of professionals with the right kinds of skills. Several studies (e.g. Davidson and Ahmad 2002) have observed that provincial Agriculture Departments are unable to meet extension needs of farmers, especially the ones with small orchards. Information dissemination from extension workers to farmers is infrequent, out-dated, inadequate or untimely. The capacity of extension workers is also questionable, as most of them do not undergo regular training in modern technologies and production methods and materials. The private sector has also failed to fill this gap. If the nursery industry was developed, it could have provided extension services, but it is still in its embryonic stage in Pakistan. Fertiliser and pesticide companies provide advisory services but they are usually geared towards selling their own solutions. As for business support services, professional companies that could provide technical services could not make inroads in Pakistan. Otherwise, several

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tasks, such as fertiliser or pesticide application or tree pruning could be outsourced to such companies, at least by big farmers. For better quality production, improvement and consistency are required in cultural practices of soil preparation, plant establishment, fertilisation, pruning, irrigation, field sanitation, appropriate plant density, and disease and pest management. Emergence of support services in the private sector will help mango growers in all these areas. Several federal and provincial projects of the past few years have sought to overcome production constraints and to help Pakistani mango growers in entering high-end export markets. The largest was the Australian Sector Linkage Program (ASLP) a four-year AUD 6.6 million Australian Government funded project (AUD 2 million was spent on mango alone) to develop and build linkages between Australian and Pakistani governments for research, development and extension. Major interventions included technical support to increase production and to improve the supply chain and marketing. ASLP was executed by the Mango Research Centre of Multan, the University of Agriculture, Faisalabad and the Pakistan Horticulture Development and Export Company. Another major project was the Fruits and Vegetables Development Project of the Punjab Government, which focused on extension services and made efforts to educate small farmers on tree and orchard management practices through famer field schools. Other examples are Agriculture Support Fund supported by the Asian Development Bank, USAID-funded Pakistan Initiative for Strategy Development and Competitiveness and the USAID-funded Empowering Pakistan FIRMS project. Value Chains The following three distinct but overlapping value chains exist in the sector: 1) local sale, 2) processing and value addition and 3) export. These value chains are long, which has several consequences. Firstly, since mango is a perishable fruit, a long value chain with multiple players reduces the shelf life at the terminal end (viz. the consumer) because mango takes time moving from one end of the value chain to another. Secondly, as fruit changes hands traversing from one end of the value chain to the other, with or without transferring the title of goods, post-harvest losses increase. Thirdly, every player in the value chain adds his margin, which inflates the prices and mango loses its price competitiveness in the terminal market. Lastly, due to divided margins for each player, stakes are not high for anyone, and so no one is ready to take steps for quality improvement or meeting international standards.

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There is wide variation in prices at various stages of these value chains. Apparently, there is no system to monitor and control hence reward quality. Contractors are important players in the local-sale value chain. They lease farms for one to four years. Some farmers sell their potential crop at the time of flowering to be harvested by contractors. Contractors usually go for short term profit, not caring for any damage caused to the orchard in the process (PAMCO 2011). Use of inappropriate harvesting techniques coupled with substandard packaging material and poor post-harvest handling significantly reduce quality and increase losses (Nadeem 2010). The export value chain has its own inadequacies. Only a few mango farmers have direct links with the export market. These farmers have on farm facilities such as blast chillers, cold storage, hot water treatment plants and packing lines. These facilities help connect to exporters without recourse to an intermediary. As for exporters, only a few have their own facilities in Karachi. But in the absence of a temperature-controlled transport system, even they have to transport mangoes in open trucks for processing and packaging from farms to Karachi (Knowles et al. 2010). Due to unavailability of infrastructure, small exporters end up getting their consignments packed at farms after performing only basic operations, such as washing, sorting and grading.

Figure 1

Mango export supply chain

Source: Knowles, Rupert, Thomas Cunningham, and Muhammad Ahsan Rana. "Value Addition in Citrus, Mango and Vegetables in Punjab." 115. Lahore: Crown Agents, 2010.

