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Enabling Agricultural Policies for Benefitting Smallholders in Dairy, Citrus and Mango Industries in Pakistan

ACIAR Project No. ADP/2010/091

PROJECT COORDINATION COMMITTEE

First meeting: Thursday 12th February 2015 Serena Hotel, Islamabad

9.15-1.00 pm, followed by luncheon

Agenda

1. Confirmation of and welcome to PCC members; election of Chairman

2. Introduction to the project:

a. Key objectives and activities

b. Target outcomes and impacts

3. Preliminary report on fieldwork studies in Punjab and Sindh

4. Note on export issues for mangoes, citrus and dairy

5. Brief issues papers on potential policy areas (for discussion)

Paper 1: Extension Services

Paper 2: Smallholder Access to Credit Paper 3: The Role of Smallholder Cooperatives and Networks Paper 4: Access to Markets Paper 5: Policy Issues in Dairy

6. Consideration of future project directions and priorities

7. Other business (including project website)

8. Next meeting

Attachment Summary analysis of international trade trends for mangoes, citrus and dairy

ACIAR Project No. ADP/2010/09 – Enabling Agricultural Policies for Benefitting Smallholders

ITEM 1 The Role and Composition of the Project Coordination Committee 1

ITEM 1

The Role and Composition of the Project Coordination Committee

The Memorandum of Subsidiary Arrangement signed by the collaborating parties for this project provides for it to be overseen by a Project Coordination Committee (PCC), to be established pursuant to the Memorandum. This note summarises the terms of reference, membership and meeting arrangements for the PCC. The Designated Authorities for the project, namely the Ministry of National Food Security and Research (MINFSR) in Pakistan and the Australian Centre for International Agricultural Research (ACIAR) in Australia. The collaborating institutions are as follows: Planning Commission, Pakistan Pakistan Agricultural Research Council, Pakistan Department of Agriculture, Sindh, Pakistan Department of Agriculture, Punjab, Pakistan Department of Livestock and Dairy, Punjab,

Pakistan Department of Livestock and Fisheries, Sindh University of Agriculture, Faisalabad, Pakistan COMSATS Institute of Information Technology,

Pakistan

The overall responsibility of the PCC is to review, from time to time, the development and direction of the Project, to ensure that it is progressing toward its goal of benefitting smallholders in the selected industries in Pakistan. Given its focus on enabling policies, both the analysis and the policy recommendations to which that analysis gives rise must reflect broad-based input from all levels of governments – federal, provincial and local. The preferred suite of policies will also raise a wide range of implementation issues, many of which will require coordination across government departments and levels. If the potential benefits are to be realised, policies will need to be maintained, monitored, and evaluated over several years – requiring continuing commitment from government leaders. Against this background, the proposed terms of reference of the PCC are to: to oversee, and where necessary recommend

changes in, the Project, including the budget, the disposition of resources and plans for future development;

to contribute advice and guidance on the formation of appropriate, achievable policies;

to help to build broad-based support for successful implementation of the Project recommendations; and

to review and report to relevant Ministers and Departmental Secretaries as appropriate on the progress of the Project.

It is proposed that the PCC meets annually, for the duration of the Project, at dates to be determined in line with the visit of the Australian team to Pakistan for a range of Project meetings. Thus the first meeting has been set for Thursday 12th February 2015, in Islamabad. Having regard to the overall objectives of the Project and the collaborating partners involved in it, the persons holding the following positions are proposed as members of the PCC:

1. The Food Security Commissioner, MINFSR 2. Member Food and Agriculture, Planning

Commission 3. Chairman, Pakistan Agricultural Research Council 4. Secretary Depart of Agriculture, Punjab 5. Secretary Depart of Agriculture, Sindh 6. Secretary Depart of Livestock and Dairy

Development, Punjab 7. Secretary Depart of Livestock and Fisheries,

Sindh 8. Executive Director, Sustainable Development

Policy Institute 9. Chief Executive Officer, Pakistan Agricultural

Coalition 10. Executive Director, Sustainable Development

Foundation 11. Research Program Manager, Agricultural

Development Policy, ACIAR 12. ASLP Operations Manager (Pakistan), ACIAR 13. Project Leader

Professor Peter Sheehan Project Leader

Research Director

Victoria Institute of Strategic Economic Studies Victoria University, Melbourne


ITEM 2 Introduction to the Project 2

ITEM 2

Introduction to the Project

Background and objectives of project It is widely acknowledged that broad-based and effectively implemented policies could improve the livelihoods of Pakistan’s 56 million+ smallholder farmers in dairy and livestock, mangoes and citrus. This policy-focused project complements social, technical and marketing research in the Australia-Pakistan Agriculture Sector Linkages Program. Working in conjunction with Pakistani officials and experts, it seeks to contribute to the development of enabling policy options for benefiting smallholders of the Punjab and Sindh provinces of Pakistan and to understanding the conditions for implementation of preferred options. The research will review existing policies and identify constraints and opportunities. It will also analyse the policy-making process in these provinces to identify departmental responsibilities and capacity gaps. It will develop, evaluate and define implementation paths for new enabling policies. Outcomes will include improved capacity in relevant agencies and improved livelihoods of Pakistan’s smallholder farmers. The aim of this project is to review existing policies, develop policy options and evaluate and define implementation pathways for new enabling policies to improve the livelihoods of smallholders in the dairy, citrus and mango subsectors of Punjab and Sindh. The specific objectives are:

1. Document the key policy-related constraints to, and opportunities for, increasing the earned income of poor smallholders in the dairy, citrus and mango industries in Punjab and Sindh.

2. Develop options for enabling policies for addressing these policy-related constraints and opportunities, so as to increase the benefit to smallholders from commercial farming, and to assess which options can be effectively implemented to benefit dairy, citrus and mango smallholders, both men and women.

3. Understand the policy-making process in these areas in Pakistan to pinpoint the departmental location of responsibility for specific policies, to ascertain the capacity gaps and potential coordination failures in each case, and to recommend how these gaps should be removed.

4. Develop implementation pathways for the selected policy options and ways for making enabling policies more sustainable over time.

5. Contribute to improving the capacity to develop and implement effective policy in the relevant agencies in Pakistan.

Key activities The key project activities undertaken since inception are summarised below. Documentation of existing policies impacting on the smallholders in the target subsectors Following an agreement reached at the Inception Workshop, the Project Leader requested the Secretaries of the Federal and Provincial government departments to provide documentation of existing policies impacting on smallholders. This documentation has been completed (Federal and provincial), and departments have provided this information, which is being reviewed by the project team. Background papers on agricultural extension and input prices Two background papers, one on the status of agricultural extension services and the second on input prices have been commissioned from Agriculture University Faisalabad. Draft of both papers have now been received and are also being reviewed. Two more similar papers will be completed in 2015 on the topics to be determined in consultation with the project partners. Field studies for collecting primary data and information on smallholder households in Punjab and Sindh COMSATS IIT has been commissioned to undertake five field studies of smallholder household – focusing on dairy, citrus and mango growers in Punjab, and dairy and mango growers in Sindh (there is no significant citrus cultivation in Sindh). The questionnaires for these studies have been finalised and the field study team was provided with training at the National Agricultural Research Centre (NARC) before conduction these studies. The field studies have been largely completed, and analysis of the results is underway. Capacity building visit to Australia In October 2014, one representative of each Pakistani partner government department visited Australia for one week to study agricultural policy-making processes and policy co-ordination mechanisms. VISES coordinated these visits and developed the program of activities, in conjunction with ACIAR. The visit was deemed successful by the participants, and a visit report is available on the project website at http://www.vises.org.au/projects/growth.htm


ITEM 2 Introduction to the Project 3

Project Coordination Committee A Project Coordination Committee has been established to oversee the project and to advise on the content and implementation of its policy recommendations. Ongoing activities and target outcomes Current work within the project, by both the VISES team and collaborators within Pakistan, is focused on further definition on the constraints faced by smallholders in the three sectors and on identifying and analysing policy options to remove or reduce those constraints. In due course work will be undertaken on comparative analysis of different policy options and on the exploration of implementation paths. It is emphasised that this project is looking at policy options per se, and not on specific development projects for individual sectors. As a result of discussions within Pakistan, consultation with other ASLP projects and intensive discussion with project partners during their visit to Australia in October 2014, nine potential policy issues have been identified for further consideration. Some further information on the first four of these is provided in Item 5 below.

