Dairy and Meat Systemic Change Pathways
October 2015 MDF Pakistan Version 1
Summary MDF Pakistan Country Strategy Poverty In Pakistan an estimated 45% of the population is poor. Poverty levels vary widely between geographic regions and between rural and urban environments.
Poverty incidence is high in rural areas and extremely high in remote rural areas. 60% of the rural population is dependent on agriculture and 80% of farmers are small or landless. There is a need to improve connection between rural producers and developing markets to improve rural household incomes.
While incidence is lower in urban areas, numbers are high and growing due to rural to urban population drift. Poor in urban areas work in informal supply chain activities and there is need to develop more formal employment opportunities.
The poor in both rural and urban areas are vulnerable to climatic and economic shocks. There is a need to improve the resilience of poor households.
Economy Pakistan has a two tier economy. At one level there are large, listed and private companies that are well-integrated into the economy and participate in both domestic and export markets. The second level is the large traditional economy populated by an enormous number of small to medium enterprises serving the domestic market.
Pakistan has a trade deficit of USD 22 billion mainly driven by energy imports.
GDP growth has averaged 3.9% over the past five years, significantly below similarly developing economies in the region. Whilst manufacturing has seen above average growth; the agriculture sector growth has been below average.
Foreign Direct Investment (FDI) has declined due to perceived high security risk.
Agriculture is a backbone for the economy providing employment for 43% of the population and accounting for 21% of GDP.
There is growth in manufacturing, urban services and in agricultural value addition but local ancillary services and supply chains remain underdeveloped.
The agriculture sector is poorly connected to innovation, information and high-quality demand in the cities and overseas.
Capital and connections are concentrated in the hands of few, limiting the ability of new entrepreneurs and regional entrepreneurs to fill the gap in the country’ economic fabric and improve its overall competitiveness.
Economic growth is impacted by imported fuel costs, poor power infrastructure and a high international perception of security risk.
MDF Focus in Pakistan Development challenges in Pakistan include:
Development of formal distribution networks and supply chains that reach small farmers and distant regions and improve the connection between farmers and customers in Pakistan and international markets.
Improving export competitiveness through establishing production inputs and services and product and process innovation to meet international standards.
Supporting expansion of small, innovative and regional business ventures to scale up and broaden the entrepreneurial base of the Pakistan economy.
Increasing the engagement of women in the economy through improved access to information and services and development of employment opportunities.
To address these challenges MDF considers Dairy and Meat, Leather and Horticulture sectors to be effective vehicles for change and will focus on:
Agricultural sectors that have the potential to connect rural and regional households to demand in cities and overseas; focus on an urban sector that allows poor workers to acquire skills and offers opportunities for women.
Horticulture offers opportunities to exploit specific agro-climatic advantages of (mainly borderland) regions to supply Pakistan or the world market; there is a strong focus on establishing better connections and regional entrepreneurship, processing and value addition.
Better access to inputs and information on the one hand, and innovations in supply chains on the other will allow small dairy and meat farmers (mainly in Punjab and Sindh) to become more productive and commercially oriented; for this local and innovate entrepreneurs will have to work alongside established players.
Making retail ready finished leather goods more internationally competitive with improvements in product innovation, process innovation and the availability of ancillary services; it also allows workers to gain skills and increase wages in time and offers opportunities for women.
Partnerships that help to increase the reach and scale of rural value chains and information channels, that help diversify local services, foster new entrepreneurship and reduce the cost of doing business in Pakistan.
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Women’s Economic Empowerment (WEE) Poor women in most rural areas participate in economic activities within the household especially in relation to expenditure decisions and provision of on-farm labour. Their participation visibility depends on social and cultural aspects of the area. In some conservative areas, despite the household being poor, women participate to a lesser extent. In more liberal areas, women are greater economic actors even working as lead farmers. In this complex environment MDF will look at each partnership through the lens of the WEE framework. Alignment with Government of Pakistan The Government of Pakistan’s Vision 2025 includes achieving sustained growth in agriculture through various interventions in production and pre and post harvesting. Private sector and entrepreneurialled growth, gender empowerment, investment, innovation, and capacity building through training and skills development are also emphasised in Vision 2025. MDF’s sectors and focus in Pakistan are aligned with Vision 2025. However on ground business environment is complicated by devolvement of power to provincial and local public sector actors particularly in relation to agricultural policy development and implementation. Note on Systemic Change Areas Pakistan is a big country with a big economy and a vast number of businesses with whom MDF can potentially connect. However only a limited number of businesses provide national coverage and MDF will need to work with regional operators and with businesses interested in growing towards providing national coverage. Larger businesses are principally interested in exporting, supplying products to national level value chains, and providing products and services to large customers. While agricultural production volumes are concentrated in a large number of small farmers these farmers are disconnected from both the product markets and the supply of services and inputs. Finding the right companies to engage in entrepreneurial activity in product value chains and the supply of services and inputs will require working with a range of partners and through these activities MDF will learn more about the sectors and how to engage in development activities that flow down to small farmers. This will of necessity involve a learning period and will be impacted by seasonal supply cycles. Therefore it is expected that achieving significant outcomes from interventions in the dairy, meat and horticulture sector will require a timeline of 8-10 years. Systemic change in horticulture has been captured in two broad pathways. As experience is gained over time we may discover that in each region there is much more to be done, hence change pathways may develop specific to regions. Interventions to expand economic activity in the leather sector, which is not impacted by seasonal supply cycles, are expected to be somewhat easier to both implement and to measure and it would be expected that significant outcomes could therefore be seen in a shorter period such as 5-7 years. Pakistan commenced intervention activity in 2014 and therefore the timeline to make significant impact is expected to go out towards 2024. In the short term it is considered that MDF will need to double activities to make the significant gains outlined in this document.
