GREATER value-addition in agriculture is handicapped by low level investment in modernising farming and forging its backward and forward linkages.

The net output of value-added agriculture has surged over the past 10 years, rising from less than $25bn in FY06 to more than $62bn in FY16, according to official statistics.

But, in terms of diversity and quality and not just the quantum of the GDP, the value-addition in our agriculture is inferior to China, India and many other countries.

“Going for greater, higher-quality, high-end value-addition in agriculture needs lots of investment—in agriculture research and development and in technologies etc.—and that’s where we’re lacking,” concedes a senior official of the Ministry of National Food Security and Research.

One way of probing this issue could be through capital formation in agriculture sector. At constant market price of 2005-06, private sector’s fixed capital formation in agriculture grew just 5pc in the last three years — from FY13 to FY16, though at current market prices the increase was obviously higher.

Another way of examining this issue could be through disbursement of bank loans for agricultural development and corporate farming. The last four years’ average of both kinds of loans comes to just Rs30bn a year. Clearly, banks need to do much more to spur value-addition.

Food processing and packaging has grown over time and the names of some locally processed and packaged food items can be cited as a big success. This shows that forward linkages (of agricultural value-addition) are being shaped, food companies’ executives point out

However, food processing and packaging has grown over time and the names of some locally processed and packaged food items can be cited as a big success. And that shows that the forward linkages (of agricultural value-addition) are being shaped up, the food companies’ executives point out.

But there is a huge gap between the output of food crops and the scale on which their value-added products are being produced for local or export market. Unless that gap is bridged the economic returns of value-addition will remain limited.

Pakistan produces surplus rice and maize and is, more or less, self-sufficient in wheat and sugarcane. (The impact of occasional falls in the output of the last two crops can be minimised by removing some basic structural flaws).

But the country is yet to take full economic advantage of this blessing. We keep exporting rice and maize with very little or no value-addition at all. In domestic market, too, value-addition in key food crops rarely goes beyond a few steps—rice-based cuisine, breads made of wheat and maize flour and sugar and confectionaries etc.

It’s not that rice or wheat or maize is not being used in manufacturing of value added products. “It’s the quality and diversity of the products made out of them and tapping of their full export potential that is under question,” says a former secretary of Sindh Agriculture Department.

The list of the value-added food items produced locally is long. Thanks to urbanisation, rise in income levels and change in lifestyles, hundreds of products are now available even in ready-to-cook and energy diets categories in addition to regular types. But two things are worth examining. First, only a small percentage of the local value-added food products are manufactured by leading, ISO-certified food companies, and the rest are produced by little-known companies and lack quality. This also reflects in exports.

Exports of value-added food items remain the exclusive domain of a limited number of companies and export volumes and export earnings remain limited. If we exclude processed meat, fish and manufactured spices, the export earnings of all other value-added food items including dairy and milk products, cereal-based food items and confectionary fetch less than $100m a year, officials of Trade Development Authority of Pakistan say.

Generally speaking, the food and beverage companies have been doing well. Increase in local demand and sales and marketing opportunities via internet have helped them boost local sales. But executives of these companies say that local sale volumes can be increased further and export potential can be further realised more effectively if the government comes up with a plan for mapping the domestic food sector and then categorise the market players on different basis.

“Obtaining Pakistan Halal Authority certification, achieving ISO standards and meeting nutrition value standards, for example, can help the local companies get enough return on their investment that measure up to such criteria. And this, in return, will encourage them to invest more in technology and qualified staff,” says a senior executive of Multi Food Industries.

In addition to the GCC countries, Pakistan currently exports frozen foods to Afghanistan, Bangladesh, India, Central Asian states, the UK, the US, Indonesia and Malaysia. Except for the six GCC nations (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE), in all other markets, the untapped export potential is quite vast, industry sources say.

But to tap that effectively requires improvement in productivity. “This brings us to the question of keeping our cost of production and marketing low and maintaining the quality high and ensuring shelf value of our products long,” says a senior official of Fauji Foods.

Published in Dawn, Business & Finance weekly, December 19th, 2016