Potential policy issues identified for analysis

Extension services Smallholder access to credit Cooperatives and other networks Market access – local markets, but perhaps also

international markets Food and other regulations/deregulation Germplasm/seeds/nurseries Quality and pricing of inputs Federal/state issues Role of women, including off-farm employment


ITEM 3 (a) Initial Results: Punjab Field Studies 4

ITEM 3 (a)

Initial Results: Punjab Field Studies The project commissioned COMSTAT University to undertake field survey studies in Punjab (mango, citrus and dairy) and Sindh (dairy and mango). The focus of the field studies centred on obtaining primary information from smallholder farmers on production constraints, input and output pricing, credit usage, extension services, marketing, demographics, incomes and assets, gender, and community participation. At the time of writing, results from the Punjab surveys are available for analysis. This paper presents a wide range of charts highlighting results from the Punjab surveys. One hundred and fifty farmers in Punjab in each product area were surveyed. Three per cent of dairy farmers, 25% of mango farmers and 29% of citrus farmers surveyed were found to have more than 12.5 acres of land. In this paper, these farmers were excluded, as the study focuses on farmers holding land up to 12.5 acres. The data for those farmers with more than 12.5 acres has been kept and is available for analysis, if required at a later time. The key results from this initial analysis are as follows. The profile of dairy farmers shows that they are

more disadvantaged than either mango or citrus farmers. They have lower incomes, lower levels of education, higher levels of using credit and lower levels of land ownership – indeed 18% of dairy respondents have no land at all.

49% of surveyed dairy farmers had annual incomes of up to Rs. 240,000 and 85% up to Rs. 480,000. For citrus farmer respondents, 70% had incomes up to Rs. 480,000; and this was 60% for mango growers.

For all three sectors, their principal income activity

was from within their individual sector. Thus mango growers obtain most of their income from mangoes and so on with citrus and dairy. Mango growers also obtain income from other fruit sales and some from non-farm income activities. Non-farm income earning activities were particular important to citrus farmers who also sold some dairy/livestock products. Dairy farmer respondents reported little alternative farm income activities and reported some off-farm activities.

The major production constraints for citrus

farmers were access to chemical inputs, credit at affordable prices and access to water when required. Mango growers responses were similar to citrus, but harvesting and post-harvest handling tetchiness were also important, with access to water when required less important. Dairy farmers faced a different set of production constraints. The most important was access to higher yielding milk cattle breeds at affordable prices. Other important production constraints were access to

credit, cool rooms for milk storage, and fodder -

all at reasonable prices.

44% of respondents use credit with dairy the highest (52%), followed by mango (42%) and citrus (34%).

Sources of credit varied markedly between the

sectors. Dairy farmers obtained credit mostly from friends and relatives (58%) and contractors (21%). Citrus farmers gained credit mostly from friends and relatives (36%), input suppliers (33%) and government banks (14%). However mango growers were most reliant on credit from contractors (50%) from whom they have other commercial obligations. A further 29% obtained credit from friends or relatives and 17% from government banks.

Relatively small numbers of respondents were

restricted to where they could sell their products – mango (27%), citrus (23%) and dairy (7%). However, of those that were restricted, 100% of dairy, 93% of mango and 43% of citrus were restricted due their previous use of credit from suppliers.

A large majority of respondents in all three sectors: o do not expect future selling arrangements to

change; o do not use extension services; o do not access other government programs;

and o do not have any formal training in their

principal or other income earning activities.

85% of respondents had access to irrigation water with the highest being for citrus (99%) and lowest for dairy (73%). However, of those with access to irrigation water, only 44% had access when required. This was highest for mango (52%) and lowest for citrus (28%). Thus for citrus growers 99% had access to irrigation water, but only 28% had access when required.

The level of land ownership was highest for citrus farmers (86%) and lowest for dairy farmers (64%). The level of home ownership was higher around 93% for the three sectors.

Household sizes were fairly large with 74% of

respondents having a household of more than 6 persons and 31% having more than 10 in their households. Mango and dairy respondents had on average more than 4 children and citrus more than 3.



96% and 92% of mango and citrus growers stated that there were no community-based activities in their villages that assisted in increasing their incomes. However, 57 % of mango and 79% of citrus growers stated they would participate in such activities, if available. A higher percentage of dairy farmers stated there were community-based activities (30%) to assist them earn additional income and 95% of dairy respondents stated they would participate in additional activities, if available. Of the dairy farmers that stated there were activities, most of these activities related to picking cotton or other work on cotton farms.



Punjab Respondents Profile

Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 366; 19% filtered out







Household Income




Citrus Production Constraints Mango Production Constraints

Dairy Production Constraints



Filter: Yes/5 acres or less, Yes/5 to 12.5 acres, Yes/Zero acres; sample size = 70; 84% filtered out

Punjab Credit






DataCracker.com

Yes NoDo you expect Future selling arrangements to

change

0

20

40

60

80

%

12%

88%

3%

97%

10%

90%

CitrusDairyMango


Future Selling Arrangement and Training

DataCracker.com

Not at all Infrequently RegularlyDo you use extension services

0

10

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70

%

64%

22%13%

77%

18%

5%

77%

15%8%

CitrusDairyMango



DataCracker.com

Yes NoAny formal training related to

main income activity1

0

20

40

60

80

%

8%

92%

1%

99%

3%

97%

CitrusDairyMango


DataCracker.com

Yes NoAny formal training related to

other income activities1

0

20

40

60

80

%

7%

93%

5%

95%

7%

93%

CitrusDairyMango





Punjab Assets


Filter: 5 acres or less/Yes, 5 to 12.5 acres/Yes, Zero acres/Yes; sample size = 311; 31% filtered out




DataCracker.comNumber of children

0

5

10

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20

%

CitrusDairyMango


DataCracker.comHousehold Size

0

2

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14

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CitrusDairyMango


Households



Punjab Community

Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 366; 19% filtered outFilter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 366; 19% filtered out


ITEM 3 (b) Initial Results: Sindh Field Studies 14

ITEM 3 (b)

Initial Results: Sindh Field Studies This paper presents a wide range of charts highlighting results from the Sindh surveys. One hundred and fifty farmers in Sindh in the mango and dairy product area were surveyed. Forty-nine per cent of mango farmers and 19% of dairy farmers surveyed were found to have more than 12.5 acres of land. In this paper, these farmers’ responses were excluded, as the study focuses on farmers holding land up to 12.5 acres. The data for those farmers with more than 12.5 acres has been kept and is available for analysis, if required at a later time. The key results from this initial analysis are as follows. The profile of dairy farmers is that they are more

disadvantaged than mango farmers. They have lower incomes, lower levels of education, lower levels of land ownership – indeed 56% of dairy respondents in Sindh own no land. There is a far higher level of dairy respondents owning no land than in the Punjab survey where 18% of dairy respondents reported no land ownership.

29% of surveyed dairy farmers had annual incomes of up to Rs. 240,000 and 75% up to Rs. 480,000. For mango respondents 57% had incomes up to Rs. 480,000.

For both mango and dairy farmers, their principal

income activity was from within their individual sector. Thus mango growers obtain most of their income from mangoes and so on with dairy. Mango growers also obtain income from other fruit/crop sales and some from non-farm income activities. Dairy respondents reports little other income sources other than some livestock sales.

The major production constraints for mango farmers were access to chemical inputs, credit at affordable prices and access to water when required. Dairy farmers faced a different set of production constraints. The most important were access to higher yielding milk cattle breeds, access to credit, fodder and veterinary services – at reasonable prices.

21% of dairy respondents and 37% of mango

respondents use credit.

The sources of credit varied markedly between the sectors. Dairy farmers obtained credit mostly from friends and relatives (38%) and input suppliers (38%); whereas mango respondents obtained credit from government banks (46%), and friends and relatives (39%).