This document has been prepared on the basis of limited observation of outcomes from the current intervention portfolio and as such should be seen as a living document which may change direction and impact projection as knowledge of outcomes from on-ground experience improves.
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The MDF Framework for Defining and Populating Pathways to Systemic Change The systemic change pathway explained Competitiveness and change in sectors do not depend only on the actions of MDF. Sectors are complex and are influenced by a wide variety of factors such as global markets, changes in the policy and regulatory environment, the availability and quality of infrastructure, the cultural context and the environment. Some changes introduced by MDF will catch on quickly; others have faced barriers and moved slowly or not at all. MDF must be able to define which change areas it needs to focus on to make growth more robust and inclusive and then monitor progress towards achieving the quality of change that can be called ‘systemic’. For this purpose MDF developed its Systemic Change Framework as outlined in the figure below. This framework is applied separately to each key strategic change that MDF aims to foster within a sector or market system. The annexes to this Strategic Guidance Note provide a detailed example of how the framework is applied in Fiji.
MDF Systemic Change Pathway
Application of MDF’s Systemic Change Framework requires a deep understanding of a sector as well as experience working with market players to address constraints to pro-poor growth. The first step in applying the Framework is to develop an inclusive, pro-poor growth strategy for each sector. This sector strategy is typically based in on an Inclusive Analysis of Growth, Poverty and Gender at the sector level combined with a Household Level Analysis of Poverty and Gender Dynamics and defines a vision for inclusive growth as well key constraint areas to inclusive growth. MDF will then proceed to launch partnerships aimed at reducing the constraints identified and unlocking inclusive growth. At the same time, MDF uses the framework outlined above to further define its ‘strategic intent’ for a sector, as accurately as possible given that it will learn more from implementation about what is really needed and realistically feasible. Please refer to MDF’s Strategic Guidance Note on Systemic Change which shows how an inclusive sector growth strategy (for the Horticulture sector in Fiji) feeds into the country strategy, and how systemic change areas support the inclusive sector growth strategy. As mentioned, for each systemic change area, MDF applies the systemic change framework; the introductory section justifies the rationale for identifying the systemic change. Importantly, in time, based on the experience gained from implementing the first partnerships within a sector, it becomes clearer which systemic changes the programme should focus on. As the programme discovers more through implementing its partnerships within the sectors, it becomes clear that some constraint areas appear to be dimensions of, or seem to coalesce around more deepseated problems. MDF then develops a better idea of which changes the market is ready for, and which changes requires more innovative approaches address the problems. Through the interplay between traction gained through partnerships and strategic intent, emerges firmer systemic change areas, which then become the ‘compass’ for programme implementation in the sector. This typically happens around two years into implementation as the first batch of partnerships start to yield results. To help define (and manage, monitor and communicate) the dimensions of change that deserve to be labelled ‘systemic’, MDF asks two fundamental questions: 1) are there appropriate incentives for market players to interact with poor people and to continue, expand and adapt the new business model; and 2) is the adoption and adaptation of the new business model continuing to serve the interests of poor men and women? For each question it has defined three key parameters. The table below reiterates these questions and briefly defines the parameters related to this. It should be noted that the first three parameters refer to the strength of the business case underpinning the change, and other three parameters refer to the beneficiaries of the change. Together they define the quality of change as well as the scale of change, making it truly ‘systemic’.
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Parameters with Systemic Change Framework
Questions
Parameters
Definitions
Are there appropriate incentives for the market players that interact with poor people to continue, expand and adapt the new business model?
Autonomy
Independent action by businesses or other market players to adopt and/or improve a business model promoted by the programme.
Sustainability
The extent to which the business model promoted by the programme is sustainable and/or profitable.
Resilience
The extent to which the market system supporting the business model can adapt to stay competitive, take advantage of new opportunities and recover from adverse shocks.
Inclusiveness
The extent and depth to which the business model as practiced by market players includes and benefits the target group
Scale
The proportion of the potential target group that gets the goods, services and/or jobs promoted by the programme.
