POTATO | OTHERS

INTRODUCTION

Pakistan is a large potato producing country yet it has very limited adequate storage and processing facilities. Due to the lack of adequate storage facilities a substantial proportion of production is wasted. The combination of inadequate storage facilities and an underdeveloped processing industry leads to volatility in prices as not all excess production can be stored or processed for consumption during the off season. The following analysis will illustrate the current state of the potato industry in Pakistan along with the potential that exists in both farming and processing of potatoes.

PAKISTAN POTATO PRODUCTION

Potato is grown in Pakistan on about 111,000 ha distributed over eight different agro-ecological zones. 70 - 80% of the production is concentrated in the irrigated plains of the Central Punjab and Southeast North West Frontier Province (NWFP). There are three seasons of potato cultivation, autumn, spring and summer

Potato Production: Quantity and Area under Cultivation
Year	Punjab		Sindh		NWFP		Balochistan		Pakistan (total)
	Area Hectares ("000")	Quantity ("000"Mt	Area Hectares ("000")	Quantity ("000"Mt	Area Hectares ("000")	Quantity ("000"Mt	Area Hectares ("000")	Quantity ("000"Mt	Area Hectares ("000")	Quantity ("000"Mt
1997-98	89	1,224	1	7	10	121	5	73	105	1,426
1998-99	94	1,604	1	8	10	118	5	80	110	1,810
1999-2000	94	1,648	1	9	10	119	6	93	111	1,868

Source: Agriculture Statistics of Pakistan (1999-00)

»	20% of above production quantity is wasted against post harvest loses primarily due to improper handling and lack of proper cold storage facilities. Potatoes are improperly stored at temperatures negative 3-4 Celsius mainly for seed storage purpose. These temperatures are maintained only to avoid sprouting since no humidity levels are administered, which is a vital factor for proper storage of potatoes for table consumption and processing
»	5% of total potato production is being exported
»	About 18% of the production is stored for potato seeds

Potato Yields (Metric Tons per Hectare)
Year	Punjab	Sindh	NWFP	Balochistan	Pakistan (weighted avg)
1997-98	14	9	12	15	14
1998-99	17	10	12	15	17
1999-2000	18	10	12	15	17

Source: Agriculture Statistics of Pakistan (1999-00)

Pakistan produces three potato crops per year. The major produce of the potato crop is harvested in the autumn season. The crop seasons, as follows:

Potato Crop Seasons	Sow (Month)	Harvest (Month)
Autumn Crop	October	January
Summer Crop	January	May - June
Spring Crop	April - May	August - September

Major Varieties & Characteristics Of Potatoes Grown In Pakistan
Variety	Shape	Color of Flesh	Cooking Type	Utilisation	Common Scab
Diamant	Oval	Light Yellow	Mealy + Firm	French Fries	Just Resistible
Cardinal	Oval	Light Yellow	Mealy + Firm	French Fries + Crisps	Quite Resistible
Désiree	Long Oval	Light Yellow	Mealy + Firm	French Fries	Just Resistible
Raja	Oval	Yellow	Mealy + Firm	French Fries	Quite Resistible
Santé	Oval	Light Yellow	Very Mealy + rather Firm	Crisps	Just Resistible

Source: Agrico, Netherlands (Supplier of Potato Seeds) 2000.

Import of Potato Seeds by Pakistan
Commodity/Country	1998-99		1999-2000
	Quantity (MT)	Value (US$.'000')	Quantity (MT)	Value (US$.'000')
Total Potatoes Seed	749	491	778	409
Belgium	14	10	-	-
Germany	24	12	-	-
France	48	28	-	-
Irish Republic	20	20	-	-
Netherlands	643	421	778	409

Source: Federal Bureau of Statistics, 1999-00

»	Punjab Seed Corporation approximately imports 215 Metric tons of Potato Seed annually.
»	Private sector import of potato seed amounted to 563 metric tons in year 1999-2000
»	The local Potato Seeds produced from tissue culture by Punjab Seed Corporation (PSC) are also available in the market. The annual seed production by PSC amounts to approximately 1,200 Metric Tons

Potato Wholesale Price Trends In the absence of adequate storage facilities, at the time of harvest, there is a huge supply of potatoes, which drives prices down. If storage facilities were available price volatility could be stabilised through consistent supply year around. The following graph shows prices begin to fall as harvesting begins, which is January and continue to fall to the lowest level until April after which they begin to rise again.