Only a very small number of respondents (dairy 1% and mango 3%) were restricted to where they can sell their product.

A very large majority of respondents in both mango and dairy:

o do not expect future selling arrangements to change;

o do not use extension services; o do not access other government programs;

and o do not have any formal training in their

principal or other income earning activities.

96% of mango respondents had access to irrigation water with 38% of these respondents saying they did not have access to water when they needed it. For dairy only 43% had access to irrigation water and 55% of them did not have access when required.

The level of land ownership was 100% for mango respondents and 41% for dairy.

The level of home ownership was 100% for mango and 99% for dairy respondents.

Household sizes were fairly large with 74% of

mango respondents and 78% of dairy respondents having a household of more than 6 persons. 46% of mango respondents and 34% of dairy respondents have more than 10 person in their households.

94% and 86% of dairy and mango growers stated there were no community-based activities in their villages that assisted in increasing their incomes. However, 91 % of mango respondents and 87% of dairy respondents stated they would participate in such activities if available.



Sindh Respondents Profile

Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 199; 34% filtered out; 95% confidence level


Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 199; 34% filtered out; 95% confidence level





HouseholdIncome

Plans for increasing income in the next 2 to 3 years by CategoryFilter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 199; 34% filtered out



Dairy Production Constraints



Mango Production Constraints



Sindh Credit






Future selling arrangements and training








Sindh Assets


Filter: 5 acres or less/Yes, 5 to 12.5 acres/Yes, Zero acres/Yes; sample size = 126; 58% filtered out





Sindh Community

Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 199; 34% filtered out Filter: 5 acres or less, 5 to 12.5 acres, Zero acres; sample size = 199; 34% filtered out; 95% confidence level


ITEM 4 Note on Export Issues for Mangoes, Citrus and Dairy 22

ITEM 4

Note on Export Issues for Mangoes, Citrus and Dairy

Smallholder farmers are not normally directly involved in export. However, there are several indirect linkages where increased export can positively impact smallholder livelihoods, and for this reason the export issues are seen as relevant to this project. For perishable products (like mangoes) increased exports will mean this export product is not sold in the local domestic market, which will mean that there is unsatisfied demand in the market for local supplies. This may have an indirect impact on smallholders in terms of the local domestic market price which maybe higher than otherwise if the export had not occurred. Thus increasing exports may have the effect of supporting a higher local domestic market price to the benefit of smallholders. Exports are associated with high quality control arrangements, accreditation requirements, and traceability which are not normally the province of smallholders. Our survey of smallholder farmers confirms that none of the respondent smallholder farmers were exporting directly, although they may be exporting indirectly through contactors handling their fruit. The survey also confirms that the major source of information (by far) for smallholders is other farmers themselves. There is a strong demonstration effect between farmers. Thus, if there are increased exports from within a region there will be an increased demonstration effect to non-export farmers to consider exporting. Therefore an initial increase in exports may also encourage nearby farmers to export. Our survey also reported a high willingness of smallholder farmers to participate in group activities that may assist them in increasing their incomes. This suggests there may be scope to foster group selling or some co-operative arrangement to enable smallholders to participate in export. Within the survey of smallholder mango and citrus growers in Punjab, a small 12% of citrus growers and 10% of mango growers stated they expect their future fruit selling arrangements to change over the next two to three years. In most case for those farmers that stated they expect changed selling arrangements, this was due to them expecting to participate in export in coming years. This suggests there is a small percentage of smallholder farmers already anticipating to participate in exports in coming years. The global markets for mangoes, citrus and dairy are all growing steadily and Pakistan is either exporting very little (dairy) or exporting a relatively small amount of citrus and mangoes (in season only). The analysis below shows that opportunities for further export abound for Pakistan. The questions for government policy are how to take advantage of these export

opportunities and how to ensure some of these benefits flow through to smallholders. The analyses summarised in the Attachment to these papers demonstrate recent global trade performance in mango and citrus and to a lesser extent dairy, and Pakistan’s current role in the global market. The analyses highlight: The limited export performance of Pakistan’s

mango, citrus and dairy sectors.

Potential markets for consideration to further develop Pakistan’s exports.

Potential export gains of further processing of mangoes and citrus prior to export. This has the potential to use lower quality fruit, that is more the product of smallholder farmers, and also enables export of these perishable products for twelve months a year. Currently Pakistan is limited to in-seasonal exports.

For mandarin exports, there is also the danger of Pakistan relying too heavily on the large Russian market given the current geo-political climate associated with Russia. There is a need to diversify Pakistan’s mandarin exports and there are several potential markets identified in the analysis.

Some further analysis is available on the project website at http://www.vises.org.au/projects/growth.htm, and more detailed information is available on request.


ITEM 5 Paper 1 Extension Services 23

PAPER 1

Extension Services

February 2015

The context The aim of this project being to develop options for enabling policies for the benefit of smallholders in dairy, citrus and mango in Punjab and Sindh, several policy related constraints are being considered, including extension services for the smallholders. In the light of the information summarised in this note, a number of policy related issues have emerged and are presented below for discussion with and guidance from the Project Coordination Committee. Most developing countries face the challenge of making agricultural extension services more accessible to all farmers, large and small, men and women, rich and poor. Agriculture in the future will be more reliant on modern technologies, innovations and intensification – instead of increasing cultivated area or using more natural resources. Agricultural technologies and innovations are continuously changing, and the farmers need to be resilient to adapt their farming practices and techniques to enhance productivity. In this context, effective extension services are a crucial institutional input for equipping farmers with agricultural education and training for making them more innovative and productive. By the same token, ineffective extension services can end up being wasteful without achieving their objectives. As far as small holders in horticulture and dairy are concerned, extension services in Pakistan leave a lot to be desired. Current organisation of extension services Extension services in Pakistan are the responsibility of provincial governments. In 2001, the devolution of power plan brought further changes in the organisation of agricultural extension services and the district administrations were given a greater role in the planning and execution of development projects. Each province has its own model of administration of extension services. Pakistan maintains a well-organized work force for both crop and livestock sector. There are about 8842 personals engaged in extension activities in the crop sector in the whole of Pakistan. The workforce for livestock is around 10,171 (Afzal 2011). In Punjab, the main objectives of the Office of the Director General (Agri. Extension and AR) are: transmission of modern agricultural technologies

and techniques to the growers; ascertaining the problems of the growers relating to

crop production and conveying these to the attention of the Research Wing of the provincial government;

Policy issues

How should the current system of extension services be improved?

How should extension services be made more demand driven?

How should the targeting of extension services on smallholders be improved?

How should linkages between extension services, agriculture universities and research institutes be improved and institutionalised?

How should the morale and motivation of the extension services workforce be raised?

How should the performance and the image of private sector extension services be improved?

How should the intrinsic organisational weaknesses of the public sector extension services be improved?

demonstrating new varieties and techniques by

laying out demonstrations plots; propagation of pedigree nursery plants of fruits at

government nurseries for distribution to growers; laying out orchards, model farms and budding of

fruits; assisting crop reporting services in conducting

surveys, collection of data, and helping farmers in taking remedial measures against pest attacks; and

organising fruit and vegetable shows, exhibitions and melas.