Women’s Economic Empowerment
The extent to which the business model includes and benefits women with respect to income, access to opportunities, access to assets, life chances, jobs, manageable workloads and decision making power.
Is the adoption and adaptation of the new business model continuing to serve the interests of poor people?
Then, by asking these two questions using these six parameters, the framework seeks the programme to define a ‘beginning state’ for each parameter. This is the state of the sector or market system at the start of the implementation process (‘at the beginning of the pathway to systemic change’). Once the programme is being implemented it defines the key market or regulatory gaps it seeks to address to make the market system work better.
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This is followed by a description of the ‘end state’ for the same parameter. It outlines how the programme wants to see the market system work. If this state is achieved, the work is done. The end state should be defined as per market needs to work well. Therefore it may occur that the programme defines an end state that it cannot achieve given its current resources and implementation window (contract duration). This makes the Systemic Change Framework a management tool not only for the programme, but also for its investors. It starts to define the ‘total potential’, the ‘total need’ and the ‘total time and resourcing’ required to meet those needs. As mentioned, the space between the beginning state and end state is the gap in the market system that needs to be filled, the pathway to systemic change that needs to be populated. MDF identifies four stages of progression along this pathway, captured for each parameter. These stages are ‘initial’, intermediate, ‘advanced’ and ‘matured’. In time, MDF will make progress against these parameters, but not at an equal pace (there may be very inclusive partnerships that lack scale and to some extent resilience, and partnerships that are strong on autonomy and scale, but less on WEE). Each partnership design needs to be strong and sustainable enough to be considered for co-investment by MDF, but no partnership is perfect. By managing its portfolio MDF will ensure quality of change at scale in a systemic manner. Nevertheless, MDF does not expect that all changes will reach the same level of institutionalisation in the market system within the life of the programme. Some changes may only reach an initial or intermediate level of systemic change, while others may reach an advanced or matured level of change. Using the knowledge and understanding gained from several years of experience, MDF can project the level of systemic change it expects to catalyse two years beyond the life of the programme.1 MDF assesses the progress of systemic change against these projections and analyses why change is happening faster or slower than expected. This helps the programme to better understand market dynamics and adjust its strategies appropriately. Finally, for each parameter, MDF will describe the beginning state and end state of where it is situated in moving forward along the pathway to achieve systemic change. This helps the reader understand how far MDF has progressed in terms of achieving its strategy objective, with whom (which partners), and why. As implementation and insight progresses, MDF periodically updates these stories (as well as, if needed, the desired ‘end state’).
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The processes of change that MDF catalyses during the programme will continue beyond the end of the programme. MDF uses the DCED recommended two years post programme timescale for its projections.
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Dairy and Meat Sector MDF Sector Statement The dairy and meat sector covers production, collection, processing and marketing of livestock products. The focus for dairy is domestic market expansion and for meat is principally export market expansion but also developing domestic formal retail formats. The dairy industry requires increased formalisation of supply structures so that more dairy producers can enjoy full benefits of the growing market demand. For meat, there is a need for more livestock farmers to transform into commercial meat production businesses, instead of retaining livestock as living financial assets.
The Dairy and Meat Market Scale, Constraints and Opportunities Livestock products including dairy and meat represent approximately 12% of national GDP (55% of the value of agricultural production). In Pakistan, about 97% of livestock is held by small farmers with less than five animals. This translates to 40-55 million people having some dependence on livestock for sustenance and livelihoods as part of their overall mixed income. Most cows and buffaloes are concentrated in Punjab and Sindh. Animals are a vital component of rural activity as they are part of a typical farming household’s income generating activities. Milk production is in the region of 40 billion litres per annum of which less than 5% passes through a formal market linkage. There is a 3 billion litre demand supply gap for milk and this will increase due to population increase and improving socio-economic conditions. The milk supply is being supplemented by formal processors reformulating imported milk powder in the absence of an ability to procure sufficient quantities of quality fresh milk. Meat production in Pakistan (excluding poultry) stands at 2.5 million tonnes, of which 64,000 were exported in 2014. The principal export destination has been GCC countries, and in the last ten years, exports have increased by 55,000 tonnes. Future growth however is likely to be constrained by limited markets and transport logistics. Formal meat processors are seeking to expand the product range and customer quality compliance in order to sustain future growth. Growth has occurred in meat exports as well as in domestic markets, especially around the need for improved quality meat and dairy products. The sector has also seen an increase in involvement of formal players such as dairy processors (Nestle, Engro etc.), meat processors and exporters. The demand supply gap of milk is currently being satisfied by imported milk powder. The formal milk processing sector in Pakistan is growing in response to domestic market demand for improved quality and product range, and the development of more formal retailing. While milk processors prefer to source fresh milk, the growing formal retail demand is outpacing their ability to procure sufficient quantities of quality milk. Meat exports have expanded rapidly in recent years but future growth is likely to be constrained by limited markets and transport logistics. There is a need for
