Agro-food products: access to export marketsArchive
The agro-food sector is the largest non-textile component of the national export basket, and has been the main driver of export diversification during the last 15 years — since 2001.
The share of textiles has declined from 68pc to 60pc, whereas that of the food sector has increased from 10pc to 19pc.
The increase in share of national exports notwithstanding, only a small part of the total agro-food production is exported — wheat 2pc, meat 2pc, sugar 5pc, mango 6pc, onion 10pc, potato 18pc, citrus 21pc and dates 25pc. Rice is the only exception with around 60pc of produce being shipped abroad.
The prime reason for the suboptimal participation of agro-food production in the export market is the detachment of the value chain from the dynamics of the global market — which are complex, diverse and distinct from industrial products.
Firstly, food exports are linked to food tastes, which are profoundly cultural in nature. The narcissist myth of Pakistani fruits being ‘the tastiest’, is not supported by empirical realities.
The volume of our food exports to a country is directly proportional to the size of the Pakistani diaspora, as the main consumer of Pakistani food products remains the ethnic community instead of the larger mainstream consumer.
For the mainstream segment, the export of ‘taste’ has to precede the export of ‘product’. Secondly, the production patterns and food safety requirements necessitate a specialised and agile supply chain, able to move with speed to the market.
Almost all major supermarkets in developed countries source horticulture products through a third party — wholesaler/importer in the importing country or commercial exporter in the exporting country.
The role of the oft-belittled middleman becomes indispensable to (a) bridge the capacity gaps of producers to meet the market requirements, (b) consolidate the produce of multiple smallholders into container loads, and (c) ensure quality consistency.
Thirdly, perishable products (e.g. horticulture, meat and dairy) compete in the market on lead time rather than price.
The short shelf life confers a price premium in the regional markets by shielding against distant ‘efficient’ producers whose competitiveness erodes due to increased delivery costs and longer lead time.
For the same reason, the lucrative remote markets (e.g. Europe and North America) are lost to our exports as the majority of our fresh produce cannot survive a more than 20-day sea voyage; air-shipment costs many times more than the product itself, which distorts the price equation beyond proportion.
Non-perishables, on the other hand, operate in a price-sensitive market as the importer can afford time to source from the most competitive global producers.
The overpriced Pakistani commodities are knocked out of competition in regional markets — Brazilian sugar captures the Iranian market as Pakistani sugar can’t be exported without a 32pc subsidy; Australian wheat seizes the Chinese market as Pakistani wheat costs twice as much; high-yield Indian basmati look-alikes grab 96pc of the Saudi market as low-yield Pakistani super basmati is uncompetitive.
Fourthly, though ostensibly paradoxical, the fresh agricultural produce (e.g. tomato) in most of the developed markets is retailed at a higher price than its processed products (e.g. tomato paste) as the cost imposed by high wastage and expensive refrigerated logistics outweighs the cost of processing. The short shelf life of the product excludes the option of importing from the remote, cheaper, sources.
Fifthly, agriculture products trade in a protectionist and distorted global marketplace. The inconsistencies, inefficiencies and inequities afflict farm policies across the globe as developed countries continue to protect their agriculture sectors through subsidies, high tariffs and trade measures. It not only restricts the access of competitive foreign producers to their markets, but also induces surplus production which, in turn, frequently precipitates global price depressions.
Lastly, the trade in food products takes place in an excessively regulated environment where food safety overrides price consideration. The sanitary and phyto-sanitary (SPS) requirements, though frequently employed as protectionist non-tariff barriers, are prompted by legitimate food safety considerations.
The market access to several niches is contingent upon third party certifications to verify that the product has been (a) produced through good agricultural practices especially the farm inputs (e.g. GlobalGAP), (b) processed, packaged, stored and transported hygienically (e.g. HACCP), and (c) truthfully labelled (e.g. Halal).
To conclude, the agro-food sector, besides ensuring food security, has been the mainstay of national exports. In contrast to industrial production, which has long gestation periods, agriculture provides the quickest road to turnaround in national exports.
However, in its current structure it lacks vitality and the agility to penetrate an intensely competitive $1.486tn global market, in which Pakistan’s share is a paltry 0.27pc.
The increased participation in export market requires a comprehensive sector development strategy which entails (a) shifting the production paradigm from supply-led to demand-driven, (b) increasing competitiveness through productivity enhancement and improved postharvest practices, (c) removing information asymmetries through capacity building of producers, (d) value addition by effective use of processing technologies especially for increasing shelf life of perishable products, (e) value maximising penetration into the premium-price mainstream market segment through taste development, and (f) value capturing by promoting international certifications of farms and production facilities.
The writer is joint secretary (Exim), ministry of commerce.
Published in Dawn, Business & Finance weekly, October 24th, 2016