Mango Grower

Commission Agent/ Fruit Market

Whole Seller

Mango Exporter

Orchard Contractor

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An overwhelming proportion of Pakistani mango exporters consists of family businesses, in which family members, relatives or friends are sitting at import as well as export points. The relationship is not professional. There is a need to identify some mechanism to build long lasting linkages between Pakistani exporters and international buyers. Buyer-Seller conferences could be one measure but additional initiatives are required. Identifying new potential markets for Pakistani mangoes and dissemination of information on consumer behaviour, market trends, niche markets, global competition and certification and SPS requirements will also help. Another area of government support is capacity development of exporters through training or exposure visits. Total quality management, SPS and other issues being faced by exporters are important areas to be covered in capacity building programs. CITRUS Production Citrus is an important fruit crop in Pakistan in terms of cultivated area, production volume, employment opportunities, export value and contribution to GDP. It accounts for 29% of total area under fruit crops (Ministry of Finance 2013). In addition to consumption as fresh fruit and juice, citrus is used in several other products. For example, its peel has medicinal properties and is used as an insect repellent and an antiseptic. It is also used as a flavouring agent and an aromatic compound. However, its potential has not been fully utilised owing to poor planting material, out-dated farming practices and weak research, development and extension systems. Citrus is grown in all four provinces in Pakistan. Punjab accounts for 97% of total citrus production in Pakistan, KPK and Sindh contribute around 2% and 1% respectively, and Baluchistan contributes less than 1% on average. In Punjab, it is grown in Sargodha, Mandi Baha ud Din, Sahiwal, Toba Tek Singh, Sialkot, Jhang, Mianwali, Multan and Gujranwala districts. Of these districts, Sargodha has emerged as the citrus production hub in Pakistan, due to a combination of several factors such as availability of canal water and sweet sub-soil water, nitrogen content in the soil and above zero temperature during winter. In KPK, it is grown in Mardan, Peshawar, Swat, Swabi, Noshehra and Hazara. In Sindh, it is grown in Sukkur, Khairpur and Nawabshah. In Baluchistan it is cultivated on a small scale in Makran, Sibi and Kech districts. Main varieties of citrus found in Pakistan include sweet oranges,

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mandarins, lemon, grapefruit and lime. Kinnow is the largest produced and exported variety in Pakistan. It accounts for 60% of total area under citrus (Knowles et al. 2010). Data presented in Table 4 show that Pakistan is a major citrus producing country in the world. It has as much area under citrus cultivation as the top citrus producing country i.e. China. Yet Pakistans production per hectare is only 38% of that of China. It is also low in

comparison with other high-yield countries such as the US, South Africa and Peru. This indicates significant potential for improvement to obtain higher average production per unit of land.

Table 4 Area and Production of Citrus Global Comparison (2011)

Country Area (000 hectares) Production (000 tonnes)

Tonnes per Hectare

China 194.5 5,374.2 27.6 Pakistan 194.5 1,982.2 10.2 Mexico 28.8 145.2 5.04 Peru 3.2 56.5 17.6 United States 1.7 47.2 27.8 Spain 2.7 15.8 5.8 Morocco 1.6 14.2 8.9 South Africa 0.4 10.6 26.5

Source: Constructed from FAOSTAT 2013.

Average citrus yield has stagnated in Pakistan during the past two decades (Table 5)2. The area under citrus has also registered only a negligible increase. The area has remained unchanged largely due to unattractive rate of return on citrus in comparison to other crops, use of land for food crops and for fodder by small farmers in citrus clusters, and ever-increasing attack of disease and pests. The combination of a stable area and stagnant yield has resulted in a total production decrease at around 2,000 tonnes per annum.

2 There are occasional year-to-year variations caused by vagaries of weather and variable disease and pest attack. These variations are masked in 5-year averages.

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Table 5 Area and Production of Citrus Pakistan (1994 - 2011)

Year Area (000 hectares) Production (000 tonnes)

Tonnes per Hectare

1994-95 (2-year average) 187.9 1,946.1 10.4 1996-00 (5-year average) 195.8 1,947.9 10.0 2001-05 (5-year average) 187.0 1,938.6 10.4 2006-10 (5-year average) 196.6 2,101.3 10.7 2011 194.5 1,982.2 10.2

Source: Constructed from FAOSTAT 2013 and Pakistan Bureau of Statistics. Pakistan Agricultural Statistics 2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

