Agriculture marketing includes all the processes, channels and services involved in moving an agricultural product from the producer to ultimate consumer. This system comes some problems at different levels of production and selling.
Agricultural Marketing Systems
In Pakistan, the agricultural marketing system is predominantly a private sector activity. The provincial food departments and a parastatal, the Pakistan Storage and Supplies Corporation (PASSCO), are responsible for procuring wheat up to a target amount, after which the private sector may procure wheat.
Similarly, the Trading Corporation (TCP) of Pakistan, under the federal Ministry of Commerce, on advice from the Ministry of Food, Agriculture, and Livestock (MINFAL), imports wheat, fertilizers, and occasionally other food commodities such as sugar and pulses.
At the retail/wholesale stage the factor and product markets are linked. The pivotal market functionary, the commission agent (arhti), acts as input supplier (dealer and wholesaler) and produce purchaser.
The agent also provides inputs on credit to regular customers, both for production and consumption needs, farmers pay an exorbitant implicit interest rate. Though the agent is providing important services, the service charged is exploitative though justified on the basis of risk.
Agricultural inputs include seed, fertilizer, and agricultural mechanization. Most hybrid seed in Pakistan is imported. Local seed is often of low quality yet Pakistan has no AEZ restrictions to be self sufficient and export seed.
Public sector research is increasingly unable to deliver new varieties commercially acceptable to growers. Parastatal and government participation in the seed market complicates market signals as their poor quality seed is sold below real costs and without profit.
Farmers generally retain cereals seed from previous crops or purchase it from fellow farmers, wholesalers, or commission agents. Wholesalers provide seed either from the previous crop stocked by them or as dealers on behalf of seed companies—national and multinational seed companies as well as the public sector provincial seed corporation.
Both the private and public sectors are involved in seed marketing. About 600 registered private sector seed companies import or produce oilseed and vegetable seeds and market them; multinational seed companies deal mainly in hybrid seed, although recently, a national company has also started producing and marketing hybrid paddy seed.
The private sector produces and sells fertilizer, although the government imports fertilizer when supplies fall short. In 2006/07, the annual consumption of nitrogenous fertilizer was about 2.6 million nutrient tons.
This off-take is about 9.5 percent lower than the previous year. In the same year, about 979 thousand nutrient tons of phosphate fertilizer were used—15.1 percent higher than the previous year.
The off-take of potash was only 43,000 nutrient tons, but was an increase of almost 60 percent over the previous year. To encourage balanced use of fertilizer, the government has provided a subsidy of Rs 250 per bag on Aiammonium Phosphate (DAP).
The recommended Nitrogen to Phosphate ratio is 2:1, compared to historic use of over 3 N to 1 P. In 2006/07 the ratio improved to 2.7:1. This is despite manifold increase in the price of phosphatic fertilizer. The gap between local production and consumption is filled through imports by the public and private sectors.
The private sector handles pesticide formulation, manufacture, and trade; the public sector has virtually no role except for aerial sprays and locust control measures.
Any approved pesticides can be formulated and produced, or imported. During 2006/07, 15,500 MT of pesticides were imported, while 75,000 MT were locally formulated.
Farmers generally apply pesticides without giving consideration to the infestation level and often spray the crop unnecessarily. Similarly spraying and disposal of leftover pesticides and containers pollutes the environment.
The indiscriminate use of a wide range of pesticides is creating health and environmental hazards. The extension departments in the provinces need to disseminate widely the safe, correct methods of pesticide application.
The private sector plays the major role in marketing of agricultural products, except for wheat, for which the public sector is the major player.
Farmers of most crops, except for sugarcane, dispose of their produce through commission agents (arhti), who also generally act as wholesalers, through itinerant village dealers, who purchase small quantities at the farm gate. Sugarcane is sold directly to sugar mills.
The commission agents and wholesalers sell wheat either to the public sector procurement centres or to flour mills directly. Most cereals are sold by wholesalers to retailers.
