Marketing Organizations in Pakistan: What Value Chain Analyses Do - - PowerPoint PPT Presentation

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”

• f

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.