Global food retail sales are about $4 trillion annually.

► Pakistan is home to the world’s sixth largest population with  a  growing  middle  class.  As  of  2018,  there  are approximately 17 million middle class households and 102 million middle class individuals.

► Food processing accounted for an annual  average  of $223.5m in FDI from 2012-2018.

► Pakistan’s food processing industry is broadly categorized into the following 4 sub sectors:

  1. Value-added  and  frozen  food  processing  sectors, including canned foods
  2. Edible oils and Fats manufacturing/processing units
  3. Beverage production units
  4. Bakery and confectionary manufacturing units.

►    Food processing companies are further categorized into either informal/cottage establishments or formal establishments.

►    The three major industry groups are (1) frozen food (2) value addition in major food crops and (3) fruits, vegetables and intermediate products.

►    Most of the food industry in Pakistan is concentrated in Punjab (60%) followed by Sindh (30%), KPK (6%), Baluchistan (2%) and ICT (2%). In total, there are approximately 2500+ food processing units in Pakistan.

► Pakistan was awarded the Generalized Scheme of Preferences (GSP) Plus Status (Zero to Low Duty) by the European Union in 2014 which has the potential to greatly uplift the exports of processed food products.

►    Major players  in  the  sector  include  Pepsi, Coca  Cola, Unilever, Nestle, Mitchells, Engro Foods, K&N’s, Shezan, Shan Foods, Dawn Foods.


MARKET STRUCTURE AND DYNAMICS

The different categories within food processing

Frozen Foods:

A growing population, coupled with an increase in urban lifestyles has been the primary driver behind the rising demand  for frozen food  products. Additionally a budding retail phenomenon is finding its way in the urban markets. This factor has been complemented with the  rise of malls, super markets, hyper marts, drug marts e.g. Metro, Al Fatah and Hyperstar, instead of the traditional kiryana and general stores. Local organizations such as Dawn Foods, season foods, K&N’s, Sabroso & Sufi have made significant impact in the market with their frozen food products.

The market for frozen foods has grown rapidly in  the  recent  years owing to an adaptation towards a more urban way of lifestyle.

Value Addition in Major Food Crops:

Pakistan is one of the largest producers of industrial crops such as rice and wheat. Such crops can be used in the production of a variety of different products such as cereals, macaroni, spaghetti, pasta etc. Good food processing techniques such as extrusion are being utilized in several developed countries, and are now finding its way to Pakistan as well. Currently, the extrusion technology is being utilized in Pakistan in the processing of food products like cereals, pasta, snacks etc.

Crops such as wheat, rice, which are in abundance, are used to produce products such as cereal, noodles, macaroni, pasta, spaghetti etc..

Agri Food Processing:

This sector includes all the agricultural food produce (primary). This sector alone  accounts  for  21%  of  Pakistan’s  GDP  and  includes  the  primary processing of fruits, vegetables, flour, sugar, pulses and grains. More than

22 varieties of vegetables are produced in Pakistan and there are approximately 1,400 flour mills. The country is ranked  5th in the world cane acreage and 9th in sugar cane production.

Pulses are the most important source of vegetable protein in Pakistan and are cultivated on 5% of the total cropped area.

This  area  includes  all  the  food that   is   produced   agriculturally. This  includes  primary  processing of fruits and vegetables, fresh produce,  flour, sugar, pulses and grains.

Beverages:

The beverage processing industry’s main products include dehydrated products, fruit products, including fruit juices/drinks, canned fruits and carbonated beverages. The industry has been categorized into two sectors broadly: (1) Juices, squashes and syrups and (2) Aerated beverages. Both the sectors have recorded an impressive growth with major players such as Pepsi, Coca Cola, Nestle, Mitchells, Shezan, Maza etc. Their production units are mostly located in the Punjab specifically Lahore, Sargodha and Bahawalpur.

