2013-08-20 09:06:27 - New Food market report from Business Monitor International: "Pakistan Agribusiness Report Q4 2013"
High input costs and a lack of much-needed investment in essential infrastructure, coupled with inefficient and inconsistent government intervention, will prove to be the key dampeners for the agribusiness sector in Pakistan. We see all the key segments in the sector - wheat, rice and cotton - being victim of this unsupportive operating environment and forecast only a muted 3.0% year-on-year increase in the value of the agribusiness sector between 2013 and 2017. Given that the sector accounted for more than 21% of the country's total GDP during 2012 (according to BMI estimates), it is imperative that the new government increases its focus on policies that will help to improve its overall competitiveness and provide incentives for increased production.
- www.fastmr.com/prod/670584_pakistan_agribusiness_report_q4_2013. ..
* Sugar consumption growth to 2017: 14.3%, to 5.0mn tonnes. Demand, boosted by growth in population and incomes, will fall just short of supply throughout the forecast period.
* Rice production growth to 2016/17: 4.8%, to 6.5mn tonnes. Production growth will be sluggish, as demand for Pakistani exports stutters and domestic consumption remains low.
* 2013 real GDP growth: 3.9%. Up from 3.7% year-on-year (y-o-y) in 2012.
* Consumer price inflation: 12.4% average in 2013 (up from 11% y-o-y in 2012).
* BMI universe agribusiness market value: US$43.1bn in 2013 (down from US$43.2bn in 2012; forecast to grow annually by 1.7% on average to 2017).
Key Revisions to Forecasts
Rice production for 2012/13 revised down to 5.6mn tonnes (compared with a previous estimate of 6.7mn tonnes). Local reports have suggested that the damage caused by floods in the Sindh province was more severe than expected.
Wheat production for 2012/13 revised down to 24.0mn tonnes (compared with a previous forecast of 24.5mn tonnes). The government's decision to raise the procurement price has reportedly failed to lure farmers to increase acreage. Farmers reportedly consider the new procurement price of PKR1,200 per 40kg (up from PKR1,050 per 40kg) to be insufficient to offset the overall increase in their input prices.
Pakistan's rice exports continue to be restrained by high export prices when compared to other major Asian exporters. Rice exports in the first seven months of the current 2012 fiscal year (July 2012 - June 2013) reached 1.6mn tonnes, down 16.8% y-o-y, according to the Pakistan Bureau of Statistics. Export value is down 5.6% y-o-y so far, at US$1.1mn. Regarding basmati rice, which has traditionally reaped higher prices, the Pakistani variety trades at a premium over India's, due to tight domestic supply. Much of this loss can be attributed to progressive declines in the production of basmati rice, the result of producers shifting to the cultivation of hybrid rice varieties, which fetch higher yields and require shorter cultivation periods.
Basmati cultivated area dropped by 35% in the past three years, while exports declined by 25%, from 1.2mn tonnes in 2008/09 to 900,000 tonnes in 2011/12. India, meanwhile, strongly benefited from a drop in Thai exports, hampered by lower profitability resulting from its Rice Pledging Programme, and exported 10.4mn tonnes in 2011/12, up 274% y-o-y. Pakistan also faces tough competition regarding non-basmati varieties from Vietnam, which currently enjoys the lowest prices.
Similar issues of loss of competitiveness are also being faced by wheat producers in Pakistan. The Pakistan Flour Mills Association (PFMA) has therefore called on the government to allow wheat imports from India. The call comes on the back the huge price differential between Indian wheat and locally produced wheat. Local wheat costs millers close to PKR1,300 per 40kg, while Indian imports cost them only PKR1,140/40kg, even after taking loading, unloading, duties and transportation costs into account. The association believes that the move will help bring down domestic retail wheat prices by PKR10-20 per 20kg bag. PFMA central chairman Zahoor Ahmed Agha believes that increases in wheat support prices announced by the government every consecutive year have not only raised wheat prices domestically but have also made the Pakistan flour industry uncompetitive.
Meanwhile, there is muted optimism in the cotton segment, where we forecast production to rebound in 2013/14 after the dismal 2012/13 crop. Output in 2012/13 was severely hampered by the decrease in planted area, inclement weather during crop maturity, shortages of electricity, and widespread prevalence of cotton leaf curl virus (CLCV) disease. Assuming a return to normal growing conditions with lower incidence of CLCV, we see the 2013/14 crop, which planting started in April, coming in at 10.0mn 480 lb. bales, up 7.5% y-o-y.
Stronger production growth is being dragged on by stagnating area under cultivation and yields. The decay in area growth is a consequence of the recurring incidence of torrential rains and flooding, with farmers turning their back on flood-prone areas. Moreover, low prices in 2012 have deterred incentives to increase plantings. In 2013/14, the USDA estimates area harvested at 2.94 million hectares (ha), compared with 3.0mn ha in 2012/13. Yields have also recorded broadly slow, if not stagnating, growth in recent years, partly due to misuse of genetically modified seeds and disease prevalence. In 2013/14, yields are likely to rebound, reaching 755kg/ha according to the USDA, compared with 679kg/ha in 2012/13.
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