An interview with Imran Nasrullah about food

‘Food insecurity to worsen if the country keeps growing wrong crops’ An MBA graduate of Imperial College London and a Fellow of the Institute of Chartered Accountants in England, Imran Nasrullah’s career spans several decades. Imran has been associated with Cargill since a long time in various roles, with the most recent one being of a Sales and Business Development Director for freight, metals and energy business in Singapore, before assuming the current role of CEO/Country Lead of Cargill Pakistan. BR Research recently sat down with him to understand the current scenario of trading agricultural commodities, the challenges of the industry, and Cargill’s future plans. Following are the edited excerpts:

Imran Nasrullah

BR Research: Let us begin with a little background of what the company does.

Imran Nasrullah: Cargill is a global food and agriculture company, with a promise to nourish the world. Our main purpose is to move commodities from areas of surplus to area of deficit- from where they grow to where they are consumed. We participate in end-to-end of supply chains working with farmers, producers, manufactures and retailers.

To give an example of what we do in Pakistan – we are among the larger importers of soybean, as well as palm oil and other food ingredients. Palm oil is one of Pakistan’s largest import. It is considered an essential commodity for Pakistan. We have in the past exported cotton as well; presently Pakistan is an importer of cotton, so we also import fine cotton.

In the last two years Pakistan has imported significant amounts of wheat and we have played our part in making the country wheat secure.

BRR: What is the breakdown of the commodities Cargill trades in ?

IN: We have about one billion dollar worth of imports, which is about 2 percent of Pakistan’s total import bill. The majority of which is soybean followed by palm oil. We also import steel products, and food ingredients into the country. The latter includes products like cocoa, which the Pakistani food companies buy and make chocolate. We also trade in starches, stabilisers and emulsifiers, which are used by the food companies for their end products. Specialty oils, like biscuit shortening is also part of our portfolio as well as animal feed and feed ingredients.

BRR: Can you talk about why Cargill acquired a stake last year in the FAP terminal.

IN: We have a joint venture with Fauji Foundation- Fauji Akber Portia Terminal at Port Qasim. It is Pakistan’s only dedicated grain oilseed handling terminal. Although we have a minority stake in it, we have developed and introduced global practices to improve the efficiency and handling capacity of the port, and modernise it to the extent that it meets Cargill’s global standards. Cargill operates about 40 ports in the world, which gives us significant experience in managing and modernizing port operations to make them profitable. After our involvement, FAP did a record 3 million tons of cargo through the terminal.

We have been importing soybean for about 7 years. We wanted to be more strategically involved, which is why we ended up taking a stake in the terminal. Oilseed industry is old, but the duty advantage for local beans crushing started 6 to 7 years ago. We realised at the time that this is where the market was going. Given the population growth, the poultry consumption growth and the fact that the government is focusing on processing, we needed to be part of that industry.

It is a first step for us to expand our businesses downstream to work in the food supply chains and help develop those. It took a little longer than expected, with Covid and negotiations, etc.

BRR: What is the gap between Pakistan’s requirement for oil seeds and the imports. Can it be sourced locally entirely?

IN: Pakistan produces approximately 0.7 million tons of oilseeds, which is split between canola, rapeseeds, mustard seeds, sunflower, sesame, and this excludes cottonseed. Pakistan imports 3.5 million tons whereas the total requirement is 4.2 million tons. The gap is large because the population growth and meat consumption is growing at 2 to 2.5 percent.

The reason it grows successfully in large countries like Brazil and US is the scale at which it grows which cannot be replicated at a destination like Pakistan. Moreover, it competes against other crops like cotton, etc and there is no government price support for the crop.

BRR: The preference is to grow other crops such as cotton and wheat instead of oilseeds. But even then, the country needs to import. What is the reason?

IN: Pakistan should be and has been self-sufficient in wheat. It has the capacity, land and resources but the reasons for import are multiple. There is a lack of proper storage, there are leaks in the supply chains; yields are low; unfavorable weather patterns due to climate change now. Land for cotton crop has also reduced, however this year the cotton crop was good.

On the other hand, oilseeds are not grown because of economies of scale, whereas palm oil requires a tropical climate, which cannot be replicated. Palm oil is also the cheapest oil in the world. So, when approximately 220 million people have to be fed, price is a factor for determining choice.

BRR: Can you explain the economics behind the fact that farmers themselves are also unwilling to grow oilseeds due to lower prices, in addition to the requirement of economies of scale.

IN: Pakistan’s oilseeds crops compete with other crops. The farmers’ liquidity situation only permits to plant those crops that they can grow quickly and get paid for. Oilseeds is not one of them. And as I mentioned, the challenge is economies of scale. Pakistan majorly has small farm holdings, hence it is a challenge to grow crops which can only succeed on large scale.