In Sindh, the Agricultural Extension wing of the provincial Department of Agriculture, Supply and Price is responsible for carrying out extension-related activities. The main functions of agricultural extension services of Sindh include, ‘... to advise/educate growers /farmers in modern crop production practices and technologies, so as to increase farm production and improve yield per unit of area. To achieve this goal, the Agriculture Extension Workers are performing their duties to disseminate the timely seasonal information amongst the growers for cultural practices; proper seed requirements, timely sowing, balanced and efficient use of fertilizers, efficient/judicious use of irrigation water, pesticide use, effective crop management, harvesting, threshing and storage/marketing etc.’. For the livestock and dairy subsector, the Livestock and Dairy Development Department (in Punjab) has two Directors-General – one for Research and one for Extension. The Directorate General (Extension) has several Directorates. After the devolution of power in 2001, the district level offices of the Department of



Agriculture got more autonomy. The District Coordination Officer (DCO) is the top level bureaucrat who reports to the elected representative (District Nazim). The set-up for livestock and dairy is again slightly different in Sindh, where a Director works at the division level and Deputy Director at the district level. The Livestock, Dairy and Fisheries Department has more or less the same structure as the Department of Agriculture at district level, supported by the District Livestock Officers (DLOs) and Veterinary Officers. Mixed impact of devolution Having analysed the impact of the decentralised extension system in Punjab, Sipra et al (2006) found that devolution had increased interaction between officials and farmers and improved the monitoring of services. At the same time, many weaknesses of decentralisation were also pointed out, including the undue influence of local politicians in administrative matters, such as in the transfer and promotion of the extension staff, and unclear or incomplete rules and regulations following devolution. Another study by Khan (2006) also concluded that ‘though the district is made a focal point for planning and implementation, the inter-district linkages have weakened. It may also be fair to say that the district has now become isolated, as it does not have any linkage with other districts even within the same province’. Performance of public extension services Public extension services in Pakistan have been generally not successful in dealing with the site-specific needs of the farmers. While the overwhelming majority of Pakistan’s farmers are smallholders, extension services in the public sector tend to target large- and medium-scale farmers. Consequently, small farmers mostly depend on private companies for agricultural information, which are inclined to promote their own products and business. Burton et al (2012) argue that agricultural extension services in Pakistan are outdated and that lack of coordination between agricultural universities and research institutions and extension is a major weakness of the current system. Formal linkages within the provincial wings of the Department of Agriculture do exist officially, but are not effective. Within the Department of Agriculture, coordination between the Extension and Adaptive Research wing, and the Directorate of Agriculture Information and district governments has been found to be ineffective (Siraj 2011). Private sector involvement The involvement of the private sector in agricultural development is a relatively new development that has occurred in the wake of the recommendation of the National Commission on Agriculture in 1988. In light of the recommendations of the Commission, agricultural

input supply agencies – predominantly international pesticide and fertilizer enterprises – began to take part in the extension work as well as in selling agricultural inputs. Now, almost all major private national and multinational companies engaged with agriculture- and livestock-related businesses are also rendering advisory services to their clients in respect of plant protection (by pesticide companies), seed variety introduction and adoption (by seed companies), crop/plant nutrition (by fertiliser companies), and dairy (by national and multinational dairy companies). Inadequate focus on horticultural crops Horticultural crops (fruits, vegetables, flowers, medicinal plants) are now gaining more and more attention from agricultural extension services around the globe because of the higher profit margins. However, the main focus of extension services in Pakistan remains on traditional crops and there is insufficient attention on the needs of horticultural farmers. Conclusion In conclusion, there are many intrinsic weaknesses of public extension services. For instance, lack of extension workers and low extension worker to farmer ratio, poor incentive mechanism, lack of specialized knowledge and on-job trainings and absence of an effective M&E system are some of the main hindrances identified in this paper. An extension system that could promote sustainable agriculture and address the rural development issues is in dire need. Agricultural extension can play an important role in rural development. An extension system will have to move from the narrow focus on technology transfer to a knowledge-based extension philosophy. A systematic and research-informed series of actions is needed in this regard, ranging from better flood management systems, improvement in infrastructure, and climate change adaptable farming and cropping systems. Lack of effective institutional linkages between different stakeholders (public, private, research, education and NGOs) is a major factor hindering the effectiveness of extension services in Pakistan. Weaknesses of the private sector model Although large private companies have well developed systems of in-service training of their field staff, the skills and competencies of private sector extension staff have not impressed farmers, who often perceive the extension field staff of private companies as incompetent (Ali et al. 2011). Besides, the private sector extension services by themselves are not likely to provide a solution to Pakistan’s agricultural problems, particularly in reaching out to the smallholders and the resource-poor farmers (Davidson, 2002; Abbas 2005) and therefore a public extension service must be



strengthened to play the leading role in collaboration with other stakeholders. Human resource issues Several researchers have labelled the extension system of Pakistan as top-down, supply-driven, male-farmer focused, and large-farmer oriented (Burton 2012; Khan 2006). Limited numbers of field extension staff are expected to support vast numbers of farmers across large geographical areas. Each Agriculture Officer (AO) who is at the front line of extension services at the Markaz level has to look after on average 30-40 villages. In some districts, there are more than 60 villages under the domain of an AO. Multifarious tasks – like election duties – are often given to the extension officials even when such tasks are irrelevant to their profession (Shahbaz and Ali 2011). Under these conditions, it is almost impossible for the AOs to visit every village during the busy cropping season when their professional services are most valued. A career development path for extension workers is unattractive with very slow promotion, minimal benefits and lack of rewards (Burton 2012). Absence of an efficient monitoring and evaluation system at the lower tier of extension set-up is another intrinsic weakness hindering the effectiveness of the public extension system in Pakistan. To become more effective, Pakistan’s extension services will need to grow beyond the narrow focus on technology transfer into a knowledge-based extension philosophy. A systematic and research informed series of actions is needed in this regard, ranging from better flood management systems, improvement in infrastructure, and climate change adaptable farming and cropping systems. Lack of effective institutional linkages between different stakeholders (public, private, research, education and NGOs) is a major drawback hindering the effectiveness of extension services in Pakistan. Field study (preliminary) findings Among the Punjab dairy farmers surveyed, 76% said they had never used extension services at all. This situation is worrisome, because 99% of these farmers also have no formal training in dairy or livestock farming and they never access any government information on the media. Among the citrus farmers surveyed, only 14% said they regularly used extension services, 26% used them infrequently and 60% never used extension services. Once again, most of them (91%) had no formal training about citrus farming or about any other income generating activities. Only 15% said that they accessed government information programs on citrus production and marketing.

India’s reforms of its agricultural extension services As in Pakistan, Indian agriculture and agricultural extension services are the responsibility of the state governments. However, the central government of India is also involved in providing an overarching perspective and strategic leadership in this field. The central government’s initiative of setting up the Agricultural Technology Management Agency (ATMA) in 1998 as a pilot project was adopted nationwide in 2007, and provides a model for states to develop their own models, with or without private sector/NGO partnerships. Thus, India still has decentralised model of extension services, but it is a model that has benefited from central government’s leadership and financial support. The following observation by IFPRI (2010, p. 29) in a recent review of India’s extension services should be of interest to Pakistan’s aim of reforming its agricultural extension services, ‘if extension is to remain relevant in India, particularly for marginal and smallholder farmers in rain-fed regions, it needs to evolve to provide a diverse set of services that support agricultural livelihoods, offering relevant technologies that are integrated with appropriate services’. Agricultural extension should also support and address relevant areas beyond the farm, such as storage, processing, market access and trade, agribusiness management and entrepreneurship, natural resource management, and issues related to women. Within the paradigm of innovation systems, extension agencies can act as innovation intermediaries or innovation brokers, working with many partners to strengthen linkages and provide support for innovations. There must be innovations in extension delivery that embrace different methods and offer flexible adaptations to cater to the needs of users across states, regions, and communities. Extension must be able to respond to emerging issues in agriculture. Content needs to be part of an integrated knowledge system in which all actors in the food and agriculture value chain collaborate, contribute knowledge, and share the knowledge among the users. Following CGIAR (2014), agricultural extension and advisory services (EAS) can be defined as systems and mechanisms for building the capacity of smallholders in the context of a rapidly changing agricultural information flows, technologies, processes, markets and consumer tastes. The need for these services is even greater for smallholders and women who face additional challenges in accessing and adapting to new flows of information that have the potential to raise their productivity and improve their livelihoods. There is also evidence that while rates of return to agricultural R&D are high, strongest productivity growth has occurred in those countries that simultaneously invested heavily in R&D and extension services. In Pakistan, in the past, agricultural R&D has been focused on major crops, and livestock and horticulture have been relatively neglected.



Recognising the need to move away from supply-driven to demand-driven innovation, some countries have taken steps towards a more inclusive, interactive and participatory approach to both R&D and EAS. In an attempt to make its extension services more demand-driven, India is seeking to further deepen its model of decentralisation of extension services by involving village-level governance bodies (Panchayats) in the supervision and evaluation of extension service staff. This aspect of India’s experience appears to be in contrast with Pakistan’s experience, where decentralisation of extension services does not appear to have worked well.

