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VEGETABLES »» POTATO

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.

Potao wholesale price trends

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


Pakistan potato production regions


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 1

 

ANNEXURE 2

Annexure 2

 

ANNEXURE 3

Annexure 3

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