PRODUCTION AREAS AND CLIMATE

Major Production Areas and Regions
Punjab	Sindh	NWFP	Balochistan
District Okara Sahiwal Sialkot Jhang - Chiniot Kasur Gujranwala Shiekhupura Kahnewal	Hyderabad	Nowshera Mardan Sawbi Mansehra Abottabad Swat Bunir Dir Chitral	Mastung Kalat Pishin Ziarat Qila Saifullah Loralai Quetta

Source: SMEDA survey, 2001

The Major Ecological zones of Pakistan
Ecological Data	Punjab	Sindh	NWFP	Balochistan
1. Mean Annual Temp.	20-25oC	25-30oC	5-25oC	10-15oC
2. Mean Annual Rainfall Range	250-750mm	100-125mm	250-750mm	125-250mm
3. Climate	Sub Topical Low Lands Semi Arid Hot Summer, Mild Winter	Sub Topical Low Lands Arid Hot Summer, Mild Winter	Sub Topical High Lands Humid + Semi Arid Warm to Cold winter	Sub Topical High Lands Semi Arid Warm summer, Cool winter
4. Soils	Loamy & some sandy and clayey soils of flood plains	Loamy, sandy loam, silts of piedmont plains and desert soils	Rock outcrops & shallow loamy soils of high steep mountains	Shallow loamy, gravelly soils of river valleys rock outcrops of plateau

The graphic maps of Pakistan climate, annual rainfalls and soils can be found in Annexures 1-3:

EXISTING INFRASTRUCTURE

The irrigated area of Pakistan is served by more than 40 major canal commands. Main canals start from a barrage or dam or weir on a river. There are three major groups of canal system:

1. Canals on upper-Indus tributaries
2. System on the Indus
3. System west of the Indus

The irrigation system in Punjab region is based on canal water and tube-wells. The irrigation in Balochistan area is based on Karazes (rain and spring water channels) & tube-wells. The irrigation in NWFP is being done through canals, rain/spring water channels and Tube-wells. On average the potato crop requires about 36-acre inch of water. There is very limited infrastructure available as in terms of storage facilities. It is due to this that a substantial amount of potato cultivation is wasted after harvest. Following is some information on the storage facilities currently available for different uses.

Cold Storage Facilities in Pakistan

Category	Existing Capacity (000 Tons)
Traditional Low Tech	350
High Tech Production Areas	1
High Tech Urban Dedicated	10
High Tech Strategic Points	0
High Tech Urban Others	2
High Tech Wholesale Markets(F&V)	0
Total	363
Reefer Trucks (Numbers)	450

EXISTING POTATO PROCESSING/CHIPS FACILITIES

Following are the major and leading producers of potato chips (crisps) in Pakistan. The crisps are being produced by direct potato cuts/slices and also by extrusion process. However, there is not a single frozen french-fries producing company/facility in Pakistan.

1. EMKAY Food Industries (pvt) Ltd
2. Standard Foods (pvt) Ltd[Golden]
3. Tripple EM (pvt) Ltd
4. Kohinoor Smith (pvt) Ltd
5. Consolidate (Kolson)
6. Trading Enterprises (Krincles)

There are few small size companies in Pakistan which produces potato powder and potato starch.

OPPORTUNITIES IN POTATO PROCESSING FARMING/PROCESSING

Government Incentives

1. No sanction is required for setting up such a project. No "No Objection Certificate (NOC)" required from the provincial government
2. There is no minimum foreign investment limit. Foreign investors are permitted 100% ownership of projects
3. Corporate agriculture has been declared an industry. and remittance of capital, profits, and dividends will be allowed
4. There is no ceiling on maximum land holding. State land is available on lease for 50 years, which is extendable for another 49 years
5. No customs duty on agriculture machinery if it is not manufactured locally
6. Investment Tax Credit (ITC) to the tune of 75% allowed
   

Opportunities

With the advent of globalisation Asian eating habits are changing to emulate those of the West. This means that consumption of Western style fast foods is on the rise. Due to this reason the potential market size of fast food products is increasing at an exponential growth rate. There is a huge business opportunity in the following areas of the fast food value chain.

Farming
Corporate farming will reduce costs while improving and ensuring consistent quality. It will also ensure consistent supply of the raw material. Supply of raw material can be supplemented with produce from contract farming. This concept has been in operation in Pakistan for the last 20 years. CPC Rafhan (a local food processor) has been successfully contracting out growing of maize for its various products.

Corporate farms have the financial muscle to employ the latest technology in terms of farming equipment, irrigation systems (i.e. sprinkler systems), and methodology. These improve both crop yields and quality. As these systems are mostly underdeveloped in the local farming community any corporate farm which employs these will have better yields than its competitors.