Perhaps the major obstacle in increasing Pakistans citrus production is the disease and pest

complex that eats into citrus production every year. Diseases and pests also affect quality, thereby reducing opportunities for marketing in domestic and export markets. This warrants action at two ends. Firstly, there is a need to invest in research to find solutions to these diseases and pests. Secondly, farmers must be educated to adopt better farming practices in order to avoid transmission of disease and keep pest/pathogen populations below economic thresholds. Extension has an important role to play here. Currently, extension advice to citrus growers is provided mainly by government extension workers. Unfortunately, farmers neither find such advice relevant nor adequate. Several studies (e.g. Knowles et al. 2010) have noted that farmers would rather rely on advice from other farmers or obtain information from the web than to seek out an extension agent. Even the private sector mainly fertiliser and pesticide companies does not have sufficient qualified human resource to meet growing extension needs of citrus growing farmers. Another constraint on production is the current rootstock rough lemon which is susceptible to several diseases, such as fungus that causes citrus sudden death. Moreover, citrus produced in Pakistan has seeds, which is an undesirable trait in the international market. Pakistani citrus export potential can grow several folds if seedless varieties can be produced. Several research teams at the Citrus Research Institute, Sargodha and the University of Agriculture, Faisalabad have been trying to develop seedless varieties of kinnow, but without success so far. The Nuclear Institute of Agriculture and Biology,

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Faisalabad has also tried nuclear irradiation towards this end, but again success has been elusive. Despite some progress in developing lab material, none of the research outfits has so far been able to produce a marketable product. Development of seedless varieties of citrus or varieties with fewer seeds is a challenge that requires government support. The government can help by identifying major international public and private sources of germplasm of seedless varieties and facilitating commercial or non-commercial transfer of these resources to Pakistani institutes. Germplasm of early and late varieties also needs to be introduced to extend fruiting season. Existence of certified nurseries and pedigree plant units is a pre-requisite for the production of high-quality, disease free and uniform citrus. This is generally an under-developed area. Nursery owners can be facilitated with feasibility studies of a certified nursery that has details on resource requirement, capital expenditure, operational cost and revenue estimates to gauge the operational and financial viability for entrepreneurs. Additionally, it is important that the government establishes benchmarks that are enforced on all nurseries producing citrus (and other) seeds/plants. Export

Global citrus export is dominated by a few countries. World leading exporters are Spain, China and Morocco, which together accounted for 64% of the world citrus export in 2012 (ITC 2013). Pakistans share in the world export market was only 3.4% in that year. It should, however, be noted that Pakistans share in world exports has grown steadily in recent years. According to ITC trade map 2013, it was 2.1% in 2008 and has grown since at an annual average growth rate of 32%. This makes Pakistans export growth rate the fastest in the global citrus export market. Yet the total export remains small. Pakistan exports only 10% of the citrus production every year and average export earnings from citrus during the last three years have been around US$ 155 million (Table 6). Major export markets for Pakistani citrus (mainly Kinnow) are Afghanistan, the Russian Federation, United Arab Emirates, Ukraine and Saudi Arabia (Table 6). Central Asian States, continental Europe, Far East and Iran are potential markets. In most cases, Pakistan exports to markets that are not quality conscious, as Pakistani exporters are not yet ready to meeting stringent quality and SPS requirements of high-end markets.

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Table 6

Top Export Destinations for Pakistani Citrus (Value in Million US$) 2011 2012 2013 Afghanistan 62.8 77.6 73.1 Russian Federation 28.9 36.0 41.8 UAE 8.5 8.4 19.9 Ukraine 8.7 8.8 10.5 Saudi Arabia 3.8 3.9 5.5 The Philippines 2.5 2.7 3.6 Sri Lanka 1.7 1.8 2.4 Kuwait 2.9 1.2 2.3 Indonesia 3.0 4.1 2.2 Oman 0.6 1.0 1.8 Total (for all countries) 138.7 155.9 171.4

Source: ITC 2013. Trade Map 2013. International Trade Centre

Export orientation of citrus market has helped farmers upgrade their farming systems. In the last five years, 13 produce marketing organisations (PMOs) consisting of 324 farms of various sizes have achieved GLOBAL G.A.P. certification (Knowles et al. 2010). Although total area of these farms is only about 61,000 hectares, it is a significant trend. Similarly, a number of farmers have established their own processing plants and pack houses. These plants provide washing, waxing, grading and packing facilities. Value Chain Historically, the citrus value chain in Pakistan has been similar to the mango value chain in several respects. It has been characterised by multiple players, most of whom are intermediaries, and by a long value chain. This not only reduced profit margins of individual players but also reduced shelf life as fruit took time moving from one end to the other. As has been the case with mango, divided margins for each player also meant that no single player could invest in quality improvement for meeting international standards.