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formal meat processors to expand the product range and customer quality compliance to sustain future growth. Small farmers’ access to quality inputs and information on animal husbandry practices to make livestock more productive is limited. The focus of existing dairy processors is on large commercial farms and government extension services are minimal. Hence, small farmers are on one hand disconnected from input markets and services and on the other hand have little incentive to improve quality and increase production because of commitment to the traditional supply chain and the influence of financial arrangements with dodhis and beoparis. The Government of Pakistan realises the potential of the livestock industry to better serve unmet demand in the dairy and meat sectors through improved information dissemination, trainings, access to finance and market linkages. All of which would contribute to modernisation and high value additions to these sectors. However, efforts to date have been limited and not inclusive of small male and female livestock producers. Dairy and Meat is a significant sector of the Pakistan economy that involves large numbers of poor rural households. MDF will focus on this sector of the economy as it provides potential for growth of mid-sized enterprises which supply small scale rural producers with inputs and services and improve access to domestic and export market opportunities. The Position of Poor in the Sector Livestock activities are embedded across the full range of households involved in agriculture production and 80% are small or landless (over six million households). On one hand livestock provide regular income (e.g. dairy products) and on the other hand they contribute to financial security and resilience of farmers as they are readily tradable in times of financial need. Livestock are consequently important contributors to the well-being and resilience of poor and landless farmers. The milk processing sector also includes employment of many poor workers (in processing facilities, at milk collection centres, as traders etc.). The Position of Women in the Sector In the dairy and meat sector, it has been found that women are involved as invisible actors and perform a range of activities like milking, cleaning sheds, watering animals, fodder cutting and feeding. They are not directly involved in the cash transactions, such as sale of milk or meat, purchase of inputs, or accessing formal finance. However, they are involved in joint decision making on household expenditures. For instance, women may be involved in discussions within a household on farm inputs. However, their access to information about quality inputs and animal husbandry practices is limited due to restrictions on mobility of women and lack of interaction with male extension workers. There is opportunity to provide information to women on efficient and time
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saving animal husbandry practices and high yielding inputs, enabling them to have a more effective role in the household decision making process and increase returns on time and effort spent. Major challenges include societal restrictions on mobility of women and the prestige associated with having women in the household who do not work and do not interact with men. Findings also show that as household incomes increase, women gradually reduce on farm working activities. Systemic Changes in Dairy and Meat Based on these constraints and opportunities, MDF has identified three pathways for systemic change in Dairy and Meat sector: 1. Livestock farming suppliers provide access to inputs, services and information to a larger number of small farmers so that required quality and quantities of milk and livestock can be supplied to the developing formal domestic and export market supply chains 2. Milk processors develop formalised supply chain arrangements with small holder farmers to ensure procurement of required quality and quantities of milk 3. Meat processors and exporters work to improve the supply chain of livestock to better enable procurement of required quantities and quality of livestock from small holder farmers and increase investment in innovation and technology.
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Systemic Change Pathway 1 Livestock farming suppliers provide access to inputs, services and information to a larger number of small farmers so that required quality and quantities of milk and livestock can be supplied to the developing formal domestic and export market supply chains Background (‘before picture’) While there is growth in number of larger herds, 80% of Pakistan’s livestock is held by farmers with less than five animals. The larger herds supply into the formal dairy supply chain and have incentive to improve quality and increase production. In dairy, there is a demand supply gap of around 3 billion litres which is currently being met by importing milk powder. A number of formal dairy companies are establishing collection centres to collect milk from small holder farmers providing incentives for quality and increased production through connection to the formal supply chain. In meat, less than 2.5% of annual production is exported. While export of meat has grown over the past few years, there is a need to sustain this growth through improving productivity of livestock and investment in supply chain and marketing innovation. A number of input companies and service providers are developing, however these focus on providing to larger commercial livestock farmers with over 30 head and lack widespread distribution arrangements. Formulated inputs, hybrid fodder, silage and veterinary inputs which improve animal husbandry, health and nutrition are available only in those areas where formal processing activity is occurring. In areas where there is no formal activity, only traditional feed and seeds are available and these often have quality and availability issues. In the traditional supply chain, the market control of the dhodi and beopari is essentially a financing arrangement and inputs are sourced through these financing arrangements often influenced by the dhodi’s and beopari’s connections with suppliers. However they provide little incentive, limited inputs and no information for suppliers to make onfarm productivity improvements. The dhodis and beoparis (each dealing with a range of 10-100 farmers per day) are essentially interested in providing finance to ensure farmers sell produce back to them, rather than improving or increasing production. Inputs supplied by them are often adulterated and knowledge provided on production improvement is non-existent. While the public sector sets the business environment and provides extension and R&D services these are dysfunctional as the research conducted is not applicable to small farmers or never reaches the required target audience. Extension workers are available but information provision is inadequate and never reaches the small farmer. Private sector finds it difficult to engage with smaller grass root farmers, focusing only on large farmers from where they can source large quantities of milk under one purchase arrangement.