For more information contact:

Professor Peter Sheehan Victoria Institute of Strategic Economic Studies

Victoria University, Melbourne Email: [email protected]


ITEM 5 Paper 2 Smallholder Access to Credit 27

PAPER 2

Smallholder Access to Credit

February 2015

The context As observed by the Planning Commission (2009) adequate availability of credit to all farmers is a precondition for the increased use of modern inputs such as fertilisers, improved varieties of seed and modern technologies. However, in reality most credit surveys show that farmers remain credit-constrained. State Bank of Pakistan (SBP) figures show that while Rs 389 billion had been disbursed by June 2014, surpassing the target of Rs 380 billion, the banks’ credit to agriculture has been around 5.7% of the banks’ total advances. The problem is especially serious in the case of small and marginal farmers. ‘The under-pricing of credit in earlier years was a factor in limiting the outreach of credit to medium and large farmers who had acceptable collateral and had a clout to engage in corrupt practices with credit agencies. There is a need to ensure the access of small farmers and marginal farms to credit of different maturities’ (SBP 2014). Current situation Agricultural credit in Pakistan is provided by a combination of two specialised public sector banks, five major commercial banks and 14 domestic private commercial banks. Annual targets for agricultural loans are set by the National Consultative Council, on the recommendations of the Agricultural Credit Advisory Committee (ACAC). Total yearly flow of agricultural credit in Pakistan increased at average annual rate of 23.6%, from Rs 32.6 billion in 2000-01 to 263.0 billion in 2010-11. After allowing for inflation, in real terms, this equated to average annual rate of growth of 11.3%. In real terms, the annual flow of agricultural credit peaked in 2007-08 and has been declining each year in subsequent years. During the ten-year period ending in 2010-11, a major change has occurred in the sources of formal agricultural credit in Pakistan; the combined share of the two specialised banks in total agricultural credit fell from 73% in 2000-01 to 27%, whereas the combined share of commercial banks rose from 27% to 53% and that of the domestic private banks increased from zero to 19%. During the same ten years, formal agricultural credit per acre of agricultural land also peaked in 2007-08 and has declined every year since then. The same is true of agricultural credit as a share of agricultural GDP, which peaked at 10.5% in 2007-08 and then fell every year to 7.1% in 2010-11 (lower than it was in 2004-05).

Policy issues Should agricultural credit policies (and targets) be

made an integral part of a broader national strategy for uplifting the smallholder farmers’ livelihoods?

How should the imbalances in the current credit disbursement policies (e.g., crops vs horticulture; rich vs poor farmers; agriculture vs livestock and dairy) be addressed?

How should credit policies meaningfully and effectively take into account the changing nature of modern value chains and the need for building the capacity of men and women smallholders to successfully participate in these markets by meeting their food safety and consistency standards?

How should smallholders be provided with innovative and effective market-based risk management options, including weather index insurance?

How should bank lending procedures be made less cumbersome and daunting without compromising financial prudence?

In 1995, caps on maximum lending rates were removed, and in 1997, minimum lending rates were also deregulated. Currently, lending rates for agricultural credit vary between 9% and 24%. In our field studies in Punjab and Sindh, most respondents reported lending rates of 17-19%, and only a few reported taking these loans. Most respondents reported that they relied on informal credit sources where rates of interest are lower – even though there are other restrictions that go with such credit (e.g., selling produce to lenders at concessional prices). Unmet demand for agricultural credit Dr Masood Bakhtiar Siddiqui (2011) reported that a major problem in Pakistan is the small pool of credit available for agriculture (and livestock and dairy). In spite of contributing 21% of Pakistan’s GDP, agriculture sector received only 8% of total credit disbursement in each of the three years to 2009-10. Furthermore, the share of non-farm sector (including livestock, dairy, fisheries, and horticulture) in agricultural credit is also disproportionately small. For example, in spite of having 60% share in agricultural GDP in 2010-11, the share of non-farm sector in agricultural credit was only 31% of the national total. According to Siddiqui, smallholders are receiving a major proportion of agricultural credit disbursement. For example, more than 85% of total borrowers in 2009-10 were smallholders (with land


ITEM 5 Paper 2 Smallholder Access to Credit 28

holdings less than 5 hectares), who together received 59% of total credit disbursement in that year. Dr Aamer Irshad (2012) estimated that the availability of agricultural credit in Pakistan fell far short of the total demand; for example, availability of credit in 2010-11 fell short of total demand by Rs 416 billion (61% of total demand); and that ‘collusion of large farmers with the bank generally results in credit appropriation to non-eligible groups, defeating the purpose of disbursement of under-priced credit meant for the small farmers’. Dr Khalid Bashir (UAF 2014) finds that out of the total credit disbursed in 2010-11, 24% was advanced for purchases of seeds/seedling and only 9% for dairy farming in Punjab. The corresponding shares in Sindh were 26% and 6%, respectively. The share of major crops is the highest in the loans extended for seeds/seedlings. Pakistani farmers have less access to institutional credit. Siddiqui (2013) reported that on average Pakistani farmers are getting 75% of institutional credit compared with their Indian counterparts, but are also paying higher interest rates. Smallholders’ reliance on informal credit There is overwhelming evidence in India and Pakistan that smallholders are not able to access agricultural credit from formal channels and that there is a need to encourage the banks to expand agricultural credit, especially to small farmers (Khan 2012). While the gap in total available agricultural credit is high, access to it is denied to most of the smallholders. For the smallholders, as much as 70% of demand for credit is still met by the informal sector. The lenders in the informal sector may not like repayment (of the loan) in cash and may make forward purchases of the crop at a rate of their choice, much less than the prevailing market rate. The lenders also exert social and political pressure on the borrower at the time of elections or other such social events (Irshad 2011). Lack of credit makes smallholders more risk averse in adopting new technologies, crops and processes. For example, the proportion of smallholders not using fertiliser is much higher (up to 3 times higher) than the large holders, because fertiliser prices are high and credit is not available. As suggested by Irshad (2011) above, many other experts also argue that the rural credit market is not independent, but is closely interlinked with rural labour market and product markets. For example, Basu (1983) and Shami (2012) suggest that in rural India and Pakistan, reliance on informal access to credit (from the landlords, contractors or merchants) also ties the borrowers to sell their labour and agricultural produce (milk, vegetables or fruit) to the creditors at concessional prices.

Field studies (preliminary) findings Access to affordable credit is an important constraint for 81% of smallholder respondents in the field study of Punjab dairy farmers, but only 53% said that they used credit. Of those using credit, 88% were getting credit from informal sources, i.e., friends and relatives, or contractors and input suppliers. Also: 76% were using credit for farm related inputs; 94% of respondents consider that prices of better breeds of animals are too high for them to afford; and 75% of respondents said that prices of feed and fodder are too high. Among the citrus producing households surveyed, access to affordable credit was reported as ‘important or very important’ constraint by 60% of households, but only 37% said they were using credit, 77% of whom relied on informal sources of credit. Of those who did not use credit, 54% said this was because either interest rates were too high, or they had no collateral, or they found paperwork for loans too complicated; and 77% of those using credit were using it for buying farm relating inputs. Among the Punjab mango farmers, 55% said that they do not use credit. One-half of these said this was because interest costs of borrowing were too high. One-fifth did not borrow because they had no need, while one-tenth did not borrow due to lack of collateral. Three-fourth of those who do use credit use it for mango farming inputs, while 15% of the rest use credit for non-mango farming inputs. Only a small proportion reported using credit to pay for family medical needs or a wedding. Selected references FAO (2012), Sustainable Agricultural Productivity Growth and Bridging the Gap for Small-Family Farms, Interagency Report to the Mexican G20 Presidency. Irshad, A (2012), Pakistan Journal of Agricultural Economics, vol. 11, April-June 2012, pp. 27-47. Sardar Ali Khan (2012), Pakistan Journal of Agricultural Economics, vol. 12, July-September, pp. 18-31 Siddiqui, Masood Bakhtiar (2011), Agricultural credit review, Pakistan Journal of Agricultural Economics, vol. 9, pp. 34-58.