Edible Oils & Fats:

The total availability of edible oil  from all sources in Pakistan  is estimated at   approximately   3   million   tons.   23%   of   oil   seeds   are   produced domestically while the  remaining is mostly imported which provides a huge opportunity for an increase in domestic production. These oil seeds are used extensively in the vegetable ghee and cooking oil industry of Pakistan which is one of the largest manufacturing industries in Pakistan. There are approximately 160 small and medium sized  vegetable ghee and cooking oil units spread all across Pakistan.

The edible oil and fats sector includes   vegetable oil, ghee and margarine.  The  domestic  source of edible oil is cotton seed, sunflower, canola and rapeseed.

Fruits, Dairy, Vegetables & intermediate value added products:

Pakistan is the 4th largest   milk producing country in the world which provides tremendous opportunities for value added products in the dairy sector. In the fruits and vegetable sectors, there are more than 25 processing plants. Most of the these are citrus based owing to its abundant acreage. Following citrus are mangoes which are abundant in Southern Punjab and Sindh. The major processing plants are located in Peshawar, Lahore   and   Karachi.   Value   added   products   include   jams,   jellies, marmalades, squashes, canned fruits etc.

Pakistan is known for its high quality fruits,  vegetables  and  dairy.  There are more than 25 fruits, vegetables and intermediate value added processing plants in Pakistan


Key highlights of Pakistan’s food processing sector

  • 4th largest milk producer in the world
  • 11th largest citrus producer in the world
  • 35 different varieties of vegetables produced
  • More than 30 varieties of fruits produced

With a population of over 200 million people, Pakistan is the sixth most populous country and the 43rd largest economy in the world. In the current global economic scene, Pakistan is being seen as the top emerging market economy in South Asia that is progressing towards a more advanced stage through rapid growth and industrialization. Pakistan is being classified as  one of the  Next  Eleven (N-11) countries that  have the  potential to become one of  the  world’s large economies in the 21st century. Economic growth of the country has been on a rise during recent years; measured at 5.4% in 2017 and 5.8% in 2018 with projections forecasting it to be above 5% in the next 3 years. The government is fully committed to capitalizing on the emerging growth trend and is working hard to ensure implementation of all the necessary steps in the right direction to increase the flow of private sector investment.

The food processing sector of Pakistan has the ability to create spillover effects in multiple other industries such as food packaging, bottling, retail chains (hypermarts, supermarkets) etc. The main sub-sectors however that need to be focused on a priority basis include:

1.        Dairy

2.        Value addition in fruits

3.        Frozen foods (fruits, vegetables and meat)

4.        Olive oil extraction units.

5.        Potato powder and flakes manufacturing unit


Areas to invest in Dairy

►          The dairy sector in Pakistan plays a significant role in the national economy and its value is more than that of the wheat and cotton sectors combined.  The dairy and livestock sector alone contributes 11% of Pakistan’s. GDP and 49% of the value addition in the agricultural sector Pakistan’s current annual milk production is close to approximately 54 billion liters per annum which makes it the 4th largest milk producer in the world.

►          Pakistan is a population of 200 million people approximately. Amongst all household expenditures on food items, nearly 30% is spent on milk and dairy products. A major proportion of milk is consumed in tea which is a common drink so milk is demanded by every household in the country.

►          Milk is one of the most popular food items in Pakistan and is consumed as fresh, boiled, powdered and in processed  form  such  as  yogurt,  ghee,  lassi (buttermilk),  butter,  cheese,  ice  cream,  sweets and in  other confectioneries. Indeed, the dairy sector opens up the sheer possibility for Pakistan to earn nearly $30 billion from exports of the dairy products on more than one count.

►          The  Government  of  Pakistan  formulated  its  first  ever  Livestock  Policy  in  2007  based  on  which  many corporations have made significant investments in the development of cold-chains in remote dairy producing areas. The government has also started giving incentives for the development of the dairy sector. These include regulatory measures for imports of high yielding animals, semen and embryos for cross breeding, duty free imports of veterinary dairy and livestock machinery/equipment and exemption from retail sales tax for processed products.

►          Pakistan has one of the highest levels of urbanization in South Asia; by 2030, 50 percent of the populationn is expected to live in cities. This coupled with the population increase is expected to increase the demand for dairy and related goods and services.