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Anticipated ‘end picture’ (when markets work well) Input suppliers deliver quality fodder, veterinary medicines, vaccines, supplements and herd management solutions through widespread trading and retailing distribution systems that deliver to small holder farmers. A number of private and public sector enterprises provide information to the wide spectrum of livestock farmers using radio, television, print media and ICT systems including telecom services to deliver practical and applicable information and encourage uptake of inputs. To support this, government is able to generate updated and relevant research and information as required. Business membership organisations (such as Pakistan Dairy Association, the All Pakistan Meat Exporters and Processors Association) including input suppliers, traders and retailers engage with provincial and national government agencies to accurately reflect the needs of the livestock sector and address constraints to improve distribution of quality inputs such as vaccinations through increased incentives for local private sector production. The public sector is able to access improved information on the status of the livestock product supply chain through better engagement with the sector and as a result, improves business environment and supports appropriate R&D to provide sound advice to input and service providers and reach more small male and female livestock farmers. Expected Pathway to Systemic Change (like number, types and focus of partnerships) MDF aims to work with a balanced portfolio of 20 partners in supplying fodder, supplementary feed, veterinary inputs and information to farmers in MDF targeted regions. MDF aims to work with partners in provision of inputs, both directly and through third parties, including:
Ten formal partnerships (five for fodder and five for supplementary feed) to develop the production of fodder by farmers and third parties and to provide balanced and nutritious supplementary feed products. Fodder partnerships are expected to include green feed, silage and hay. Supplementary feed partnerships are expected to produce ruminant feeds incorporating crop waste, milled by-products and essential nutrients. All feed products are expected to be distributed through networks of small traders.
Five formal partnerships with veterinary medicine distributors and retail networks to upgrade current thin distribution mechanisms so that quality veterinary inputs reach more farmers
Three media, ICT and information partnerships to provide updated and relevant information to farmers and influence the public sector to develop improved information content.
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Two significant business membership partnerships for dairy and meat to engage with the public sector and improve the business environment for small holder livestock farmers.
MDF recognises the challenges associated with improving access to finance. Where partnerships involved with systemic change area 1, 2 or 3 have an opportunity to improve access to finance through establishment of outsourcing arrangements whereby the partner works with a financial institution to deliver financial products for farmer inputs, this aspect will be embedded within the appropriate partnership agreement. Women’s Economic Empowerment A Household Level Analysis of Poverty and Gender Dynamics was conducted in rural areas in mid2015. The rural study addresses poverty and gender dynamics in regions where MDF currently has Dairy and Meat activities. It does not attempt to address national level dynamics. As a result of the above partnerships, women are expected to benefit from increased access to quality inputs and information on animal husbandry practices. For instance, by increasing availability of nutritious fodder appropriate for sale to small farmers, households can benefit from increased yields and incomes, and women will benefit from reduced workloads as they won’t be required to cut fodder. Therefore, MDF will support partnerships that encourage greater women’s involvement as extension workers, improvement in female access to information and services (through multiple channels) and more balanced workloads. Results in time Over 8 to 10 years MDF Pakistan seeks to improve access to inputs and information and reach 100,000 livestock farmers, traders and retailers. It is further expected that up to 1000 FTEs will be created in enterprises providing inputs and information. The number of beneficiaries of MDF will include mostly small farmers who have connected to more formal supply chains thereby recognising the value of improved knowledge and availability of inputs. The impact is expected to reach around 20 to 25% of farmers connected to more formal supply chains2. The creation of FTE jobs will include agriculture labour producing fodder and jobs created in businesses supplying information and involved in purchasing, distributing and reselling inputs.
Around 400,000 farmers currently supply the formal milk sector and a similar number supply livestock for meat export. 2
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Women will benefit from increased income, improved access to information, more balanced workloads due to productivity improvements and will have opportunities to engage input and information supply. Feasibility, Efficiency and Risks Experience to date by the MDF team in Pakistan indicates that there is a sufficient body of potential partners interested in establishing networks to get inputs and knowledge to a wide body of dairy and meat producers. There are several risks in this systemic change pathway:
Growth projections of the formal milk and meat sectors are not realised and this effects formal sector product demand and subsequent demand for information and inputs. This could be mitigated by taking learnings from successful innovations in the formal supply chain and refocusing on increasing uptake in the traditional supply chain.
Strong uptake of inputs encourages third parties to deliver adulterated and poor quality inputs. MDF will encourage partnerships where packaging integrity passes through to the user.