The price of most commodities is negotiated according to the prevalent market rates, while cottonseed price is determined as per spot rate of the day in the Cotton Exchange.
Perishable commodities, particularly vegetables, are auctioned through the commission agents. Occasionally, itinerant dealers also purchase standing crops such as maize, fodder, and vegetables.
The majority of orchard owners sell their standing crop to contractors, who generally are front persons for the fruit commission agents. Contract farming is a recently introduced arrangement, but only on a limited scale.
The main maize product makers negotiate a pre sowing contract with the maize growers. For the past few years, fruit processors and exporters have also entered into agreements with orchard owners directly, bypassing commission agents, for the supply of a given quantity of fruits at a negotiated price.
More recently, the two cash-and-carry companies have also started buying vegetables and fruits from growers. There is ample opportunity to integrate farmers, supermarkets, processors, and exporters into value chains.
The following cross-cutting issues have a bearing on the food and agricultural system includes government price control of agricultural output, inadequate investment in research and dissemination of technology packages to farmers; Inadequate investment in related infrastructure; governance; outmoded legal and regulatory mechanisms; environmental issues; and gender issues.
Output Price Control
The government, for political exigencies, interferes in commodity prices through announcement of minimum support price (MSP) for various crops, particularly wheat and sugarcane.
Historically, the MSP for wheat has been much lower than the import parity price for wheat, discouraging farmers to invest in optimal inputs for wheat cultivation.
Similarly, subsidies on wheat flour also lead to misdirected benefits and exclude poor consumers who do not have access to the public sector wheat distribution outlets.
The price of sugarcane is fixed higher than the import parity price. As a result, the consumers have to purchase sugar at a higher price, which otherwise could be imported at a lower price.
The district administrations occasionally fix the prices of milk, beef and mutton, vegetables, and fruits such that they are lower than the cost of production, when the supply of these commodities exceeds demand
Investment in Research and Extension
Historically, the allocation to research and extension has not been commensurate with the sector’s contribution to the GDP. It is less than 2 percent, which is significantly lower than the requirement.
Moreover, the research system is not demand based, which limits the utility of research to the emerging needs of the sector. The devolution in Pakistan has further weakened the capacity to interface between research and farmers.
The existing availability of related rural infrastructure, such as rural roads, warehouse and storage facilities, cold storage and cool chains, power, and agricultural markets, are inadequate to cope with the increasing demand for services.
The present agricultural markets, particularly for perishable commodities, are inadequate. Without the upgrading and expansion, accelerating the rural non-farm economy in general, and fostering agro-based rural enterprises, value addition initiatives would be constrained for want of adequate investment, either by the public sector or under public-private-partnership arrangements.
The present level of access to factors of production, particularly timely availability of inputs to small and marginalized farmers is a severe constraint to productivity.
The situation is especially less conducive for an equitable distribution of canal irrigation. Similarly, poor access to land records and title deeds limit the ability of small farmers to access credit services.
Moreover, in disputes over property, records of land rights, or tenancy the redressed mechanism is cumbersome, costly, and in most cases unfavourable to the small and vulnerable.
Legal and Regulatory Mechanism
The existing laws and regulatory mechanisms to ensure protection from malpractices of market functionaries, such as supply of unapproved and substandard inputs, delayed payments for supplied commodities, protection against tenancy and occupiers rights, etc., are outmoded and are not enforced. The suppliers of branded inputs also feel incapable of warding off the sale of counterfeit and fake inputs.
Several environmental consequences have been identified by environmental experts, such as contamination of underground fresh water by leaching of nitrites .
It is due to improper application of nitrogenous fertilizers, indiscriminate use of pesticides and contamination of harvested food commodities with toxic pesticide residues, encroachment of brackish water into fresh water zones due to over-mining of underground brackish water into the canals, and disposal of industrial toxic waste into canals.
These have severe consequences on the health of farm workers, particularly women and child farm labour, consumers, etc.
