Need to promote agriculture SMEs is growing

SMALL and medium enterprises (SMEs) producing and processing farm products are doing well in Pakistan. We can also add to this list those SMEs that provide agricultural inputs and that are involved in the wholesaling and retailing of agricultural products.

“But we don’t see a good number of SMEs that are exclusive providers of agricultural technology or those that exclusively cater to logistics, trade and distribution services in agriculture. These areas offer a lot of scope for growth to agricultural SMEs,” says a senior executive of one of the top five banks.

In cotton and rice sectors, SMEs enter at ginning and husking stage. In the livestock sector, cattle breeding and the processing of milk or meat remain separate or at least both functions are not run by SMEs. Some large milk processing companies get supplies from well-knit networks of milkmen, whereas two leading meat processing companies boast of their own cattle farms.

The trading of fertiliser, pesticides and insecticides is carried out chiefly by manufacturing firms through their agents. But some SMEs also trade farm inputs, both local and imported.

Edible oil extraction and the manufacturing and trading of leather and its by-products are largely in the hands of SMEs. Carpet weaving is almost entirely the business of SMEs across the country.

SMEs can be divided into three broad categories: trading, manufacturing and services. There’s no separate classification for agriculture and non-agriculture SMEs. It could be beneficial for entrepreneurs and policymakers alike if relevant institutions can compile separate data on SMEs operating in the value chain of agricultural products.

The need to promote agriculture SMEs is growing with changes in demographic and economic dynamics of the country. The average annual growth rate of the rural population of Pakistan between 1998 and 2017 stood at 2.23pc against that of urban population’s 2.7pc, according to provisional results of the latest census.

This indicates a looming shortage of rural workforce, more so because labour wages in rural areas are far less than that in urban areas. Besides, a higher growth rate in urban population is also an indicator of accelerated pace of urbanisation between 1998 and 2017.

So, in order to decelerate urbanisation (that is putting too much pressure on urban infrastructure) and to promote job creation in rural areas, we must have a detailed mapping of job markets in rural areas.

There are many opportunities for small and medium enterprises in technology upgrading and innovation, agricultural knowledge transmission and application, and transportation, wholesale, retail, online marketing and sales

“Segregating agriculture-based SMEs from the rest can be a beginning of this process,” says an official of Sindh’s Planning Commission.

Such important developments like the China-Pakistan Economic Corridor and Chinese interest in our agriculture sector, politico-economic changes in our traditional food export markets in the Middle East, new prospects of economic growth opening up fast and Pakistan’s efforts to accelerate e-commerce call for new policy initiatives in SMEs-led growth in the agricultural value-addition.

For that to happen, a physical survey of the SME sector is a must. “Such a survey can help identify which SMEs fall in the agricultural value-chain and the existing gaps that can be filled in by promoting subsector-specific SMEs,” says a central banker.

Take, for example, the huge economy of sacrificial animals which is transforming, but no big policy initiative has been taken to identify the room available for the growth of regulated SMEs.

Individual farmers breed sacrificial animals with funding from investment-hoppers, middlemen, online sellers of sacrificial animals and cattle farms that put on display pricey animals during Eidul Azha.

“If groups of individual farmers are encouraged to set up SMEs to run the business of cattle breeding, farmers will get far better economic returns,” the banker said. “Monitoring the developments in, and even predicting price trends of sacrificial animal markets, will become easier. The interaction of other SMEs like those in transportation, animal feed manufacturing and allied businesses with cattle-breeding SMEs will become natural and it’ll help us in documenting the Eidul Azha economy.”

Officials of the Small and Medium Enterprises Development Authority (Smeda) say that benefited by some pre-feasibility reports (prepared in collaboration with the International Finance Corporation), a lot of SMEs have sprung up in the agricultural sector in recent years.

These SMEs doing apple gardening, waxing and packaging, apple treatment, dates and fresh fruits processing, fruit dehydration, grapes farming, greenhouse farming of cut flowers, off-season vegetables farming, olive and strawberry cultivation and olive oil extraction, seed processing and hay farming.

The officials, however, stress that there is a need to expand the network of agro-based SMEs as they are concentrated mainly in Punjab and Sindh. Moreover, clusters of agro-based SMEs in inland fish farming, animal breeding, milk and meat processing, wool processing and carpet weaving should be set up to expand their sub-sectoral network.

A senior Smeda official said there are many opportunities for SMEs in technology upgrading and innovation, agricultural knowledge transmission and application, and transportation, wholesale, retail, online marketing and sales.

In the previous fiscal year, banks lent Rs82.3bn to SMEs, which was 11.7pc of their total lending to the private sector.

However, the total stock of SME loans accounted for only about 8pc, or Rs379.7bn, of the total stock of private sector loans as of June 2017, according to the data compiled by the State Bank of Pakistan.

Unless SMEs’ share reaches and stay at 20pc of the total private sector loans, they cannot overcome their financial constraints and no breakthrough is likely in terms of skill enhancement and technology innovation, Smeda officials say.