We cannot work on land reforms, neither can we create large holdings but what we feel that can change this is the development of corporate farming. I always give the example of Indonesia. They have done an incredible job in corporatizing their farming sector around palm plantations. In Pakistan, it is happening in dairy but at a small scale. If the same can happen in oilseeds or cotton crops, there is a great opportunity to be able to scale. The country needs to have an enabling legislation. In Indonesia, they created a legislation where corporate farmer would have to have 20 percent smallholder farms in his corporate farm by law.

BRR: What are your forecasts about demand and demand growth rate, given that population growth rate is 2 to 2.5 percent?

IN: In 5-10 years, according to our estimates, total vegetable oils will be around 6 million tons of which 4 MMT will be palm oil and 2 MMT others (such as soybean, canola, sunflower, cottonseed Oil).

BRR: Can you discuss your plans about the solvent extraction plant.

IN: We are looking at opportunities right now and trying to understand the economics of that business. Setting up the plant itself is not the challenge, but one has to think about other challenges. Minimum pasturerisation law has to be passed which will encourage people to demand better quality feed.

Similarly, in the edible oil sector, loose oil is contaminated. The market for good quality oil is very small. Although the demand exists, but a regulatory framework is required from the government. We are waiting for the right opportunities and conducive environment but a lot of work needs to be done still.

BRR: Of the total oil consumption market, how much is made up by loose oil and how much is refined oil?

IN: Majority of the oil that is sold to consumer in Pakistan is loose. Other than the urban areas where oil is sold on shelves in supermarkets, everywhere in the second-tier cities, etc. predominantly, loose oil is sold. In villages it is either entirely loose oil, or ghee. In 2019 loose oil was 0.5 million tons. Packaged (Ghee & Cooking Oil) was 2.6 million tons. Horeca is approximately 1 million tons (Ghee & Cooking Oil/Frying Oil).

As these things transition from loose to better quality, packaged oils, and more investment will come in. Regulation supports creation of demand and the changing consumer.

BRR: When do you believe the transition can happen?

IN: I worked in Indonesia before moving back to Pakistan, which is a similar size country. It took them about 10 to 12 years to change but they had continuous policy and enforcement around certain things. For Pakistan, it could be similar. It could be sooner if we have the will and get regulations done a little quicker.

For instance, in the dairy industry there is The Punjab Feed Act, and the province is piloting the minimum pasteruirisation law and this will benefit the industry when we see the positive results. The Punjab Food Authority is also active in looking at supply chain.

BRR: Is corporate farming happening in Pakistan?

IN: Contract farming occurs when large scale buyers are involved. In wheat and corn there is no corporate farming, but contract farming is happening in some areas. Pepsi does contract farming for its potatoes; Rafhan does it for corn. In dairy there are corporate farms emerging but, for example, corporate farming alone cannot solve Pakistan’s milk problems. Legislation is required to incentivize farmers to produce better quality milk. This reiterates the importance of having a balanced agriculture policy which states what crops should be grown, what are the viables and hence what should not be grown. Food security is going to get even more threatened in the future if the country keeps producing the wrong crops and importing the right crops at a much higher rate.

BRR: Can you explain how contract farming and corporate farming benefits the small farm owner.

IN: The 20 percent smallholders benefit from the operations of the large-scale farm, that is, they enjoy the advantages of achieving economies of scale. Otherwise, they would never have the access to that kind of information, technical knowledge, and quality of seed, fertilizer prices, the certainty of product being sold, and selling at the same price as a large player.

BRR: On what fronts are you working with the government? What’s in store for the future?

IN: We work with the government on multiple fronts. It is around advocacy, better policy making, and food quality standards. We have worked with governments in 80 countries. We have a regulatory chain, we have corporate affairs which actually guides and implements. We also talk to the government about capacity building, setting standards and policies and to bring in best practices.

Cargill is committed to Pakistan for the long term. We see that supply chains need to be cleaned up, upgraded, both inbound, and hopefully outbound. We can benefit the Pakistani consumer by putting the right and safe product that is traceable, sustainable, and nutritious.

We also want to ensure food safety in areas that we are very close to. We have opened our first food bank in Lyari. The food insecurity situation is rather grave. We want to work in Pakistan through partnerships.

There is a dire need to take drastic measures, such as water pricing, and eliminate flood irrigation. The farmer needs to be better informed and enforcement of regulations. Some of that enforcement is going to be through pricing.

We waste billion dollars’ worth of food annually, and this is a problem we need to solve for.

Source: brecorder

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