Women contribute to most farming operations, such as nursery raising, transplanting, weeding, harvesting, cutting and hauling fodder, and tending livestock.
Their role is generally unaccounted for. In most areas local traditions deprive women of the right to inherit property, and even if they are allowed to inherit, they are not allowed to manage the property and access its income.
In many cases, particularly in Sindh, they are not allowed to marry and are even incarcerated.
Impediments to Sector Performance
Many issues impede the private sector assuming a greater role in agriculture. The main binding factors are described below.
The government’s quest to control consumer prices has been counterproductive for the producers. This, apart from misdirecting the terms of trade against agriculture, depresses the profitability and incentive to invest in the adoption of higher technology packages.
The delayed announcement of minimum guaranteed price for wheat, which was significantly below the market clearing prices, and curbs on interprovincial and inter district mobility create artificial shortages.
Similarly, controlling of prices of vegetables, milk, meat, mutton, and poultry by district administrations under section 144 also discourages the supply of these items. For strategic reserves and or operational reserves, the government should procure wheat at market prices.
The issue price of wheat, which is at the procurement price, also distorts the market. The subsidy is misdirected and excludes the deserving.
Input prices are generally in the private sector domain. Nonetheless, the government provides a subsidy on fertilizers, the use of precision land levelling equipment, and electricity. This subsidy is also generally misdirected and should be limited to small and marginal farmers through the social protection instruments.
The water pricing policy is also needs attention. The current water pricing encourages inefficient use of water, is a burden on the exchequer, and results in deferred maintenance. The water pricing policy needs to be revisited to induce higher returns per unit of water.
Ineffective Service Delivery Mechanism
The public sector research and extension system is ineffective, with little communication between researchers, extension agents, and service users. The system needs to be revitalized by empowering users to determine the research agenda, fostering public-private partnerships in research and extension, and addressing duplication and overlap in the mandates of research institutions.
Poor governance (rent seeking) hampers the role of the private sector. The redress mechanism for seeking justice when contracts are broken or deals are fraudulent is weak and ineffective.
An investor providing interlinking credit for input and output procurement has to assume risks of default. Similarly, credit disbursement against collateral or contract farming arrangements cannot be risked because the land titling system is antiquated and unreliable
The absence of adequate rural infrastructure such as power, roads, cool chains, and warehouses impedes the fostering farm and non-farm (upstream and downstream) linkage activities.
Gender-Neutral Human Resource Development
Trained and skilled workers for on- and off-farm technology improvement are scarce in the rural areas. The curricula of existing technical training institutes are outmoded and unable to foster rural nonfarm economic activities that support value chains and value addition activities.
Alongside agriculture, the rural nonfarm economy is important in the lives of rural people.
Problems with Agriculture marketing system in Pakistan
- 40% of agricultural produce is wasted in marketing.
- Damages during picking, harvesting and poor practices.
- No staying power
- Low margins, seasonality and high perishability being the distinct features of this industry the access to seed capital and working capital is not easy.
- No storage facilities
- Poor transport and communication facilities
- No grading, packing standards.
- Prevailing packaging system lacks requisite quality and shelf life.
- Lack of knowledge of quality parameters and standards.
- Multiplicity of laws and regulatory authorities affect the growth of industry.
- Very high difference in price between the farmers’ realisation and consumer.
- Impediment in the flow of credit from financial institutions to the food processing industry due to the improper understanding of this sector to attain the required level of imparting skill.
- Pakistani brands of processed food are yet to be established in the international market.
- Competition with imported goods in the wake of liberalization of world trade.
Lack of Organized Marketing
- The marketing facilities for agricultural products in Pakistan are still far from satisfactory level.
- Our cultivators cannot get just prices for their produce due to defective marketing organization.
- Moreover, the chain of middlemen between the producers and ultimate consumers take a heavy share of their produce. Thus the cultivators do not take much real interest in increasing their product too.
- Weak database and lack of market intelligence.
- Lack of participation by people, local bodies, NGOs, farmers’ organisation and industrial association.