►          The Dairy sector has recently been able to attract significant FDI. In December 2016, a Dutch FMCG giant, Royal Friesland, acquired 51 per cent of Engro Foods Pakistan, which was one of the largest private sector foreign direct investments in Pakistan’s dairy sector, amounting to $450 million. Under the new deal and 2020  strategy arrangements, Engro Foods will aim for higher milk quality, variety of milk packages and products and farmers’ capacity building leading to a reduction in poverty.

►          Around $800 million of foreign and local investment has taken place in dairy farms and the dairy processing sector over the last five years in Pakistan.

►          Proposition: Establishment of efficient mini pasteurization plants, milk chilling units, storage facilities and refrigerated transport systems.


Areas to Invest Value addition in fruits

CITRUS

►   Citrus is the largest produced fruit of Pakistan (11th in the world) with its major production hubs concentrated in Punjab. In 2016, the province produced  2.34  million  tons  of  citrus  fruit; accounting for 97% of the national production. Sargodha is the largest citrus producing district that accounted for 53.1% of the provincial production in 2016.

►   In 2016, 36% of the total citrus global trade was constituted by the orange juice products; 32.5% of which  was  that  of  frozen  concentrated  orange juice.

► Kinnow can be processed to produce ‘Frozen Concentrated Kinnow Juice’ (FCKJ) which is the raw material   to   produce   ready-to-drink   juices   and drinks. FCKJ manufacturing is an attractive investment opportunity that derives its rationale from abundant availability of raw material, uniqueness of the local Kinnow fruit, high value addition potential, large export and local markets and presence of an existing industrial cluster. Along with  the  main  product  FCKJ,  Kinnow  peel  oil, Kinnow pulp, cold press peel and waste peel are the byproducts of the manufacturing process.

►   There is also a large local demand as well by the local   fruit   juice   processing   sector.   Citrus-based juices and drinks represent an important product category  in  the  local  market.  The  local  ‘Juice, Nectars and Still Drinks’ (JNSD) market has grown at a high rate of around 16% during the past decade. The size of the local beverage market in 2017 was estimated to be 44 billion liters. JNSD market is around 4% of this market which in 2018 was estimated to be 2.0 billion liters. Juice and nectars market is around 10% of the total JNSD market which means that the estimated size of local juice and nectars market of Pakistan in 2018 is around 200 million liters.

►   Major     import  markets  for  frozen  concentrated orange juice are as follows: 1 – USA, 2 – Germany, 3 – Japan, 4 – China, 5 – Indonesia

MANGOES

►   Mango is Pakistan’s national fruit and the second most important fruit crop. The total area under cultivation  for  mangoes  is  167.5  thousand hectares  with  a  production  of    1,732  thousand tons per annum.

►   The main mango growing districts in Punjab are Multan, Bahawalpur, Muzaffargarh and Rahimyar Khan. In the province of Sindh it is mainly grown in Mirpur Khas, Hyderabad and Thatta while in the province of KPK it is grown in D.I.Khan, Peshawar and Mardan.

►   Pakistan  currently  produces  approximately  2%  – 3% of the world’s mangoes which also makes it the 4th  largest mango producer in the world. All in all there are around 250 varieties of   mangoes that are produced.

►  In terms of exports, UAE has been the major destination for Pakistani mango exports followed up by the UK.

Currently only 3-4% of the Pakistani mango produce is processed into value added products such as pulp for use in drinks and ice creams, canned mangoes and dried mangoes. Therefore there lie tremendous opportunities for investment in value addition of mangoes.

1.  Mango Pulping Facilities: Mango pulp is an important value added product which has huge demand  in  both  the  domestic  and  the international  market.  The  local market  for  fruit juices, nectars and drinks has been growing at a very rapid pace in the last couple of years.

2.  Dried Mango Products: Dried mango is an important value added product processed  many countries across the globe. In terms of dried mangoes,  mangoes  from  Sindh  have  a  unique taste and can be converted into dried mangoes considering locations such as Mirpur Khas, Hyderabad and Thatta produce abundant mangoes.