Processing
Currently there are very few food processors for potatoes in Pakistan, which produce crisps only. There is not a single facility producing frozen French fries for either local consumption or exports. Simply processing potatoes into French fries brings about a tremendous value addition which is evident from tables in the following 2 sections. Pakistan's exports of raw potato have an average price of $106/MT while trade of frozen potatoes, assumed to be French fries, have an average price $762/MT.

Local Market
Individual and industrial customers present a rapidly growing market. Eating habits are changing which is evident from the entry of world famous fast food chains entering Pakistan, such as McDonalds, KFC, Pizzeria Uno, Pizza Hut, etc. Along with international chains there are large number of local resturants, which also deal in similar kinds of fast food. Currently the international chains source their French fries requirements from abroad along with some of the upscale local enterprises. The low end local enterprises purchase raw potatoes on a daily basis and process them themselves. If presented with a cost effective alternative they would surely convert to processed French fries in return for consistent high quality.

At present upscale supermarkets in the urban areas sell imported French fries costing Rs 39 / 800 gm package (Rs 48.75 / kg). This translates into US $ 0.79 / kg (US $ 786.29 / MT). As is evident by these figures there is a huge potential for locally produced frozen French fries.

World Trade
Export Market
The following table shows that there is a fairly large market for frozen potato exports of which Pakistan has no share.

Frozen Potato World Exports (1999)
	Val (1000$)	Qty (Mt)	Value per (Mt)
Netherlands	683,980	897,203	762
Canada	383,097	576,416	665
United States of America	361,059	491,369	735
Belgium-Luxembourg	294,501	407,196	723
France	87,026	114,971	757
Argentina	51,187	56,955	899
Germany	37,141	44,431	836
United Kingdom	42,525	39,300	1,082
Poland	18,903	30,781	614
New Zealand	8,008	14,911	537
Others	61,521	84,852	725.04
Total	2,028,948	2,758,385	735.56

Source: FAO 1999

Import Market in the Asia Region
The total imports of frozen potato in Asian region amounted to US$ 335 million in the year 1999. The following table shows that Pakistan also imported frozen potatoes worth US$ 0.413 million at US$ 969/Mt and stood as 11th largest importer of frozen potatoes in the Asian region. From this it is evident that there is great potential of frozen potatoes in this market.

Frozen Potatoes - Imports of Asia (1999)
	US$ (1000)	Qty (Mt)	Value/Mt $
Japan	267,209	273,908	976
Korea Rep.	25,059	29,713	843
Singapore	8,116	9,187	883
Hong Kong	8,067	9,914	814
Philippines	10,581	14,063	752
Thailand	5,016	7,001	716
Malaysia	2,315	3,000	772
China	3,491	6,494	538
Turkey	1,526	2,170	703
Cyprus	2,002	2,499	801
Pakistan	413	426	969
Sri Lanka	529	698	758
Total	335,109	359,073	933

Source: ITC 1999

Pakistan Exports
Pakistan exports potatoes only in raw form to the following countries.

Potato Export (Fresh or Chilled) from Pakistan
Export Country	1998-99		1999-2000
	Quantity (MT)	Value (US$ 000)	Quantity (MT)	Value (US$ 000)
Total	121,279	18,036	91,059	9,737
Afghanistan	3,489	220	12,929	689
Asian Countries NS	64	11	-	-
Bahrein	289	65	-	-
Brunei	-	-	13	1
Burma	26	6	26	4
Cambodia	-	-	75	10
China	-	-	26	3
Dubai	2,482	407	662	88
Hong Kong	545	60	188	23
India	247	82	-	-
Kuwait	168	27	-	-
Malaysia	2,026	266	556	68
Maldive Islands	216	54	-	-
Newzealand	-	-	25	3
Norway	13	1	-	-
Qatar	62	13	71	10
Saudi Arabia	104	10	13	2
Singapore	305	35	195	20
South Korea	-	-	52	5
Spain	26	3	-	-
Sri Lanka	111,039	16,732	76,180	8,806
Sultanate of Oman	136	32	49	7
USA	42	11	-	-

Source: Federal Bureau of Statistics, 1999-00

Business Economics

Cost comparison is based on potato varieties that will be grown in Pakistan starting from this year (2001).

Cost of potato production in Pakistan
The cost of production is high in the first year of operations, which decreases substantially afterwards. The reason for this is because in the first year of operations the potato seed has to be purchased from the market while in the second year potato seed comes from the previous year's harvest. The cost break-up for the first year and the subsequent years is illustrated in the table below.