Increased demand from livestock farmers for inputs may encourage Tier B businesses to supply substandard products resulting in an influx of lower quality inputs in the market. This can be mitigated by ensuring efforts are made in not only distribution of inputs but also in supply of quality inputs.
Influences of the middlemen in the traditional supply chain actively undermine efforts to increase the formal supply chain. This can best be mitigated by good communications and knowledge transfer.
An outbreak of a livestock disease that restricted delivery of milk or meat into the domestic or export supply chain. MDF partnerships in veterinary inputs would be expected to mitigate the impact.
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Systemic Change Pathway 2 Milk processors develop formalised supply chain arrangements with small holder farmers to ensure procurement of required quality and quantities of milk. Background (‘before picture’) In dairy, 95% of milk is supplied into the traditional supply chain and less than 5% of milk production including that produced by large dairy farms is processed into retail ready products by 12-15 dairy processing companies. There is a 3 billion litre demand supply gap for milk which is being supplemented by reformulating imported milk powder to satisfy developing demand for retail ready dairy items. Dairy processing companies are in the early stages of establishing collection centres to source milk from a wide range of dairy farmers. As these collection centres expand they will provide connectivity between farmers and the formal dairy processing supply chain. These processors while recognising the opportunity to increase household level production are currently focused on expanding the number and reach of the collection centres and developing the necessary infrastructure to integrate these centres. Traders in the traditional supply chain play an important role as financiers across the wide range of household farming activities. These traders are focused on buy sell margins and income generated from provision of informal finance. They have little or no interest or knowledge to promote improved productivity from their suppliers. They are often involved in supply of inferior inputs to farmers simply because they get better trading margins on these inferior products. Nonetheless their access to finance is crucial to many small holder farmers. The levels of financial involvement by traders and distributors in these traditional networks is focused on providing credit to producers and very little is invested in improving milk collection, distribution and retailing facilities. Larger milk processors are active in representing their specific issues but currently have limited interest in making representations across the value chain. Anticipated ‘end picture’ (when markets work well) Enterprises sourcing milk including third party collectors establish themselves within each MDF targeted geographic areas and source milk via connected networks that deliver quality dairy products and through price incentives promote improved farm productivity. Enterprises such as financial institutions or milk processors engage in delivering financial products that allow farmers to improve productivity. Supply to the improved dairy supply chains and access to finance for farmers becomes an adopted practice in South Punjab and Northern Sindh. Collection centres in Southern Punjab (for example, Leiyyah, Muzaffargarh, Rahimyar Khan, DG Khan and Bahawalpur) and in some parts of Northern Sindh become commonplace, sourcing quality milk both directly from farmers and through third parties (dodhis, farmers, associations, independent
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collectors/ transporters) for delivery of improved quality products to the end market. The focus being on Southern Punjab and Northern Sindh as these regions are remote from large urban populations and as a consequence they receive lower milk prices due to distance and poor connections to traditional milk markets. Business membership organisations that represent enterprises involved in improving the milk and dairy product supply chains engage with provincial and national government agencies to accurately convey the business environment needs to deliver quality products to end users and consumers. The public sector receives improved information on the status of dairy farmers and engages with the sector to improve the policy & economic settings and conduct appropriate R&D to support the development of a more conducive business environment which encourages investment in production of quality inputs like vaccinations and nutritious fodder, effective cold chain distribution mechanisms and relevant up to date information for small male and female livestock producers. Expected Pathway to Systemic Change (like number, types and focus of partnerships) MDF aims to work with with a balanced portfolio of 15 processing partners in the formal dairy sector, intermediaries who collect milk and deliver to collection centres, and financial institutions who develop products to support the dairy value chain in MDF targeted regions. MDF aims to work with the 15 partners in establishing farmer delivery systems, both directly and through third parties, including:
Five partnerships with enterprises in Southern Punjab and Northern Sindh that are willing to establish models that demonstrate procurement of milk in regional areas both directly from farmers and through third party collectors focusing on improved quality control and increased volumes.
Five partnerships with third party collectors (e.g. big dodhis, farmers associations, independent collectors) as change agents to improve connectivity between informal milk producers and formal dairy markets.