3.    Fresh mango grading and packing facility

4.    Mango   Juices,   nectar,   squash,   yogurt,   jams, jellies,   ice   creams,   mango   leather,   chutneys, pickles etc.


Areas to invest Frozen foodsFruits, vegetables and meat

►   The Pakistan frozen food market was valued at USD 489.51 million in 2017. A report from December 2016 said that

China had overtaken the EU and Japan at that point to become the largest seafood export market for Pakistan.

►   Frozen vegetables and fruits are produced in large quantities around the world. There is a growing international trade of these products. In 2015, the total export market of frozen vegetables was USD 6.07 billion. Common products traded under this category include frozen peas, potatoes, beans, spinach, strawberries, raspberries, sweet corn and variety of other vegetables and fruits. This  opens a window for the vegetables and fruits farmers of Pakistan to sell their surplus produce that is available in large quantities during peak production seasons. Freezing is an important process to effect this value addition to fresh produce. The technology used for this purpose is known as Individual Quick Freezing (IQF). Investment in IQF facilities for fruits and vegetables has the potential to reap multiple benefits.

►   ‘Individual Quick Frozen vegetables’ is a major category in the world export market of horticultural products and Pakistan produces very high quality varieties of vegetables which have a huge potential if processed. The products considered for individual quick freezing include peas, potatoes, carrot, spinach, bitter gourd, okra and mango. There is abundant availability of these vegetables and fruit for producing the value added frozen products. Major share of the fresh produce of vegetables and fruits is consumed in the local market, however it has major export potential as well.

►   Availability of fruits and vegetables in Pakistan: Pea is an abundantly produced vegetable in Pakistan. In 2014-15, total national production of peas was 139,233 tons. Furthermore, potato is another abundantly produced vegetable in Pakistan. In 2014-15, total national production of potatoes was 3.99 million tons. Carrot, Bitter Gourd, Okra, Spinach are also produced in all the districts of Punjab. Larger production centers of these vegetables exist mostly in and around central Punjab with Sheikhupura, Gujranwala, Faisalabad, Kasur, Okara and Lahore being the key districts. Mango is a major fruit produced in Punjab. In 2014-15, Pakistan’s total mango production was 1.72 million tons.

►   In the frozen meat segment the market is preliminarily driven by the convenience factor and the rising demand for animal-based products, such as kebab, parathas, meat balls, sausages, etc. The ready-to-cook (RTE) food segment in Pakistan has also witnessed the emergence of frozen food companies in Pakistan that are increasingly catering to tier-1 cities and corporate zones of the country. The key regional players, such as Dawn Foods and K&N’s, have also embarked upon providing convenience foods, by expanding the portfolio of frozen parathas, frozen samosas, and frozen meat products. The frozen meat and seafood products in Pakistan are available as cut pieces. Shrimp, sardine, lobster tail, etc. are some of the common seafood products available in the country.

►   Pakistan has an important geographic positioning with access to Central Asia, Middle East, and Europe leading to a total of USD243.5 million in 2015 meat exports. Also a factor to consider are the lower shipping costs for shipping to central Asia compared to Pakistan’s rivals. Pakistan has a growing middle class which is simultaneously experiencing a change in their lifestyle patterns. More importantly the arrival of international wholesale chains (Modern Trade; Metro and Makro) and hypermarkets (Hyperstar), the market for pre-cooked and processed foods has expanded and has further potential to expand rapidly.

►   Retail marketing of packaged foods is gradually transforming from a large number of convenience stores or grocery stores to departmental stores and hypermarkets / supermarkets. The modern retail channels, with wide availability of products across  regional/global  brands,  have  gained popularity.  These  superstores  have facilitated the  process of distribution, easing the process for multi-channel marketing for frozen food products. Regional companies like K&N and Meat One have come up with specialist retail stores or online channels, in order to sale their products exclusively.