Potato Production Costs in Pakistan per Acre
Potato yield / acre for Norland / Atlantic variety (MT)	11	Year 1			Year 2
	Unit	Quantity	Rate	Amount	Quantity	Rate	Amount
Seed
Norland or Atlantic Varieties from USA (25kg Crate)	No.	25	1,450	36,250	25	nil	-
Fertilizer
DAP (50 kg Bag)	No.	3.00	750	2,250	3	750	2,250
Urea (50 kg Bag)	No.	4.00	395	1,580	4	395	1,580
SOP (50 kg Bag)	No.	3.00	797	2,391	3	797	2,391
Pesticide
Alpha Cyper (1 Spray of 500 ml)	Litre	0.50	300	150	0.50	300	150
Monitor (1 Spray of 500 ml)	Litre	0.50	205	103	0.50	205	103
Imedacleparid (1 Spray of 200 grams)	Kg	0.20	1,380	276	0.20	1,380	276
Fungicide
Dithane-M	Kg	1.00	325	325	1.00	325	325
Intracol	Kg	1.00	340	340	1.00	340	340
Ridonal (250 Grams)	Kg	0.25	912	228	0.25	912	228
Weedicide
1 Spray of 250 Grams	Kg	0.25	1,565	391	0.25	1,565	391
Preparation of Land
Tillage (on basis of renting tractor services) per Acre				390			390
Seed Bed Preparation
Making of Ridges for Plantation (Fuel Consumption + Tractor) per Acre				390			390
Sowing of Seeds/Tubers
5 persons sow 4 Acres in 8 hours shift (4 unskilled laborers + 1 Seed Planter Operator) Average Sowing Cost per Acre	Man hrs	10	20	195	10	20	195
Irrigation
12 waterings per Acre per Crop by Turbine operated tubewell (cost per hour for running trubine)	Hrs	12	95	1,145	12	95	1,145
Harvesting
Harvesting Charges per Acre				490			490
Other Costs
Land Revnue (Malia) per Acre	per acre			50			50
Land Lease for 3 months crop season	per acre			2,000			2,000
Casual Labour for the Crop Season of 90 Days	Man hrs	720	8	5,998	720	8	5,998
Cost of Storage Potatoes for Seeds (flat rate 6 months)					6	150	900
Cost of Production per Acre (in Rs)				54,936			19,586
Cost (Rs) / Metric Ton				4,994			1,781
Cost (US $) / Metric Ton (Rs/US $ = 62)				80.55			28.72
Cost (US $) / Kg (Rs/US $ = 62)				0.08			0.03

The simple average sale price in 4 major wholesale markets was as follows for 1999. The weighted average sale price would be more accurate for determining the profitability of selling the wholesale market but unfortunately due to lack of data that is not possible. Nevertheless the data shows that there is a nominal return for the first year of operations, which improves tremendously in the subsequent years as the cost of production falls.

Average Wholesale Price
Lahore	4,915
Hyderabad	4,252
Peshawar	5,198
Quetta	6,863

Cost of potato production Internationally
The following cost break-up is based on information obtained from "www.1_Potato Association of America Handbook - MARKETING AND ECONOMICS. html." Under the fixed costs heading the costs associated with machinery and tractors are the depreciation costs. The cost associated with land is the interest cost of land, which can be assumed to be the lease interest cost.

Cost based on typical cost for producing potatoes in eastern Idaho State during the 1990's.
Average USA Yield per Acre (Metric Tons)	15.89
Variable Costs	Amount ($)	Percent of Total ($)
Seed	151	12%
Fertilizer	132	11%
Chemicals	79	6%
Fuel & Lubrication	61	5%
Maintenance & Repair	120	10%
Custom operations	64	5%
Labour	120	10%
Crop Insurance	25	2%
Promotion Tax	20	2%
Water Assessment	11	1%
Interest on operating capital	36	3%
Total Variable Cost	819	66%
Fixed Costs
Machinery	163	13%
Tractors	87	7%
Land	180	14%
Total Fixed Cost	430	34%
Total Cost of Production	1,249	100%
Cost of Potato USA Production (US $) / Metric Ton		78.60
Cost of Potato USA Production per Kg ($)		0.08

Comparison of the above two tables shows that the cost of growing potatoes is roughly the same in both the US and Pakistan in the first year of operations. Subsequently the advantage shifts to Pakistan.

SUMMARY

There is no integrated potato processing facility in Pakistan. This presents a very good opportunity for anyone with the know how to come here and capitalise on the fact that there is very limited competition in this market. As the labour cost is low very limited mechanisation has been adopted for farming potatoes in Pakistan. This in turn translates into low cost of production in relation to the prices prevailing in the international market.

Simple conversion of potatoes from raw form to frozen French fries increases value addition tremendously thus covering all conversion costs. Besides the local market there is also potential to export French fries to regional markets.

ANNEXURE 1

 

ANNEXURE 2

 

ANNEXURE 3