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These features of the citrus value chain have been changing gradually since the last two decades mainly due to its export orientation. Citrus sector has seen significant backward and forward integration in recent years to meet export requirements. In Sargodha, for example, many exporters have taken over the charge of large orchards by getting them on lease for multiple years and having established processing units. This provides them greater control in post-harvest processes. Often exporters can be found performing important activities in the processing and packing line, such as sorting, washing, waxing, grading, packaging, heat removal by blast chillers, temperature control through cold storage and shipping in refrigerated containers. On the other hand, many large farmers have directly started export. This development has eliminated several layers of intermediaries and has shortened the supply chain, thereby yielding better margins to farmers and exporters. Due to such integration, a sizeable processing industry has developed in the last 15-20 years, especially in Sargodha district. This processing industry is relatively well developed in comparison to similar industries of other fresh fruits in Pakistan. According to UNIDO estimates, there are more than 220 processing enterprises in Sargodha with an installed capacity to wash, grade, wax and pack over one million tonnes for domestic and export markets. 25 of these plants have comprehensive facilities including blast chillers, cold storage, etc. which are comparable to international standards (Knowles et al. 2010). Citrus provides an interesting example of how export linkages are transforming local farming practices and post-harvest handling of fruit with minimal support (and intervention) from the government.

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Figure 2 Citrus Value Chain

Source: Knowles, Rupert, Thomas Cunningham, and Muhammad Ahsan Rana. "Value Addition in Citrus, Mango and Vegetables in Punjab." 115. Lahore: Crown Agents, 2010.

An important change that has taken place is the reduction in wastage. Until only a decade ago, estimates of wastage at the production stage ranged between 35-40%. This has now dropped to negligible proportions due to the development of an efficient value chain. Farmers ability to sell A, B and C grade fruit to various customers has enabled them to

dispose of their entire produce. A grade fruit is either exported or sold in high-end domestic markets; B grade fruit is sold to middlemen for distribution to retailers in major consumption centres and the C grade fruit is sold to citrus concentrate plants. The process has been

Pre-harvestcontractor

Commission Agent

Citrus Grower

Pharia Super Store

Contractor

Exporter

Stallholder(Retailer)

Super Store(Retailer)

Hawker(Retailer)

Super Store(Retailer)

Consumer

Post-harvestcontractor

Food ProcessingIndustries

Citrus Products Achar Squash Juices

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facilitated by better orchard management, three pickings instead of one as in the past and the development of cold storage facilities. At the production stage, the farmer and the contractor are the key players of the value chain. Usually, farmers manage all farming operations but are not involved in the marketing of the fruit3. This saves them from capital investment and risk in harvesting and marketing operations. These tasks are performed by the contractor who buys the farm at a wholesale price before the harvesting season. The contractor is responsible for harvesting, post-harvest handling, packaging, transportation and distribution in various fruit markets. Condition of the orchard and estimates of yield, future price of the product and harvesting cost determine the total value of the contract. A lump sum value is agreed upon at the time of contracting, which is usually paid in three instalments. A heavy upfront advance payment will usually lead to an overall lower value of the contract. In the next stage, farmers, contractors, commission agents, traders, exporters and retailers are the main players in the value chain. Farmers and contractors sell the produce to traders through commission agents (aarhtis). Fruit markets of Sargodha and Bhalwal towns are major primary markets. Traders of these markets target the following market segments: primary wholesale markets, secondary or terminal markets in other cities, local retailers, fresh fruit processors, concentrate processors and exporters. Key players in the wholesale market are commission agents (aarhtis), resellers (phariyas) and distributors (ladaniyas). Commission agents conduct fruit auctions. A typical fruit auction involves bulk quantities in multiple lots, hence only the resellers and distributors participate. The commission agents charge a percentage of the sale price from the seller and a fixed fee per crate from the purchaser. The commission is fixed by the market committee (usually 6% in primary markets and 5% in secondary markets; actual commissions may vary). Commission agents also provide credit to a range of actors in the value chain and use this as a leverage to settle favourable commission terms. They often extend loans to contractors and occasionally to farmers, who are then obliged to sell their harvest through them. Sometimes they also extend credit to buyers. These credit operations are subject to credit risk and default.