For more information contact:

Professor Peter Sheehan Victoria Institute of Strategic Economic Studies

Victoria University, Melbourne Email: [email protected]

.


ITEM 5 Paper 3 The Role of Smallholder Cooperatives and Networks 29

PAPER 3

The Role Of Smallholder Cooperatives and Networks

February 2015

The context Smallholders in Pakistan are defined as those with less than 5 hectares (12.5 acres) of farmland. According to this definition, in 2010 there were 7.5 million smallholders households involving 56.4 million people, or 87% of all individuals in farm households. Many of these farmers are subsistence or marginal farmers who are either not connected with markets on a regular basis or are disadvantaged because of the multitude of constraints facing them in accessing markets, formal credit, farming inputs, technologies and extension services. Demand for horticultural, poultry and dairy products is increasing rapidly as a result of growing incomes and rapid urbanisation in many developing countries, including Pakistan. Meeting this demand requires further increases in production of these commodities, requiring in turn increasing productivity in these sectors by harnessing the economies of scale to enable farmers to apply new technologies and utilise the results of agricultural research and development. At the same time, supply chains for these products are rapidly being transformed by the growth of urban supermarkets chains that directly procure large quantities of fresh milk, fruits and vegetables. Premium is paid in these markets for timely delivery of consistently high quality goods. Indeed, in some cases, supermarket chains are engaging in contract farming to procure supplies directly from farmers to by-pass traditional market intermediaries. This changing landscape of dairy and horticultural products poses certain challenges for the future of smallholder farmers. Some experts believe that smallholders will find it difficult to successfully engage in the new supply chains and would need to exit out of agriculture. Others argue, however, that that smallholder agriculture is more efficient in labour incentive farming (such as livestock and dairy, horticulture, and poultry) because the use of family labour minimises the cost of supervision, and suggest that smallholders can also harness economies of scale by adopting new organisational forms, such as cooperatives, networks and contract farming. This latter view is based on both theoretical and empirical support from the successful experience of many developing countries in this regard. Ahuja et al. (2012) believe that various forms of collective action can improve market access and productivity of smallholder producers by enhancing their bargaining power in the markets, by creating new opportunities for improving their management skills, and by facilitating access to higher quality and more reliable inputs and services. These

Policy issues Would smallholders’ cooperatives (e.g., for

marketing, securing credit, or extension services) be helpful in uplifting the production and profitability of smallholders in livestock and dairy, mango and citrus subsectors?

How should such cooperatives be developed on a sustainable footing?

Should the national government initially select a few pilot projects for learning by doing before adopting the successful model more widely?

How should all stakeholders (e.g., farmers, NGOs, universities and international agencies) be involved in the development and management of cooperatives?

Would it be worthwhile to consider the recommendation of the Panel of Economists (Planning Commission 2010) for establishing a Smallholders Development Corporation?

authors cite several models in the Asian countries for smallholder networks, including the Dairy Development Zones in the Philippines, the Anand model in India, the strong role of cooperatives in Thailand and Bangladesh, the third party milk collection stations in Inner-Mongolia/Heilongjiang (China), and the strong dairy development through government support (down to local levels) in Vietnam that is supported by privatisation of markets. The Working Group on Agricultural Market Infrastructure and Post-harvest Management (Planning Commission 2009) was also critical of the lack of progress in Pakistan in respect of farmers’ cooperatives and recommended that the successful model of Nestle in Pakistan and Amul in India should be studied and adopted for developing more farmer cooperatives. Many experts agree that farmers’ cooperatives can reduce costs of compliance with SPS requirements and increase the knowledge of smallholders about markets, prices, credit availability and on-farm best practices. Indeed, some even suggest that knowledge of SPS requirements should be propagated among farmers, handlers and across the entire supply chain through cooperatives (e.g., Thapa 2009). For the supermarket chains, dealing with a large number of smallholders for quantity and quality of milk would be a costly exercise, but dealing with the same group through a cooperative would be a lot less expensive. This saving in transaction costs creates a powerful incentive for supermarkets to also become involved in promoting the formation and sustainability of farmer cooperatives.


ITEM 5 Paper 3 The Role of Smallholders’ Cooperatives and Networks 30

Need for Government support However, this is unlikely to happen in the absence of explicit policy support and public investment in marketing infrastructure and in the provision of technical and business advisory services. As emphasised by Hazell et al. (2007), if smallholders are to survive and prosper, the governments must support them in joining modern supply chains and to obtain farming inputs, credit and technical knowledge. Staal et al. (208) note two successful cases in Pakistan, one that started in the public sector and the other in the private sector. The first case was a dairy development project that was started in 1983/84 in Punjab under a joint project run by the Punjab Provincial Livestock Department and the German Technical Co-operation programme (GTZ). The project promoted adoption of improved breeds through AI, improved fodder, health improvement, and milk collection and processing for the urban market. In 1992, the project formally became a farmers’ cooperative under the Societies Act of 1980 and was named Idara-e–Kissan (IK). The cooperative society started its development and operational activities under the Halla Union Council and later used ‘Halla’ as the trade name of all its milk products. The IK is said to be a major force in Pakistan’s pasteurized milk market. The second case refers to the initiative of Nestlé (Pakistan), a subsidiary of the multinational Nestlé, which dominates the UHT milk market in Pakistan. In recent years, the Pakistan government has implemented several initiatives, some of which are directed at supporting the livelihoods of landless tenants and smallholders. These include: the distribution of government land to landless tenants; the distribution of livestock to landless tenants and smallholders; the establishment of the Livestock and Dairy Development Board (LDDB), the Pakistan Dairy Development Corporation (PDDC), the Punjab Livestock and Dairy Development Board (PLDDB); the introduction of the Benazir Zarai (Agriculture) Card Scheme to support small farmers by easy access to funds by using this card as an ATM Card; and the Disaster Management Support following the floods in 2010 and 2011. Field study (preliminary) findings Our field studies in Punjab and Sindh do not indicate, however, that the smallholders’ plight has improved. A dearth of farmers’ associations is revealed by these studies. At the same time, however, the field studies revealed heavy reliance on informal lending among farmer households at zero interest rate within the villages. This demonstrates that local community spirit and solidarity is high. Farmers’ associations and cooperatives are more likely to emerge in this type of environment when local groups have to interact with one another, both spatially and up and down the supply chains. This strong interaction may be an indication that the ground is ready for progressing towards formal

cooperatives if the initial Government support and leadership is forthcoming. Dairy cooperatives in India Like Pakistan, smallholders also dominate milk production in India. These small farmers traditionally did not have access to organised markets. The development of dairy farmers’ cooperatives has proved to improve their access to milk markets. Amul is the biggest dairy cooperative in India, based in Anand (Gujarat). Starting with two village societies and 247 litres of milk collection per day, the movement grew and, in 1973 the Gujarat Cooperative Milk Marketing Federation (GCMMF) was established as an apex organisation responsible for marketing the milk and milk products of cooperative unions in the state of Gujarat. In the 1980s, the word Amul was converted into a brand. Currently, in the state of Gujarat, Amul produces 10.16 million litres of milk daily, which is collected from 2.7 million farmers, processed through 30 dairy plants, and distributed through 500,000 retail outlets. The Amul model became so successful that it was replicated in the 1970s, after the government recognised the importance of milk cooperatives as a means of promoting socio-economic development in rural areas while simultaneously increasing milk production in India. The National Dairy Development Board (NDDB) launched the Operation Flood program (OF) in 1970 to create a nationwide milk grid. Since then, an eleven-fold increase in the number of dairy cooperative societies and an eight-fold increase in their membership have been recorded. In 2010, cooperatives had about 14 million farmer members, including about 4 million women, spread over 140,227 village cooperative societies in about 350 districts. During this period, annual milk procurement by cooperatives increased more than ten times, from 935,000 tonnes to 9,441,000 tonnes. Milk procurement by cooperatives accounted for about 3 per cent of total production in 1980-1981. In 2010, milk procurement by cooperatives accounted for 8.4 per cent of the milk production, and about 15 per cent of the marketed milk surplus.

