Marketing Organizations in Pakistan: What Value Chain Analyses Do Not Tell

About Marketing

Muhammad Iqbal, Saman Bakhtawar , Grant Vinning & Rob Erskine-Smith

Balochistan Agriculture Project (FAO/USAID)

Balochistan Agriculture Project (BAP)

• 8 Districts Northern Balochistan

• 2009-2015

• USD25.4 million from USAID

• USD 1 million contributed by beneficiaries

• Improved enabling environment (policy);

• Increased crop and livestock productivity and value;

• market linkages strengthened, improved competitiveness and sustainability of value chains;

• Increased incomes by 20% – 115,000 direct beneficiaries

– 230,000 indirect beneficiaries

• 40% women participation

Food Security / Poverty Alleviation in Arid Agriculture Balochistan

• Killa Saifullah

• Loralai

• Mastung

• Food security

USAID

Assistance to Agriculture in Arid Balochistan

• Killa Saifullah

• Loralai

• Mastung

• Zhob, Quetta

• Food security

• Make a small surplus

USAID

Balochistan Agricultural Project

• Killa Saifullah, Loralai, Mastung

• Zhob, Quetta

• Pishin, Musakhel

• Sheerani

• Food security, make a small surplus

• Make a large surplus

AUS Assistance to Agriculture in Balochistan Border Areas Killa Saifullah, Loralai, Mastung Zhob, Quetta Pishin, Musa Khel, Sheerani Noshki, Chagai, Kharan, Panjgur, Kech, Washuk Food security, make a small surplus, make a large surplus Go commercial

Communities

> Loose grouping -> community organisations on community issues -> general marketing -> Farmer Marketing Collectives -> Mutual Marketing Organisations

Value Chain Approaches

First approach: Identification of margins; who makes what profit

Second approach: A prescriptive means of improving the efficiency of the chains (Reform approach)

Value chain reform approach

An excellent approach to achieve three goals:

Increase market price

Reduce costs

A combination of increasing market price and reducing costs

Value chains: a simplistic approach

Production Marketing

“The bit in the middle"(post-harvest preservation,

processing, packaging, labeling, storage, transportation)

Increase productivity

Reduce production

costs

Increase prices

Increase spread of

markets

Reduce marketing costs

Increase the

efficiency

Common Intervention Measures Component Element Common Issues

Production Market information

The availability, quality, and understanding, of existing marketing information systems that guide production decisions.

Input supplies Covers seed, fertilisers, farm chemicals, water and farm machinery/tools.

Credit What is the extent of producer access to credit.

Production and

harvesting

Availability of appropriate technology such as appropriateness of

technology to reduce field heat.

Pests and

diseases

Knowledge and appropriate equipment to deal with these.

Extension Extent, professionalism, relevance and timeliness of extension

services.

Regulation and

certification

Extent of government regulation that directly affects production.

Research Provision and quality of agricultural research.

Common Intervention Measures Component Element Common Issues

“The bit in the

middle” of

post harvest

handling,

processing,

storage, and

transport

Cleaning,

drying, grading,

packaging

Appropriateness of equipment and material used?

Storage Availability of, and standards of, storage facilities.

Regulation and

certification

Extent of and adherence to government regulation such as

labeling.

Product

development

Extent of local product diversification expertise?

Movement from

farm markets

Frequency, reliability, and quality of transport.

Infrastructure Availability and quality of roads, jetties/ wharves, airports.

Handling What is the quality of handling procedures along the chain.

Common Intervention Measures Component Element Common Issues

Marketing

Market

destination

Identification of market destination.

Market

information

Extent of marketing information regarding extent of product

and services covered, extent of value-adding data, method of

delivery of the information, and training in the use of the

marketing information by the intended recipients.

Regulation and

certification

To what extent does government regulation affect market

directly (e.g. export regulations), and indirectly (taxes,

exchange rate).

Size What is the minimum size required for market acceptance.

Marketing skills The availability of marketing skills to undertake enterprise

budgeting, developing a marketing plan, undertaking market

research, and undertake satisfactory negotiations.

Examples of Application of Value Chain Methodology

Industry Issue Value chain reform

Apples Overloading of large trucks causes

increased damage to fruit due to

excessive weight on the bottom

layers of cartons:

On larger slower trucks, introduce

load splitter which is an addition

floor half way up the trailer load

body of the truck to reduce weight/

pressure levels.

Grapes Poor product presentation Use scissors to cut the bunches

from the vines then grade and pack

into packed branded cartons not

wooden boxes.

Wool Traditional shearing methods

produced highly uneven fibre

lengths

Introduce mechanical shearing that

has more even fibres for which

spinners will pay a premium.