3 As discussed above, significant integration of operations has taken place in the export-oriented farms.

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The second important player is the reseller (the pharia), who buys fruit from the commission agent in bulk and sells it to wholesalers in secondary markets (through commission agents in those markets) and to retailers. He bears transportation expense as well as price fluctuations. His profit comes from his acute market appreciation and a premium on wholesale prices in the primary market. The distributor is the third key player. He buys from the primary and secondary wholesale markets and sells to retailers. VEGETABLES Compared to major crops, vegetables give a better rate of return but with greater risk and price uncertainty along with complex operational problems. Pakistan has substantial unharnessed potential of vegetable production and export to meet the ever increasing demand of domestic and international markets. In the future, the decreasing farm size will compel farmers to go for high value production. Thus it is high time that Pakistan develops its vegetable sector and improves its productivity and competitiveness. Production Pakistans fertile and climatically diverse landscape is suitable for commercial production of

a variety of vegetables. In terms of production area, potato, onion, tomato, turnip, carrot, cauliflower, tinda, radish and chilli peppers are the top vegetables (PAMCO 2011). In addition to these, ginger, cabbage, pumpkin, garlic, spinach, okra and bitter gourd are also grown on a significant area. In the past decade, controlled environment technology (low and high tunnel) has made inroads in Pakistans vegetable market, particularly for off-season production. It has also helped increase the export of vegetables. Since the quality of controlled environment vegetables is comparatively good and product comes early or late, i.e. in off season, it becomes a premium product within the reach of a small segment of consumers- niche with greater purchasing power. A few frozen vegetables and dehydrated vegetables plants are also working in Punjab. Their number is gradually increasing to satisfy the changing lifestyle and buying habits of consumers. Data presented in Table 7 (below) show that potato, onion and tomato together account for around 87% of total area under vegetables in Pakistan. A brief discussion on these three vegetables follows.

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Table 7 Production and Area of Vegetables (2011)

Area

(000 hectare) Production (000 tonnes)

Potato 159.4 3,491.7 Onion 147.6 1,939.6 Tomato 52.3 529.6 Other vegetables 52.1 663.6 Total 411.4 6,624.5

Source: Constructed from Pakistan Bureau of Statistics. Pakistan Agricultural Statistics 2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

Potato Potato is the largest vegetable crop in Pakistan. Its area, production and export have consistently and substantially increased during the last two decades (Table 8). The rise in production is not coming entirely from increase in area; there has been substantial growth in per hectare yield as well. Starting from 13.6 tonnes per hectare, it stood at 21.9 tonnes per hectare in 2010-11. This compares favourably with the global average yield i.e. 19.6 tonnes per hectare in 2010-11 (FAOSTAT 2013 data).

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Table 8 Area and Production of Potato (1994-2011)

Year Area

(000 hectares) Production (000 tonnes)

Tonnes per Hectare

1994-95 (2-year average) 79.3 1,080.6 13.6 1996-00 (5-year average) 97.9 1,426.3 14.6 2001-05 (5-year average) 112.0 1,859.3 16.6 2006-10 (5-year average) 137.7 2,554.2 18.6 2011 159.4 3,491.7 21.9 Source: Pakistan Bureau of Statistics. Pakistan Agricultural Statistics 2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

The four major potato producing districts are Okara, Sahiwal, Pakpattan and Kasur. The great

chunk of production is for table stock. However, the market for processed products like French fries and potato chips is growing due to increasing market participation of multinationals in this business and ever growing business from fast food chains. Some international chains source potatoes for their fries from other countries due to unavailability of potatoes with desired characteristics and quality. As the market for chips has grown significantly, Pepsi Cola International (having Lays brand of chips) has extended its buyback/contract farming arrangement to Swat (which has climatic conditions different from mainstream potato producing districts in Central Punjab) to extend the availability period of fresh potato with high dry matter and low sugar content throughout the year. Seed cost and quality are the two largest inhibiting factors in the increase of potato area and production volume. Potato seed is expensive and accounts for up to 35 40% of the total cost of production (Fuglie et al. 2005). High prices of quality seed forces many farmers to use seed of uncertain quality. Availability of quality seed is also an issue. According to data from the Federal Seed Certification and Registration Department (FSC&RD), certified seed accounted for only 1% of the total potato seed requirement of 372,725 metric tonnes in 2012-13 (Rana 2014). In the absence of indigenous development of potato seed production facilities and skills, Pakistan has to import potato seed worth millions of dollars each year from other countries to meet local needs. In 2010-11, Pakistans import of potato seed stood at 5,370 metric tonnes worth US$ 383 million (FSC&RD 2013).