Five partnerships with enterprises to develop support markets (e.g. transportation, cold chain, logistics, financial products)
Women’s Economic Empowerment A Household Level Analysis of Poverty and Gender Dynamics was conducted in rural areas in mid2015. The rural study addresses poverty and gender dynamics in regions where MDF currently has Dairy and Meat activities. As a result of the above partnerships, households are expected to benefit from increased access to market demand for better quality milk, providing households with a greater choice of buyers to sell to and hence more effective joint decision making processes. They will also benefit from improved return on effort and time spent on livestock, through better connectivity to
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markets to meet the growing milk demand. Through better financial products available to men and women, it is expected that women will have more options to invest and reinvest and greater negotiation power as a result. It has been observed that when women have access to finance through loans, they also have more influence in expenditure decisions within a household and more respect from other family members. MDF will support partnerships that encourage greater women’s direct financial involvement in the formal dairy processing supply chain including connection to improved financing and payment systems. Results in time Over 8 to 10 years, MDF through its partnerships seeks to directly and indirectly reach 16,000 rural milk suppliers, and create 500 FTEs involved in sourcing, collecting and quality control, to improve incomes and dairy productivity. This level of uptake will demonstrate significant impact since approximately 4-5% of farmers currently supplying milk to improved supply chains will be impacted3. MDF will focus on establishing partnerships that benefit small scale farmers in South Punjab and Northern Sindh, areas that are disconnected to large urban markets. Successful interventions will then be encouraged to target the wider dairy supply sector. Women will benefit from increased household incomes, improved access to extension services and market information and in rarer cases access to markets with the possibility of improved financial management systems. Feasibility, Efficiency and Risks MDF has already established partnerships with formal milk processors. In field experience of the team indicates that there exists a sufficient body of partners for MDF to engage in activities including third party collectors and support market businesses. Risks in this systemic change pathway include: 
Floods may occur in Southern Punjab and Northern Sindh but MDF activities will improve the resilience and post-flood recovery will be easier for milk producers as milk prices will be higher and the formal sector will speedily reactivate collection centres once transport connections are secure.
The percentage of rural farmers will be significantly higher since considerable quantities of milk supplied to formal milk processors is sourced from urban and peri-urban producers. 3
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The impact of adulteration in milk supply may result in reduced market demand. This will be mitigated as MDF will work with enterprises to ensure quality control is maintained.
Private sector milk processors may react to changes in global prices and engage in replacing locally produced milk with reconstituted milk powder. Mitigation of this risk is to improve milk processors’ engagement with benefits resulting from sourcing quality fresh milk from domestic producers.
An outbreak of a significant animal disease that reduces the availability of milk volumes will be mitigated by improved access to veterinary inputs (Systemic Change Pathway 1)
Political influences alter to reduce support for domestic milk production and processing. According to Government of Pakistan’s Vision 2025, the public sector sees livestock as a key area for modernisation and value addition.
14 | Market Development Facility
Systemic Change Statement 3 Meat processors and exporters work to improve the supply chain of livestock to better enable procurement of required quantities and quality of livestock from small holder farmers and increase investment in innovation and technology. Background (‘before picture’) It is estimated that 2.5 million tons of red meat is produced in Pakistan per annum. 64,000 tonnes (approximately 2.5% of production) of red meat sourced from some 500,0004 livestock farms were processed and exported by approximately 20 processor/exporters in 2014. Meat exports have expanded rapidly in recent years and are expected to continue to increase at better than 10% per annum. There is strong growth in demand for new domestic retail formats for red meat driven by the rapid development of the urban middle class who are conscious of food safety and respond to convenient shopping formats. Examples of this include MeatOne (currently undergoing an IPO to raise 1 billion rupees) and Zenith integrated processing and retail formats as well as integration of meat into full service super markets. The major constraint that exporters and domestic retailers are encountering is difficulty securing the volume and quality of livestock required to meet market demand for improved food safety, improved eat-ability and customer compliance requirements. Feed finishing activities are beginning to emerge to address these issues. Currently livestock for these developing markets are being sourced through traditional markets where signals for better quality livestock are lost in the market trading chaos caused by eyeball pricing. At certain times e.g. Eid-ul-Adha, market prices are increased considerably but so does market confusion, as occasional buyers enter the market. At this time, healthy, well-finished animals can fetch a significant premium. Traditional beoparis focus on maintaining their business activities through margins collected on provision of inputs, trading on cattle and providing finance. The beopari has little incentive to encourage farmers to produce quality animals. Major markets for livestock trade are located in the major cities of Punjab or Sindh. The population of small and large ruminants are dispersed across the countries, whereas processors are concentrated in Lahore and Karachi only. Beoparis transport animals from the distant areas to the major city markets often via other regional markets and as a result they incur significant transport
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1.5 cattle per household and five small stock per household
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costs. One of the economic consequences of transporting animals, especially small ruminants from distant locations is mortality. Most farmers treat meat animals (male calf resource as distinct from dairy females) as a financial asset to be realised in times of household financial need rather than for sale to maximise market opportunity. In particular the male calf resource available from the dairy sector underperforms. Extension services and R&D provided by the public sector has very little impact on small livestock farmers. In some areas, the public sector distorts the market making it difficult for private sector engagement (e.g. vaccines). The recently formed All Pakistan Meat Exporters & Processors Association with 30 members is the only business oriented organisation representing the meat sector. This association requires support and capacity building. Anticipated ‘end picture’ (when markets work well) Meat processors, wholesalers, retailers and exporters understand the value associated with supplying improved quality meat products to domestic and export markets and engage in market innovation and development. Enterprises including farms and feedlots are engaged in feed finishing as an intermediary step to deliver quality livestock. More robust trading systems based on objective measures and a price grid are used to incentivise livestock producers to improve livestock quality and farm productivity. Livestock farmers understand how to optimise the contribution to household income and invest in knowledge, inputs and infrastructure for the efficient production and sale of improved quality livestock. Information and input suppliers engage with meat processors, feed finishers and livestock farmers and deliver information and inputs appropriate to the increased production of quality meat with particular focus on improving outcomes from the male calf resource. Business membership organisations that represent enterprises involved in improving the supply of meat products to domestic and export markets engage with provincial and national government agencies to accurately convey the needs and outcomes associated with production of improved quality meat products and herd productivity. The public sector receives improved information from organisations representing the meat supply chain on the status of livestock farmers and engages with the sector to improve the business environment and conduct appropriate R&D to support the development of animal health and traceability mechanisms to improve the meat supply chains and the ability of farmers to deliver higher volumes of improved quality livestock.
