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Pakistan Agribusiness Report Q1 2012

Pakistans agricultural output has steadily declined in its contribution to GDP in the past decade, down from 24.0% in 2000/01 to 20.9% in 2010/11. That said, the sector still employs the largest number of workers in the population and we expect the industry to remain a government priority as the country deals with issues of food security and the vulnerability to natural disasters. Over the long term, we foresee the dairy, poultry and wheat industries as benefiting the most from increased investment.

However, despite the existing network of irrigation systems across the country, we believe that significant improvements in infrastructure and better supply chains will have to be implemented in order for the country to reap the full benefits of its fertile soil.

Key Trends

- Rice production out to 2015/16: 7.5% to 7.3mn tonnes. We expect the country to increase its share in the basmati rice trade as production expands over our forecast period.

- Wheat consumption out to 2016: 14.2% to 25.3mn tonnes. Consumption growth will be driven by rising incomes and population growth, as well as increased access to good-quality milk.

- Sugar production out to 2015/16: 35.1% to 4.8mn tonnes. Large-scale consumers such as confectioners, candy makers and soft drink manufacturers account for about 60% of the total sugar demand and will be the main drivers of growth.

- 2012 Real GDP Growth: 3.8% (up from 2.4% y-o-y in 2011; forecast to average 3.7% from 2011 to 2016).

- Consumer Price Inflation: 11.2% average in 2012 (down from 13.7% in 2011).

- Central Bank Policy Rate: 12.0% (lower than 14.0% in 2011)

Industry Developments

In October 2011, the Securities and Exchange Commission of Pakistan (SECP) added wheat to be traded openly on its exchange. We believe that this will facilitate the flow of information to enable stakeholders to better hedge according to their needs. According to the Commission, the new delivery-based futures contract would meet hedging requirements of all market participants including farmers, millers, food manufacturers and processors, retailers, wholesalers, corporate buyers and consumers. It will also allow for more efficient price discovery, instead of being subject to the bargaining power of the millers. The contract is also expected to assist the policymakers by giving demand, supply and price signals which will be helpful in making policy decisions for the wheat industry.

South Asia rice exporters should benefit the most from the recent rice trade disruptions out of Thailand. So far, traders report that more than 100,000 tonnes of rice for export have been stalled as a result of the countrys worst flooding in decades. Some sources estimate that this could rise to more than 300,000 tonnes. Given these developments, the spotlight has now turned to South Asia to meet demand for the grain in the near term.

Despite the recent floods, which destroyed approximately 20-30% of the sugarcane crop in the Sindh region, we forecast 2011/12 sugar output from Pakistan at 4.1mn tonnes, 2.5% up from our previous estimates. This is largely due to an overall 5-8% increase in sugarcane yields, area harvested and favourable monsoon rains during the growing season. Sugar crushing is estimated at 82% and sugar recovery at 8.8%. According to provincial reports, higher sugar prices farmers received last year, coupled with strong demand from the industrial sector, have boosted planting in the provinces of Punjab, Sindh and Khyber Pakhtunkhawah.

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