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This makes it a vital area for government support. The government should review and analyse various popular and proven technologies of potato seed production and multiplication and develop recommendations for the appropriate technology for Pakistani agro-climatic and cultural practices. The government should also develop business models to upgrade existing seed ventures so that they have their own breeding and multiplication systems and can provide high-quality seed in sufficient quantities to local farmers. Onion Onion is the second major vegetable produced in Pakistan. In addition to being part of our everyday diet, it is used in salads, pickles, chutneys and sauces. Its production has substantially increased during the past two decades, but this rise has resulted entirely from an increase in area allocated to onion cultivation. Per acre yield has hovered around 13.1 tonnes per hectare. This is far lesser than the yield in China and India worlds two leading onion producers - which was 21.7 and 16.1 tonnes per hectare respectively in 2011. This shows significant scope for improvement.

Table 9

Area and Production of Onion (1994-2011) Year Area

(000 hectares) Production (000 tonnes)

Tonnes per hectare

1994-95 (2-year average) 72.6 962.3 13.3 1996-00 (5-year average) 87.1 1218.3 14.0 2001-05 (5-year average) 110.8 1517.9 13.7 2006-10 (5-year average) 137.5 1858.5 13.5 2011 147.6 1939.6 13.1

Source: Pakistan Bureau of Statistics. Pakistan Agricultural Statistics 2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

Sindh is the leading onion producing province in Pakistan followed by Baluchistan, KPK and Punjab. Agro ecological diversity in the country allows onion production to take place throughout the year, though most of the production takes place during November May in Sindh. In the absence of cold storage facilities, onions cannot be kept for an extended period

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of time and have to be quickly disposed of in the domestic or global market. Most of the onion crop is consumed domestically. Pakistans share of the global export market was only 2.6% in 2011 (FAOSTAT data). Tomato Tomato is the third major crop in Pakistan. It is produced in all the four provinces 40% in Baluchistan, 30% in KPK and the rest in Punjab and Sindh. Different planting seasons in various areas enable tomato harvesting throughout the year. Tomato production has doubled since 1993, but the growth has come entirely from horizontal expansion i.e. increase in area under tomato cultivation (Table 10). Yield has remained stagnant at around 10 tonnes per hectare, which is very low relative to the global average (53.3 tonnes per hectare in 2011). There is substantial scope for improvement in tomato production.

Table 10 Area and Production of Tomato (1994-2011)

Year Area

(000 hectares) Production (000 tonnes)

Tonnes per Hectare

1994-95 (2-year average) 25.0 265.1 10.6 1996-00 (5-year average) 29.3 311.6 10.6 2001-05 (5-year average) 33.7 341.6 10.1 2006-10 (5-year average) 50.0 509.1 10.2 2011 52.3 529.6 10.1

Source: Pakistan Bureau of Statistics. Pakistan Agricultural Statistics 2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

Table 11 provides data on vegetables grown in Pakistan other than the three discussed previously i.e. potato, onion and tomato. Both area and production of other vegetables have declined during the past two decades.

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Table 11 Area and Production of other Vegetables (1994-2011)

Year Area

(000 hectares) Production (000 tonnes)

Ton per Hectare

1994-95 (2-year average) 127.2 1804.8 14.2 1996-00 (5-year average) 101.6 1359.4 13.4 2001-05 (5-year average) 84.6 1078.6 12.8 2006-10 (5-year average) 62.1 764.1 12.3 2011 52.1 663.6 12.7

Source: Constructed from Pakistan Bureau of Statistics. Pakistan Agricultural Statistics

2011-12. Islamabad: Pakistan Bureau of Statistics, Government of Pakistan, 2011.