For more information contact: Professor Peter Sheehan


Email: [email protected]


ITEM 5 Paper 4 Access to Markets 31

PAPER 4

Access to Markets

February 2015

Food markets and government policies Producers and consumers rarely meet nowadays at the same place, but are always connected by markets. Markets represent, therefore, both an institution and a mechanism for exchange between producers and consumers. In the process, markets provide employment and income to various layers of intermediaries who provide a variety of services in the markets (e.g., packaging, transporting, storage, quality assurance, insurance, etc.). Successful markets need Government support for the development and administration of markets in the form of physical, legal and administrative infrastructure for effective functioning of the markets. The Noble Prize winning economist Amartya Sen published in 1976 his research on the Bengal Famine of 1943 in which some 3 million people (out of total population of 60 million) had died (‘Famines as failures of exchange entitlements’, Economic and Political Weekly , vol. XI, nos 31–33, pp. 1273–1280). Sen concluded, with supporting statistics that the famine was caused not by shortage of food, but by the failure of markets, which prevented the available food from being supplied to where it was needed. By influencing the terms on which different groups (i.e., smallholders, contractors, commission agents, wholesalers, etc.) participate in a market, government policies and regulations also determine transactions costs of accessing a market, eventually affecting the incomes and livelihood outcomes at both farm and market levels. For example, the fact that growers of mango and citrus receive only less than half of the final price paid by the consumers of their produce is an outcome determined by the current state of market infrastructure and ownership of storage facilities for these commodities. Together with market forces, policy interventions can also determine whether markets develop along an equitable or an inequitable development path. An equitable development path is one in which shifts towards farm and market commercialisation are associated with increased opportunities for alternative employment in off-farm activities, in urban areas and in alternative agricultural enterprises or industries. An inequitable development path, on the other hand, is one in which increased commercialisation at farm and market levels is associated with reduced opportunities and alternatives for small-scale farmers and market agents (Staal et al.2008).

Policy issues How should government policies and regulations

promote the expansion of agricultural markets in Pakistan?

How should capacity of smallholders in particular of women, be developed to enable them to successfully engage in these markets?

Which levels of government should be involved in market development and how should they coordinate their operations seamlessly?

How public investment should be increased in rural roads and irrigation to reduce the impact of these two most important barriers to smallholder participation in the modern supply chains?

What are the best ways of increasing public-private sector partnerships in the modernisation of agricultural market infrastructure, including cool rooms and storage facilities, to reduce Pakistan’s high rates of post-harvest wastage of perishable foods and fruits?

Markets, smallholders and new supply chains Supply chains for food products are becoming increasingly vertically integrated and impose stringent quality standards and strict consistency requirements on producers and suppliers. This transformation of supply chains is occurring due to several factors, including: the growth of urbanisation; the rise of supermarket chains; changing tastes and greater awareness for healthy foods and trade liberalisation (Gulati et al. 2006; Reardon et al. 2009). Supermarket chains also prefer to source their produce from those farmers who have access to irrigation and roads, because both these non-farm assets add to the likelihood of stable supply of produce. Reardon and Timmer (2005, 2009) argue that this so-called ‘supermarket revolution’ requires a new focus in agricultural research and policy formulation, for understanding the influence of a small number of large, multinational firms on the upstream and downstream segments of the agrifood system, on rural economies, and on trade. To successfully compete in the new supply chains, smallholders need support of enabling policies for addressing the multiple entry barriers in accessing investment, technology and markets before for higher productivity can be realised. Even intermediate stages of sector consolidation, such as contract farming, appear to be undertaken at a scale well beyond that of the average smallholder farmer. Nevertheless, urban demand growth for food represents an important opportunity for all food producers, including smallholders, and offers potential for inclusive development. (Lipton 2006)


ITEM 5 Paper 4 Access to Markets 32

The Working Group on Agricultural Marketing Infrastructure and Post-harvest Management (Chairman: Professor Dr Iqrar Ahmad Khan, 2009) observed that while government policies have concentrated on increasing agricultural productivity, agricultural marketing reform in Pakistan has remained neglected and little attention was paid to the development of marketing infrastructure and post-harvest management of agricultural commodities. As a result, poor farm-to-market roads, inefficient factor and product markets, volatile prices, consecutive shortages and hoarding, inefficient storage capacity, poor implementation of grades and standards are some of the prominent challenges which need to be tackled by the government as top priority. The state of Pakistan’s current road network is also inadequate for providing year around services. Seasonally impassable roads or slow and infrequent transport services, coupled with poor storage, lead to enormous losses of many agricultural products, especially the perishables (milk, fresh vegetables and fruits) as they deteriorate quickly resulting in lower prices to farmers. Isolation from markets increases the dependence of smallholder farmers on local contractors and middlemen, who typically exploit the farmers. For example, mango and citrus farmers receive only around 20% of the final price paid by the consumer. The isolation from markets also reduces the flow of information between farmers and markets, adversely affecting their livelihood strategies. Post-harvest handling of milk and milk products is poor. There is a need to develop a cool chain network for milk and related products for realising the full potential of this sector and to enhance consumer welfare. Lack of knowledge of SPS issues in both government and the food supply chains is another weakness of Pakistan’s market-related capabilities, and the skills required to assess SPS measures applied by developed countries are lacking. While food safety and security have become increasingly important issues in the light of trade liberalisation, many food processors and manufacturers in Pakistan lack the requisite know-how and the capacity to meet the new food safety standards. This limits the country’s capacity to export many food products to Europe and other quality conscious markets. Trade development Pakistan is surrounded by a number of large and rapidly growing markets for dairy and horticulture products. The imports of milk and fruits into these countries have been growing strongly and import values have been doubling every four-five years. Yet, Pakistan is currently supplying only 1.4% of these imports. In spite of the significant opportunities offered by the growing external markets for dairy products, mangoes and citrus, export performance of these subsectors remains poor.

Connecting smallholders directly with these markets is likely to be a challenge. But smallholders can benefit indirectly if larger farmers (of mangoes, citrus and milk) are able to penetrate into the foreign markets. This will create extra space in the domestic market for smallholders to sell their produce without reducing prices. Field studies (preliminary) findings Among the citrus farmers surveyed, 71% sell their crop to contractors before harvesting and only 9% sell directly into the market. This seems to be the farmers’ choice, because 93% of them said there was no restriction on how and to whom they sell their produce. It is likely, however, that the farmers’ choice is influenced by the fact that many farmers also rely on the same contractors for credit. Among the Punjab dairy farmers surveyed, only 4% sell into the market directly or through collection centres. The remaining 96% sold milk to either ‘gowalas’ or to local households. More than a quarter of these farmers said they had a restriction on whom to sell milk, and that restriction was due to previously taken credit. Among the Punjab mango farmers, 62% sell through contractors – mostly before, but some after flowering. Nearly one-third of farmers sell directly in the markets. Most farmers are aware of the prices in the markets where their fruit is sold. Most of them also do not think their selling arrangements will change in the next 2-3 years. Selected references FAO (2012), Policies and Institutions to Support Smallholder Agriculture: On removing constraints facing small family farmers, FAO, Rome. Staal S. J., A. N. Pratt and M. Jabbar (2008), Dairy Development for the Resource Poor, Part 3 Pakistan and India Dairy Development Case Studies, ILRI, PPLPI Working Paper No. 44-3. WTO-OECD Aid for Trade Initiative aiming to help develop trade-related skills and infrastructure in developing countries.





