Introduction
Pakistan's agricultural potential is vast, with 31 million hectares of arable land and access to abundant water resources from the Indus River and its tributaries. The naturally fertile soil of the Indus delta also provides ideal conditions for agricultural productivity. However, despite these advantages, Pakistan's agricultural outputs are consistently outperformed by countries such as the Netherlands, which is fifteen times smaller but produces eleven times more output. This begs the question: what factors are contributing to Pakistan's agricultural disadvantage, from production to the supply chain?
The issues in Pakistan's agri-supply chain, in particular, has been a major hindrance to the growth of the industry, despite the potential for high-value crops and export opportunities. The lack of proper infrastructure, the prevalence of exploitative intermediaries, and the limited access to credit and markets for small-scale farmers have all played a role in perpetuating this cycle of disadvantages. In this blog, we will explore the key issues in Pakistan's agri-supply chain and potential solutions to promote sustainable growth in the industry.
The issues surrounding Pakistan's agri-supply chain are complex and multifaceted. The low output and uncompetitive quality of agricultural goods in Pakistan can be attributed to a number of factors, including the exploitative nature of the supply chain and the lack of sufficient returns for small and mid-scale farmers. This results in high food inflation and low agricultural productivity, according to Professor Sher Afghan Asad of LUMS. To understand the root of these problems, we must examine the intricate and often opaque supply chain that connects farmers with consumers. The process begins with government-regulated wholesale markets, where the produce is auctioned off to a variety of economic agents who play a role in its distribution and sale to end consumers.
The Supply-Chain Structure
To show you how this plays out, Prof. Asad in his paper, “Role of Supply Chains in Determining Farmers’ Productivity and Consumer Prices” outlines a thorough example. Suppose you buy potatoes for Rs.50/kg. Of that only Rs.20/kg will go to the farmer. And within this he has to pay his farming costs, liabilities, fixed rent to the landlord and try to sustain his family’s livelihood. The rest Rs.30 go towards the cost of transport, labor, packaging and the profit margins of crafty economic agents. Small and mid-sized farmers cannot meet basic household expenditures and are therefore reliant on various agents (aartis, beoparis & phadias) in the supply chain for their credit needs and accessing markets. While looking at the farmgate prices of onions in Lahore, on average, farmers receive less than 50% of the price paid by the consumer for these items. It is disconcerting that farmers receive less than 50% of the price paid by the consumer, despite no additional value being added to the produce by the intermediaries. This offers very little incentive to the nascent farmer to be making profits in this industry, while large families with vast land-holdings are able to enjoy economies of scale, are less susceptible to credit constraints and have the ability to access larger markets.
Due to inadequate incentives, farmers tend to cultivate low-value crops with limited export potential, leading to higher prices for consumers. The presence of numerous intermediaries in the supply chain exacerbates this issue, as agricultural produce has low price elasticity. Pakistan's comparative advantage is compromised by low export prices and export-output ratios (EOR) for a variety of commodities, despite their lower prices at the farmgate. To generate additional revenue for producers, it is necessary to raise average crop yields to match the world average. However, this requires the removal of intermediaries' extractive role in the supply chain. Just bringing the average crop yield levels at par to the world average can generate $11 billion additional revenues to the producers.
In Pakistan, government fresh produce markets (FPMs) serve as the primary regulator for the agri-supply chain. These physical locations provide a platform for farmers, intermediaries, wholesalers, retailers, and end-users to auction and purchase goods. For small-scale farmers who are credit-strapped and rely on tenancy, the agri-supply chain typically begins with land procurement and borrowing from intermediaries at high mark-ups. Commission agents licensed by the government ('Pakka Aartis') are responsible for auctioning the produce in market committees. In addition, unlicensed commission agents ('Kache Aartis/Beoparis') purchase goods directly from farmers and sell to middlemen or in the market. Beoparis, on the other hand, buys at low prices and sells when the price is high. The auctioned produce is then sold in smaller units by a 'Pharia,' who in turn sells to retailers that range from supermarkets to local street vendors.
Although, there are other constraints present. Growth potential is stunted due to the broken link between farmers and export markets. While smallholder farmers have low knowledge about the requirements of export markets, wholesaler markets continue this mindset through the actions of intermediaries by taking the ‘short-term trader mindset’. No investment in the quality of the produce and minimal value addition. 90% of Pakistan’s fruit and vegetables are consumed domestically, and the produce that is exported is done in parts by small exporters who deliver mixed quality and branding due to informal quality standards in place. There is a lack of cool chain infrastructure causing post-harvest losses of 2 to 4 times higher than good practice in other countries. The cycle of low investment, low productivity, and low profits result in poor branding: Pakistani producers fetch lower prices in export markets than other comparable countries.
According to Danyaal Balkhi, the COO of MandiExpress, the agri-supply chain in Pakistan's mandis can be likened to a jungle, where every participant is striving to make a profit "by hook or by crook."
Calls to Action
To promote the welfare of both farmers and consumers, it is crucial to design schemes that support small-to-mid sized farmers while reducing their reliance on intermediaries. Such efforts should include measures that enable farmers to secure capital for renting land as tenants without having to borrow from exploitative agents. Additionally, building logistics and distribution channels for agri-produce that are independent of extractive intermediaries would also be beneficial. Improving farmers' access to markets while increasing competition between middlemen and facilitating direct sales of farmer-produced goods to consumers are other critical steps towards achieving a more equitable agri-supply chain.
With the advent of e-commerce agribusinesses, farmers can now bypass the complexities of traditional supply chains and directly connect with end-consumers. This provides a promising avenue for boosting farmer welfare and enhancing the efficiency of the agri-supply chain in Pakistan. One such initiative is Zarai Mandi, which aims to address the gaps in the Pakistani agri-supply chain by providing transparency and efficiency through price discovery.
Zarai Mandi's B2C model, delivered through a Whatsapp API Chatbot, focuses on price discovery at every point in the supply chain. It enables farmers to make informed decisions about commodity rates based on market trends and demand. The mode of communication through Whatsapp addresses all rural individuals linked to the agri-supply chain, who can utilize the service to access mandi rates of major commodities throughout Pakistan. This is providing access to anyone and everyone who has a Whatsapp account to the same information needed for informed decision-making. The service not only benefits the farmer, who can set a fair price for their produce and reduce reliance on economic agents, but also creates a more competitive market for intermediaries, wholesalers, and retailers.
Zarai Mandi goes a step further by including daily ghalla mandi (grain market) videos and a News Bulletin through a voice message to reach a larger audience. Market rates coupled with market videos and a voice message news bulletin are specifically designed for those desi players who may lack the skills of reading and writing but are an integral part of the supply chain. These individuals can be the kissan to the kache aarti and everyone in between. By empowering all players in the supply chain with accurate market information, Zarai Mandi hopes to create a more equitable and efficient agri-market ecosystem in Pakistan as a first step.