Export Pakistan exports vegetables to many countries but the most significant markets in terms of export earnings are Afghanistan, Sri Lanka, UAE, Malaysia, UK, Saudi Arabia, France, Qatar, Canada, and Singapore (Knowles et al. 2010). Vegetables export in Pakistan has been continuously growing and it has registered about 400% increase in value during the last eight years (Knowles et al. 2010). Pakistani vegetables are not considered premium products in the global marketplace and are typically sold at discounted prices vis--vis vegetables from other countries. This speaks volumes about our product quality as well as harvesting and post-harvest handling practices. Shelf life of Pakistani vegetables is also poor because field heat removing facilities do not exist in Pakistan for vegetables, with the exception of one or two vegetables farms. Potential of exporting them to neighbouring (mostly price sensitive) countries such as Afghanistan, Central Asian States and Russia is relatively high due to minimum requirements for compliance with quality standards and the possibility of by-road transportation. Moreover, the market for exotic vegetables, organic vegetables, GLOBALG.A.P. and Fair-trade certified vegetables is expanding in USA, Europe and other developed countries, which provide good prospects for niche producers and marketers. At present, no Pakistani vegetable farm is GLOBAL.G.A.P certified (Knowles et al. 2010).

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In the vegetable sector, harvest and post-harvest losses are about 30-40%, due to non-existence of proper pack houses and cold chain (Nadeem 2010). Such huge losses are due to poor harvesting practices, inappropriate handling, inferior packaging material and poor roads. Capacity building of farmers and farm labour on appropriate harvesting, handling and transporting practices is an important area on which the government can focus its research and extension efforts. Value Chain Value chains for different vegetables vary slightly depending upon a host of factors including area of production, shelf life, access to temperature controlled storage facilities and export opportunities. Broadly speaking, following are the key actors in various value chains: farmer, growers organisation (as in the case of potato), contractor, small middleman, commission

agent, reseller (large and small wholesaler) and retailer. Farmers sell their vegetables directly in the market at the bulk auction or sell these to a contractor or a middleman, who will then sell these in an open auction at the fruits and vegetables market. The reseller (phariah) buys these in bulk and sells these to retailers or transports these to be auctioned in smaller markets. In case of potato, the growers association plays some role in the value chain by disseminating information on production and marketing and by lobbying on behalf of members. But the membership fees are small, which constrains the associations capacity to provide these services. These value chains are changing. There has been some growth in the high-end domestic market in Pakistan, as urban middle class consumers have now started to expect quality vegetables at their super markets. They are also ready to pay a small premium. To satisfy demands from such consumers, several retail chains (e.g. Hyperstar and Metro Cash and Carry) have directly contracted farmers for delivering specific quantities of common vegetables (and fruits). This allows them to operate outside the traditional mandi system. CONCLUSION Horticulture is emerging as an important growth area in Pakistan. Significant market opportunities exist both domestically and internationally for those producers who can provide consistent supplies of high quality fruits and vegetables. Unfortunately, current produce

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suffers from a range of production, harvesting, handling and marketing problems that keep most of it limited to low-end domestic and export markets. To gain access to high-end markets, it is important for the Pakistani fruit and vegetable industry to make improvements throughout the value chain in order to appropriately position itself in a competitive market. Furthermore, there exists substantial scope for improvement considering the fact that Pakistans yield of major fruits and vegetables (other than potato) per unit of land compares unfavourably with the global average. This will require inter alia use of improved seed, adoption of modern farming and harvesting practices, and reform of value chains so that yields can be improved, harvest and post-harvest losses are minimised and better quality is provided at the terminal end. Serious policy response is warranted from federal and provincial governments to help Pakistani farmers adopt better farming practices, obtain yields comparable with global averages and reduce wastage/losses.

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References

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PAMCO. Developing a Sustainable Export Industry for Punjab Province Horticultural Product. Lahore: Punjab Agricultural Marketing Company, Government of Punjab, 2011, 23. PHDEB. Citrus Development Strategy. Lahore: Pakistan Horticulture Development and Export Board, Ministry of Commerce, Government of Pakistan, 2010. PHDEB . Onion Marketing Strategy. Lahore: Pakistan Horticulture Development and Export Board, Ministry of Commerce, Government of Pakistan, 2008. Picha, David. Mango Value Chain Development Strategy. Empowering Pakistan Firms Project, Lahore: USAID Pakistan, 2009. Rana, Muhammad Ahsan. ''The Seed Industry in Pakistan: Regulation, Politics and Entrepreneurship.'' IFPRI Working Paper No. 019, 2014.