Embedding Agriculture in the Business Portfolio

Jensen Huang, the CEO of Nvidia, the world’s hottest tech company, used to start staff meetings in the early years with the words, “Our company is 30 days from going out of business.” Tech folklore has it that this did wonders for concentrating everyone’s minds. Today, the Jensen Huangs of Pakistan are saying that this country is in the economic ICU and agriculture can help us out of it. The question is: how?

Simply put, Pakistan desperately needs to increase its exports and reduce its imports. So, the prime prospect is that private businesses that are already exporting or importing should invest in agriculture to secure their supplies or engage in backward integration with farmers. But companies typically act on corporate (not national) priorities. To respond to national priorities, they need a compelling business reason! Here are some reasons why corporate goals are aligning with national goals for growth in agriculture.

The most compelling reason for Pakistan’s business groups to enter agriculture is the genuine business needs of exporters. In our export-oriented textile sector, this reason is found in developments like the Fashion Act introduced in 2022 in the state of New York. Legislations of this kind demand that fashion brands be more responsible about the value chain they rely on. Traditionally, a global brand selling a shirt in the state of New York would ask its Pakistani supplier to identify the garment facility in Lahore where the shirt was stitched, the spinning and weaving mills in Faisalabad that spun the yarn and produced the cloth, and the ginning facility in Multan where the cotton lint used to make that yarn was pressed into bales. With the Fashion Act, Pakistani exporters have to identify the farms in Vehari that grew the cotton that finally became that shirt. With this level of traceability, the exporter would have to confirm that the cotton in question was grown sustainably, avoiding excessive use of water and agrochemicals, paying the minimum wage to workers, etc.

These traceability and sustainability requirements mean that textile players, particularly those directly facing global brands, have begun to invest in cotton cultivation projects. Such requirements are now arising for most agro-commodities in the world’s premium destinations (the US, the EU, East Asia, etc.) and they have also presented an opportunity for Pakistan’s rice exporters to increase market share in these premium markets rather than in African markets, which are not as insistent on quality, traceability and sustainability. To be noted, projects to capitalise on Pakistan’s meat exports have seen some casualties due to the lack of traceability of the animals, although some meat export projects are performing better on this count.

About a decade ago, Pakistani rice exporters understood that although global markets have more room for Pakistani rice, our rural areas are not able to produce more of it. As a result, they became the representatives of the manufacturers of hybrid rice seeds from China and started to sell seeds for rice varieties in demand in East Asia to Pakistani farmers. Next, they invested in machinery-based services for rice farmers to increase yields and decrease farm-level losses. Today, they are looking to team up with other farm machinery service providers to build a farm mechanisation ecosystem that can lead to the manufacture of modern farm machinery in Pakistan.

One of Pakistan’s leading private banks has launched an end-to-end service to facilitate farmers’ ability to obtain quality farm inputs, deliver on-farm services and provide advice, data, post-harvest storage and marketing support. Many of these services are linked to the bank’s core business of lending, and farmers can borrow on much better terms than those offered by middlemen. In the wake of more frequent climate impacts, Pakistan’s most aggressive insurance companies have been developing insurance solutions for crops and livestock.

Some leading groups have understood that they need to diversify to embrace agriculture as part of their business portfolios. A leading textile-based conglomerate has started a drone services business, offering drone-based spraying of crop protection chemicals, drone-based fertiliser applications, and drone-based data captures for more accurate farm management. A consortium of rice exporters and a leading input supplier have invested in shrimp production with an end-to-end vision for developing an ecosystem similar to the poultry sector. Similarly, a leading engineering and infrastructure group has embarked on an agro-warehousing business. This is a much-neglected space that is critical to food security – you can’t store wheat in cupboards!

Agri-logistics investments are needed to reduce loss of quality and quantity after harvest. These investments can be scaled up through the electronic warehouse receipts regime developed by Pakistan’s leading private sector players in collaboration with the Securities and Exchange Commission of Pakistan, the State Bank, and the International Finance Corporation. This regime has seen strong proof of concept and is ready for scale-up. There are plenty of other opportunities in this space. For example, a leading packaging company has developed crates for reducing post-harvest losses in fruit and vegetables.

The biggest affliction that has created a plethora of opportunities for agriculture and related businesses is the depreciation of the Pakistani rupee and the increasing pressure on companies that import key ingredients for use in their major products. The end consumer can no longer afford the end product if the full cost increase is passed on to the price paid by the end consumer. For example, Pakistan’s leading ketchup brand has put together a consortium for a large programme with tomato farmers to cultivate tomato varieties suitable for producing paste.

The ketchup brand guarantees offtake from farmers if their tomatoes meet the agreed upon quality standards. 

Another opportunity has emerged due to the depreciation of the rupee, complemented by the enormous increase in Pakistan’s maize output. This is the production of corn sugar, which is used in the food and beverage industry and is also exported. One of Pakistan’s premier rice exporters has branched out into this area, and others are making similar investments in this space.

The ultimate opportunity is the agricultural land being given out under the SIFC. Some see this as an opportunity similar to the one for independent power producers (IPPs) in the nineties and the privatisation of banks in the 2000s. If you got in when these opportunities were being offered, you have benefited since then. The SIFC aims to solve the first problem faced by large-scale investors interested in agriculture: there is hardly any reliable availability of large tracts of land for long periods of time. The SIFC is offering blocks of a thousand acres each in south-eastern Punjab (and other locations in Punjab and Sindh) under long-term rights to cultivate. These blocks make sense because many modern farm machines are sized for servicing 4,000-5,000 acres, while some machines may only be viable on a minimum of 10,000 acres. Such acreages are hard to come by in Pakistan’s mainstream agricultural areas. Every leading business group worth its name is trying to get some piece of the action before the land on offer runs out.

However, some issues remain to be addressed. There isn’t enough water to irrigate the lands offered in south-eastern Punjab, and access roads and other infrastructure are not complete. The prospect of becoming a joint venture partner with the government may not be every business group’s cup of tea, but large-scale precision agriculture can be a real game-changer. This programme is a great driver of private investment in agriculture, but it has to be chaperoned for years to meet success. And, if chaperoned right, this programme also has the potential to solve the problems plaguing Pakistan’s farmers for decades, such as quality seed, unadulterated farm inputs, mechanisation, storage, etc.

A wave is rising in Pakistan’s industrial and financial sector regarding investment in agriculture, and many real drivers of private investment are drawing individual companies to make breakthroughs in agro-investment. While corporate goals are aligning with national goals for growth in agriculture, the government needs to bring policy focus to agro-investment while ensuring this wave does not crash without taking Pakistan to the next level of agro-performance. The new government has its work cut out.

Kazim Saeed is co-Founder and Strategy Advisor, Pakistan Agricultural Coalition. His book Dou Pakistan: Har Pakistani Gharanay Tak Khushhaali presents a strategy for delivering prosperity to every Pakistani household.
kazimsaeed0817@gmail.com