ITEM 5 Paper 5 Policy Issues in Dairy 33

PAPER 5

Policy Issues in Dairy

February 2015

The context Pakistan is the 4th largest producer of milk at 40 million tonnes, of which 49% is produced in Punjab province and 38% in Sindh. Nearly 35 million of rural people are engaged in livestock and milk production, but more than one-third of them are poor. Pakistan already has the highest level of urbanisation in South Asia, with some 35% of the country’s population living in urban areas. By 2030, the share of urban population is estimated to increase to 50% of total population (UNFPA 2007). This means that future prospects for Pakistan’s dairy sector are promising if right policies can be put in place to address the multitude of constraints. Already, there has been a rapid growth in peri-urban dairy farming in recent years. Around 30% of household expenditure in Pakistan is estimated to be on milk and dairy products. Dairying in Pakistan is labour-intensive and engages 6.8 million farmers, and thousands of milk collectors, transporters, processors, distributors and retailers. The input and services industry also provides employment to a large number of workers, including in the feed and veterinary supply chain.

The two provinces of Punjab and Sindh together have some 90% of the buffalo population and over 70% of the cattle population. Over 70% of buffalo and cattle are in herds of less than 10 animals. Also, about 70% of households with large ruminants have herds of less than 5 animals, while a further 20 to 25% of households have 5 to 10 animals. A Government regulation, under which keeping animals in urban centres is banned has played a critical role in determining the locational dimension of the dairy industry in Pakistan. The provincial Governments have set aside land for peri-urban milk colonies, which have grown rapidly, especially around Lahore and Karachi in terms of milk production and distribution, as well as fodder and feed suppliers. The peri-urban dairy farms operate under intensive production conditions, with herd sizes that are much larger than on the rural farms. Trade in dairy products Global milk production in 2013 was estimated at 780 million tonnes, of which developing countries account for 51% (FAO 2013). Trade in milk is dominated by developed countries, which account for 79% of milk exports. The limited availability of milk for exports has been pushing up the international price of milk powder. In October 2013, for example, the FAO Dairy Price Index stood at 252 points – 25% above its level a year earlier.

Demand for dairy products is rising strongly in Asia, due to population growth, rising incomes and urbanisation. Asia is expected to remain the main market for dairy products, accounting for some 55% of world imports, followed by Africa, with 15%. Significant additional demand is expected from China, the Islamic Republic of Iran, Singapore, Saudi Arabia, the United Arab Emirates, Indonesia, Japan, the Philippines, Malaysia, Vietnam and Thailand. Demand for whole milk powder has been rising at 6% per annum over the past three years. Role of government Since 2007, the Pakistan government has provided several incentives for the development of the dairy sector, including: regulatory measures for imports of high-yielding animals, semen and embryos for cross-breeding; duty-free imports of veterinary dairy and livestock machinery/equipment (not manufactured locally); zero customs duty on imports of cooling system and milk processing machinery/equipment (not manufactured locally); and exemption from retail sales tax for processed products. The FAO (2011) study draws the following general conclusions about the public programs in Pakistan’s dairy industry: inadequate farmer outreach; short-term focus of initiatives; and lack of coordination between federal, provincial

and local governments. The FAO report also points out that due to Pakistan’s heavy reliance on donor contributions in dairy development projects, when a project is completed and aid is terminated, the future of the initiative becomes uncertain. A related issue is that the Government loses control over the design of the projects.

The focus of policy in Pakistan, according to FAO, should be on breed improvement over the medium to long-term. The FAO report (2011) reveals that although buffalo and cow milk yields in Pakistan are higher than in India, Sri Lanka, Bangladesh and Nepal, animal productivity in Pakistan has not been growing for the past ten years. Cattle in smallholder systems are predominantly indigenous breeds and milk production is generally less than 1,000 kg/lactation, with lactation lengths between 200 and 260 days. The productivity of dairy cattle cross-breeds is far higher than that of local non-descript or pure breeds, with longer lactation periods, higher milk production per lactation and shorter calving intervals. These advantages make cross-bred cattle highly preferred for intensive and semi-intensive dairy farming systems. An average quality cross-bred animal costs almost 40% more than an average buffalo. Semen for cross-breeding programmes


ITEM 5 Paper 5 Policy Issues in Dairy 34

is imported from countries such as the United States, Germany and Australia by private sector firms. Some experts add that policy interventions should also be focused on improving availability of balanced feed and water for the animals. Pakistan’s formulated feed industry is still underdeveloped. Compared with an estimated annual demand of 40 million tonnes, only about 0.20 million tonnes is produced domestically. This feed is also unaffordable for smallholders, and only used by market-oriented dairies, where it is available. Policy related constraints Poor knowledge of farmers: Poor knowledge of

forage production, animal nutrition, health and management, and limited acceptance of better management practices are common. For example, nutritional analyses of local feeds are available and have been used in ration formulation at a research level, but this information is not readily available to farmers. In addition, many farmers have limited knowledge of animal requirements or ration formulation for milk production (Wynn et al. 2006).

Low productivity of animals: In the past ten years to 2011, no change has been observed in annual average yields per cow, although average annual yields per buffalo have increased slightly by 13% (FAO 2011, p. 31). A major cause of the low yield performance is inadequate feeding.

Limited access to credit: The State Bank of Pakistan has set a quota for agricultural lending from a pool of State and private banks. Although the banks have been exceeding their targets in this, several studies have found that the majority of smallholders are unable to access credit from the banks and have to rely on informal sources. Furthermore, only a small proportion of the bank loans (less than 15%) has been utilised for livestock and dairy (Afzal 2006).

Poor access to veterinary services: According to an industry estimate, there are only about 5000 veterinarians in Pakistan for serving the entire livestock population, including 53.9 million dairy animals. This shows that the veterinary sector is severely under-resourced.

Lack of effective veterinary extension services: Skills and motivation of Government extension staff are low. The ratio of households to service providers is extremely high. Mortality rates of animals are high – 20% in rural systems, due to endemic diseases and internal and external parasites, which all present challenges.

Marketing of milk: The traditional supply chain and the chains developed by milk processors were said to disadvantage farmers. The poor distribution infrastructure is a major constraint for developing alternative market outlets for producers in these

areas; the lack of a commercial market outlet through milk companies limits the price received by farmers. Being a perishable commodity, milk requires a good road system and a cold chain system for timely delivery to consumers and processing plants.

Government policy: For many years, Government policy in dairy at national, provincial and district level has been unstable. Public investment in rural roads and irrigation – the two most essential inputs in dairy sector – has been inadequate.

The absence of dairy marketing cooperatives in Pakistan is another issue that needs to be properly examined. Producers of perishable products have limited market power in the price determination process and marketing cooperatives can strengthen the bargaining position of producers. Staal et al. (2008) argue that development of cooperatives should be encouraged with policy support from the government because it will help the development of a more balanced and equitable growth trajectory for Pakistan’s dairy industry by minimising risk, assuring quality, reducing transaction costs of marketing, and paying attractive and stable prices for small farmers. An understanding of the development of dairy cooperatives in India and Australia would be highly beneficial for industry policy makers.

References FAO (2013), Food Outlook, November, Rome. FAO (2011), Dairy development in Pakistan, Rome. Staal, S, Pratt, A and Jabbarm, M (2008), Dairy Development for the Resource Poor, ILRI PPLPI Working Paper 44-3.




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Globally the market declines as the Pakistan supply season progresses. The largest import market (by far) is the USA. However, there are many other countries importing mangoes during the Pakistan supply season, and thus there are many potential export markets for Pakistan. Pakistan mangoes mostly go to the UK, UAE and to a lesser extent elsewhere in Europe and the Middle East. The largest market – the USA – is not currently a major market for Pakistan. China is also not a significant market for Pakistan.

Chart 3 lists Pakistan mango exports and contrasts this against Indian exports. Indian exports are double that of Pakistan and their peak season starts before the Pakistan season. Of importance is that India is able to export throughout the whole year, whereas Pakistan exports only during its peak season. Out of season Indian exports are mostly mango pulp and some dried fruit. This highlights the importance of developing processing options for Pakistan mangoes for potential export. Processed mango pulp is a significant export market for India.

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USA – There were three small shipments from Pakistan in August and September 2011 and again in June 2014 before a larger shipment of 40.5 tonnes in July 2014. Imports from Pakistan are at relatively high prices. On average mangoes arrive in the USA at just over $US 1 per KG. China – The Chinese import market is small but is showing signs of strong growth. Pakistan is a tiny supplier and during the Pakistan supply season, Pakistan is competing against Thailand and Taiwan.

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