Focus on Pakistan
August 01, 2007
Pakistan may be the largest country in which wheat is the staple food of nearly the entire population. Both China and India produce and consume more wheat, but the southern half of the world’s two largest countries is rice culture.
Pakistan’s recently achieved self-sufficiency in wheat, punctuated by a record crop of 23.5 million tonnes in 2007, is due to abundant water and improved agricultural practices. Of 80 million hectares under cultivation, 80% is irrigated fields, the highest proportion of any large country. Pakistan also boasts the world’s largest contiguous irrigation system, located on the Punjab plain in the eastern part of the country. Completed in the 1970s, the system relies on snow and glacier melt from the Himalayas for two-thirds of its water and on monsoonal rains for the other third. Silting of reservoirs and increased water demand are putting strains on this system, however.
The rise of Pakistan as a wheat exporter is fairly recent, as importation of wheat had been the norm for many years. However, Afghanistan this year the government temporarily lifted a 2-1/2-year-old wheat export ban to allow Pakistan exportation of up to 1 million tonnes from government and private stocks. The ban was reinstated when large milling companies bid up the price of local wheat in order to sell it at high prices internationally. This is an election year and food prices are a volatile issue.
Most of Pakistan’s export wheat ends up in India, which after years of self-sufficiency has re-emerged as a major importer. Due to political tensions, Pakistan’s grain traders sell to companies in Singapore who redirect the shipments to southern Indian states.
RICE TRADE It is rice rather than wheat for which Pakistan has a significant track record of exports. Abundant water permits an annual crop of 5.5 million tonnes, less than half of which is consumed domestically. Annual production has increased by over half since 2000, thanks to better planting practices and improved seed. The country consistently ranks as the world’s fourth-largest rice exporter behind Thailand, Vietnam and the U.S.
Pakistan is particularly known for its aromatic Basmati variety, which will account for 40% of the 3.2-million-tonne export total in the current marketing year. The variety attracts a premium price internationally. So important is the Basmati label that Pakistan has been embroiled in a longstanding trademark dispute with India for the right to use the name internationally. Now the countries are negotiating a joint registration.
FLOUR MILLING Flour milling is divided between industrial mills and village mills, which are known as chakkis. According to Dr. Bilal Sufi, president of the All Pakistan Millers Association, the share of chakki-produced flour has decreased from 40% to 20% in just 10 years time, a trend that is a byproduct of rapid modernization.
The official number of modern flour mills registered in the country is 1,036 with an installed capacity of 180,000 tonnes per day. However, the actual grind is only 40,000 tonnes per day. At least 250 of these registered mills have shut down more or less permanently, according to Dr. Sufi, who maintains that 400 mills would be more than sufficient to supply the country’s wheat flour needs.
The mills are independently owned and range from 150 to 300 tonnes per day in size. There are just a few companies holding more than one mill, with the biggest milling group consisting of five mills.
Most mills now use locally manufactured equipment, but plansifters, purifiers and roller mills continue to be imported.
Certain consumer trends have helped to increase the share of industrially milled flour. One is an increasing preference by urban dwellers for western-style loaf bread over flat bread. Another is preference for commercially milled flour over the chakki home-ground variety. Modern lifestyles are increasing the demand for convenience foods, and hence for low-extraction flour originating from modern mills.
The milling industry is well organized into a national millers association that is made up of four provincial associations. The largest is Punjab province, which counts 600 flour mills.
Pakistan has also positioned itself as the seat of a regional millers group called the Indo-Pak Flour Mills Confederation. Founded in 2004, the association primarily consists of mill representatives from Pakistan and India, and provides a forum for technical cooperation. One focus has been research directed to their respective governments about the unhygienic nature of high-extraction flour, known as atta, milled in chakkis. The association is attempting to recruit a wider membership from other countries in South Asia.
Pakistan’s millers have benefited to some extent from the pervasive climate of economic liberalization in the country. The entire grain industry has been mostly free of rigid government price controls for many years.
However, the government still buys 1.3 million tonnes of wheat per year from farmers, and holds significant wheat stocks at the provincial level. According to Dr. Sufi, by supplying quotas of subsidized wheat to nearly all operating mills, government intervention allows far too many mills to continue in business, leading to excessive competition and the general lack of profitability in the industry.
Still, the mostly deregulated environment has led to investments in grain storage and handling, improving efficiency, reducing losses due to spoilage and adding to the surplus for export. Sufi estimates that the 10% to 15% of the largest mills now make use of steel silos for bulk wheat storage in place of godowns stacked with bagged grain. If it were not for the uncertain market environment created by government intervention and subsidized supply, more millers would invest in bulk wheat storage, Sufi maintains.
Farm supply to mills is still almost entirely in gunny sacks, which are provided by the government wheat purchasing agency for its portion of the crop.
Pakistan has a long history as a source of wheat flour for Afghanistan, even when Pakistan has had to import wheat. There are no official data on this trade, which passes through multiple points in Pakistan’s tribally controlled northwestern frontier region and is not subject to customs controls. Local officials estimate the cross border trade at 1,000 tonnes per day.
FEED MILLING AND OILSEEDS A modern poultry-based feed milling industry is rapidly taking shape. Compound feed output now exceeds 3 million tonnes, while poultry production has more than doubled in the last 10 years.
Demand for dairy products has also increased with rising incomes. Pakistan imports 25,000 tonnes of milk powder at an annual cost of $400 million, and so the government is attempting to stimulate a modern dairy industry. The country already ranks as the world’s fourth-largest milk producer, but this involves mostly backyard production.
While broken rice and feed grade wheat are available, the country is short of yellow corn and protein meals for animal feed production.
In response, sunflower and rapeseed are being planted at an increasing rate. The crops more than quadrupled from 2001 to 2005 but still are less than 1 million tonnes. The deficit in edible oils is more the target of this production, as the country must import 70% of its vegetable oil requirement, making it the largest category of import after energy. Pakistan ranks fourth in edible oil imports.
Irrigation systems can be used for many crops with higher value than grain and oilseeds. Recently, the Pakistan government announced plans to create an infrastructure for greater vegetable and fruit production. That would help raise farmers’ incomes and satisfy demand from urban consumers for richer and more balanced diets.
Annual per capita wheat consumption has already fallen from a peak of 140 kilograms (kg) to 120 kg. This can be taken as a positive indicator of economic development and the trend should continue. With the need to make room for more horticultural crops and oilseeds, rather than export its surplus wheat, perhaps Pakistan will just grow less of it.
David McKee is a grain industry consultant providing market research and other services to companies seeking to initiate business in new markets. He can be reached by e-mail at email@example.com.