Farmer Marketing Collective

An organization owned & operated by farmers producing similar products, based on:

• The user-owner principle

• The user-control principle

• The user-benefits principle

Rationale for setting up FMC

• Increase prices received

• Increase bargaining power

• Reduce cost of marketing & inputs (economies of scale)

• Access new markets otherwise not accessible

• Gain access to knowledge & professional expertise

• Make the markets for products more secure

Setting up FMC – 8 Steps • First: Get organized & identify the need

• Second: Prepare a brief business plan

• Third: Draft Rules

• Fourth: Open a bank account

• Fifth: Bond (from the Treasurer)

• Sixth: Organisation (GB & EC)

• Seventh: Prepare records & books of account

• Eighth: Run the business

FMC: A Different Model

• No credit

• Business is not for free

• Support from Business Support Services

• Community audit

Capacity building of FMC

• Organization of FMC

• Basic marketing skills

• Post-harvest management

• Business planning

• Business operations

• Accounting & book keeping

• Financial management

• Community audit

Business Support Services

• Organization & management

• Marketing

• Post-harvest management

• Book keeping & accounting

• Financial management & control

Business Support Services Provider

• Preferably from the same area (local fit)

• Well versed in book keeping & accounting

• Conversant with Business operations

• Good entrepreneurial & communication skills

• Team builder

• Forward looking

• Empowering others

FMCs Estimated Business Turnover S.# Commodity # of

FMCs Volume (kg) Target Markets Estimated

Sales (Rs)

1 Apple 5 958,500 Islamabad, Lahore, Karachi, Multan,

Faisalabad, Quetta

51,539,785

2 Apricot 3 207,720 Karachi, Lahore, Multan, Quetta,

Faisalabad

13,407,200

3 Grape 3 659,100 Karachi, Khanpur, Multan, Sadiqabad,

Faisalabad, D.I Khan

50,011,000

4 Almond 1 7,600 Lahore, Multan 2,470,000

5 Red Chili 2 135,700 D.G Khan, Lahore, Faisalabad, Sargodha 12,738,700

6 Cauliflower 1 154,000 Lahore, D. G. Khan 2,772,000

7 Melon 2 203,800 Multan, Quetta 6,771,200

8 Tomato 1 22,800 Karachi, Quetta 1,097,500

9 Onion 3 911,250 Karachi, Multan, Faisalabad 40,916,000

FMCs Estimated Business Turnover (Contd.)

S.# Commodity # of FMCs

Volume (kg) Target Markets Estimated Sales (Rs)

10 Dried Mulberry 1 240,000 Sehwan Sharif 25,000,000

11 Carrot 2 549,750 Faisalabad, Multan 10,639,000

12 Wheat 2 551,450 Duki, Loralai, Mastung, Quetta 27,572,500

13 Dairy 2 34,740

Litres

Zhob, Quetta 2,431,800

14 Wool 4 20,000 Jhang, Karachi 1,500,000

10 Dried Mulberry 1 240,000 Sehwan Sharif 25,000,000

Total: 248,866,685

FMCs Financial Results – Quetta District Description Commodity No. of

FMCs

Quantity Gross Sales Net Sales Net Sales

per Unit

Comparison

(%)

FMC Apple 1 20,640 13,871,200 7,425,660 360 34.3

Non-FMC 5,950 3,913,500 1,593,746 268

FMC Apricot 1 4,500 2,925,000 1,912,500 425 11.8

Non-FMC 2,600 1,612,000 988,000 380

FMC Grape 1 2,500 1,875,000 1,350,000 540 35.0

Non-FMC 1,400 896,000 560,000 400

FMC Tomato 1 3,700 2,590,000 1,798,200 486 47.3

Non-FMC 7,000 4,340,000 2,310,000 330

FMC Onion 1 13,000 14,300,000 10,985,000 845 26.1

Non-FMC 7,000 6,860,000 4,690,000 670

FMCs Financial Results – Killa Saifullah District

Description Commodity No. of

FMCs

Quantity

(Cartons)

Gross Sales Net Sales Net Sales

per Unit

Comparison

(%)

FMC Apple 3 22,492 22,132,485 14,230,894 633 29.4

Non-FMC 8,222 6,885,020 4,019,011 489

FMC Apricot 1 8,795 3,864,980 2,638,088 300 22.4

Non-FMC 3,085 1,172,300 754,590 245

Sales appreciation on post-harvest best practices

S.# District/FMC Target

Market

Intervention Price Appreciation

District Mastung

1 Apple Karachi Cardboard Cartons & Mazda Truck 21.65%

2 Apple Quetta Returnable Plastic Crates 29.98%

3 Water Melon Quetta Returnable Plastic Crates 16.96%

District Quetta

4 Tomato Karachi Returnable Plastic Crates 39.50%

District Loralai

5 Melon Multan Cardboard Cartons & Pick-up 20.50%

6 Onion Multan Net Sacks 38.53%

7 Carrots Multan Polypropylene Sacks & Mazda Truck 15.65%

Conclusion The reform value chain approach adopted by Balochistan Agriculture

Project that focuses on improving efficiency of the chain rather than determining margins resulted into successful group marketing. A comparison of farmers who were members of Farmer Marketing Collectives organized by the Project with farmers who sold their produce individually in the same markets at the same time revealed that FMC members made extra sales ranging from a minimum of 12 % to a maximum 47 %. Among others, this attributed to adequate capacity building of the FMCs in doing business, reliance on own capital and paid professional advice. This clearly demonstrated that group marketing has to be promoted if the small farmers are to participate in institutional markets and avail emerging market opportunities, in spite of the fact that over 40,000 producer cooperatives failed in Balochsitan. The lesson is the critical role of farmers own capital and paid commercial advice for undertaking successful business operations. This is a paradigm shift away from the traditional loan and free advice dependency syndrome, a lesson applicable to almost all South Asia.