16 | Market Development Facility
Expected Pathway to Systemic Change (like number, types and focus of partnerships) MDF will work with 16 partnerships across the meat supply chain including retailers, wholesalers, exporters, processors, feed finishers and livestock traders with the purpose of connecting livestock farmers to supply chains that are prepared to incentivise production of improved quality meat products. MDF will work with partners to establish livestock farmer connectivity with markets including:
Three partnerships with meat processors, exporters and third party providers to improve access to export markets and compliance with certification requirements (traceability, veterinary protocols, halal, animal welfare, transport logistics, etc.)
Two partnerships with meat processors and training and technology providers to establish ranges of innovative meat products for the domestic and export markets and improve the distribution and retailing of meat products.
Five partnerships with feed finishing enterprises to strengthen the feed finishing model to produce livestock that comply with weight, age, grade customer requirements.
Four partnerships with service providers (associations, media channels, ICT system providers, etc.) to establish improved traceability and herd management systems and to deliver information to livestock farmers on engagement with the developing organised supply chain.
Two partnerships with business membership organisations to influence the public sector to develop improved information content, business environment and conduct relevant R&D particularly in relation to animal health and traceability.
Women’s Economic Empowerment A Household Level Analysis of Poverty and Gender Dynamics was conducted in rural areas in mid2015. The rural study addresses poverty and gender dynamics in regions where MDF currently has Dairy and Meat activities. Through this partnerships, women are expected to benefit from improved market access, an increased choice of buyers and increased decision making as a result. Women in particular are involved in taking care of the calf resource within the household, and focus on providing information and inputs to encourage reinvestment in animals will need to be directed particularly to women livestock farmers. Where appropriate MDF will encourage partners to establish connections between women’s associations and Micro Finance Institutions (MFIs) who target women to offer loans with easier repayment conditions for livestock production.
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Results in time Over 8 to 10 years MDF seeks through its partnerships to improve incomes and livestock production through reaching 40,000 livestock farmers. It is further expected that up to 1000 FTEs will be created in collecting and trading animals, operating feedlots and further processing in meat plants. This level of uptake will demonstrate widespread impact since approximately 8-10% of the 500,000 farmers currently supplying livestock to organised supply chains will be impacted. MDF will focus on establishing partnerships that benefit small scale farmers in South Punjab and Northern Sindh, areas that are disconnected to large urban markets. Successful interventions will then be encouraged to target the wider livestock supply sector. Women will benefit from increased household incomes, involvement in animal husbandry and access to market information that will assist them to balance their workload. Feasibility, Efficiency and Risks In field experience of the MDF team indicates that there may be some hesitancy in establishing partnerships as the development of improved domestic retailing and exporting is in its early stages and as a consequence supply chain enterprises are somewhat reluctant to engage in partnerships with third parties such as MDF. While there is sufficient partners to approach, finalisation of agreements may take longer to negotiate. Risks in this systemic change pathway include:
An outbreak of a significant animal disease that reduces the availability of quality livestock will be mitigated by improved access to veterinary inputs (Systemic Change Pathway 1)
Private sector meat processors may react to changes in global prices and reduce export. Mitigation of this risk is to expand meat processors’ product range and market access to improve resilience against global market price changes.
The imposition of market access conditions by importers e.g. traceability may significantly impact on meat exports. The development of feedlots and traceability will assist to mitigate.
A downturn in the domestic economy may result in a decline in the growth of new domestic retail formats. Present indication is that this is unlikely.
The impact of climate catastrophe that results in significant loss of animals or feed resources will alter the supply demand equation and result in higher domestic prices and reduced exports. The development of improved retailing formats servicing the urban middle class will assist to mitigate this.
18 | Market Development Facility
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Political influences alter to reduce support for livestock production and processing. According to Government of Pakistan’s Vision 2025, the public sector considers livestock as a key area for modernisation and value addition.
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