Strategies for Transforming Agro-Commodity into Agro-industrial Clusters in Pakistan (Article)

The main focus of this study is to propose a plan to transform largely existing agro-commodity clusters in Pakistan having little value addition into agro-industrial clusters in which all stakeholders along the value chain are integrated to supply the quality as demanded by the market. Main triggering factors are to induce quality of agricultural products, establish markets of these, and train stakeholders. To make this transformation small-farmer inclusive, stakeholders have to be organized into groups, incentivize them to participate in small-scale agro-business projects, and link them with markets. The plan will require an investment of US$1039 million, 40% of which will come from the government, giving an IRR of 62%. Project management units (PMUs) to implement the Plan are proposed at the provincial level.

Introduction

Following Porter’s (1998) definition for industrial clusters (ICs), an agriculture-based cluster (ABC) is defined as “a geographically proximate group of commercial farmers of a product or closely-related products, and related companies and institutions for input supply, processing and service provision”. The ABCs can be further classified into: (1) agricultural commodity clusters (ACCs), and (2) agro-industrial clusters. (AICs). The ACCs supply fresh but low-quality agricultural products with little grading and processing, while the AICs market graded or processed agricultural products following strict quality standards as demanded by the market (Otsuka & Ali, 2020). In other words, in AICs all downstream and upstream stakeholders along the value chain and related institutions are properly integrated, while such integration is weak in ACCs.

It has been observed that several agriculture commodities, especially high-value products (HVPs), are produced in clusters. Examples of clusters of HVPs are provided by Ali (2020) in Pakistan, Chatterjee & Ganesh-Kumar (2016) in India, Briones (2015) in the Philippines; Zhang & Hu (2014) in China; Cavatassi, et al. (2011) in Ecuador; & Galvez-Nogales (2010) in Asia, Africa, and Latin America. These studies argue strong roles of AICs in enhancing productivity, employment, and stakeholders’ income by (i) creating synergistic links among cluster stakeholders; (ii) facilitating collaborative actions to meet the quality standards; (iii) provide better market access; (iv) easing innovation and its dissemination; (v) producing specialised skill labor; (vi) enabling policy makers to sharply focus on cluster issues; (vii) creating spill-over effect of innovations; and (viii) formulating networks to protect cluster interests thus creating social, political, and economic capital. All of these roles of clusters improve competitiveness thus enhancing exports or reducing imports of cluster products.

Despite the established role of AICs in agricultural development, the policies, strategies, and implementation package to develop AICs is not well-defined, especially in the Pakistan situation. The purpose of this paper is to propose such a package after evaluating the status of agriculture, and identifying gaps and potential of agriculture clusters in the country. In earlier studies, several individual factors have been highlighted to transform ACCs, but an integrated approach incorporating and prioritising these factors is lacking. Using successful examples from the literature, macro-data, and our consultations with stakeholders in 33 HVC clusters in Pakistan, the role of product quality, capacity building, small-scale value addition and processing units in rural areas, farmers’ entrepreneur groups, and linking these groups to markets are underscored. Necessary incentives to encourage first risk-taking movers in a cluster, encourage innovations, and enhance private public-private partnership for the development of cluster infrastructure are elaborated. The necessary policy reforms in the seed, seedling, and output markets, and subsidy structure in Pakistan are outlined. The outline of a unit to implement these reforms is also provided.

The framework of this article is as follows. The data used in this study are explained in Section 2. The status of agriculture clusters in Pakistan is described in Section 3, while Section 4 lays out the cluster-development based agriculture transformation plan (CDBATP) by explaining strategies, cluster-level incentives, and reforms required to transform ACCs into AICs. Section 5 provides financial requirements of the plan and its economic viability, while an implementation structure for the plan is laid out in Section 6. Major findings of this study are summarised in Section 7.