To encourage exports, the canned foods market must be explored further as well. This will be cost efficient due to the fact that a cold supply chain is not necessary, leading to a boost in exports. Areas that Pakistan can target for exports are neighboring countries such as China as well as the West. This is where Pakistan may have a competitive advantage since its cost of production will be significantly lower than western countries.


Areas to invest Olive oil extraction unit

Gap and potential

The demand for olive oil is increasing day by day due to the eating habits of the people of Pakistan. Local production does not meet the demand which indicates a huge potential for growing olive trees. Edible oil is considered as a necessity and not a luxury product , hence its demand is relatively inelastic and grows with time. It is estimated that in next 10 years, with the help of Government of Punjab, will plant 3.16 million trees in the area covering 23,400 acres that give 21,000 tons of olive fruit which will be available in market for further processing. The long-term objectives of the project are to produce olive oil for export while creating a sustainable olive oil economy which will also benefit the rural communities of the region. Pakistan presently produces 34 % of the edible oils it consumes domestically and is forced to spend significant foreign exchange on the import of edible oil to meet domestic demand.

The proposed processing facilities will extract Olive Oil from the olive fruits and remaining cake will be sold to the local market. The olive cakes are used for different purposes, such as in cosmetics, recipes, medicines, animal feed, etc.

(1) Virgin Olive Oil: The most popular variety, virgin olive oil is a well-known cooking oil with a surprisingly low acid content.
(2) Extra Virgin Olive Oil: “Extra” is the highest grade for
olive oil, made by cold pressing olive fruit.
(3) Pure Olive Oil: This oil is actually an amalgamation of
refined and virgin olive oil.
(4) Lampante Oil: This type of oil is used only as a fuel and
is not suitable for cooking.

Target market

Pakistan is importing large quantities of Olive Oil and it is estimated that in next 10 years it will be importing approximately 50,000 tons of Olive oil from the world. These olive oil extraction units will help reduce the import of such products and make Pakistan capable of exporting Olive Oil and its related products to the world.

The targeted customers of these products are food, cocktails/ juices, agriculture / animal feed, and various other industries. The main export markets for Pakistani Olive Oil are Afghanistan and other neighboring countries. However, majority of the produce will be consumed locally because most of the local demand is currently met bye Oil imports. This depicts the huge potential Pakistan has for the Olive oil market.

Potohar  is  a  large  plateau  region  in north-eastern Pakistan covering an area of 8,592 square miles. It has been identified  as  suitable for  olive production because of its favorable climate and ideal topography.

factors in  Sialkot, Narowal, Gujrat,  Jhelum,  Rawalpindi, Islamabad, Attock, Chakwal and Khushab suit olive cultivation.  Punjab government has declared the Pothohar region as “Olive Valley.‟ It recently distributed olive plants to farmers, and organized training of olive growers in the  region. The  proposed  units  may  be installed at any of these areas especially Attock and Chakwal regions near the orchards.

Areas to Invest Potato powder and flakes manufacturing unit

Gap and potential

Potatoes are not only used as a vegetable for consumption at  home  but  also  at  restaurants. Global consumption of potato as a food item has seen a shift from fresh potatoes to value-added products. It is estimated that a little less than 50 percent of potatoes grown worldwide are consumed fresh. The remaining are processed  into  potato  food  products  and  food ingredients like animal feed, processed into starch for industry, and re-used as seed for growing next season’s potato crop.

The market of Potato Powder and Flakes is increasing at a rate of 4.52% each year. In 2015 Pakistan imported 2,764  tons  of  Potato  Powder  and  Flakes  worth  USD 3.78m.    Pakistan    has    abundance    of    unprocessed potatoes, especially in Punjab province. However, many companies in Pakistan are importing potato flakes and powder to  meet  their  demand  due  of  lack  of  potato processing units.

Target market

Pakistan is importing large quantities of Potato Powder and Flakes, and it is estimated that in next 10 years it will be importing 450,000 tons of  Potato Powder and  Flakes.  Potato powder and flakes manufacturing units will help reduce the import of such products and make Pakistan capable of exporting Potato Powder and Flakes to the world. The targeted customers for these products are food, bakery, agriculture / animal feed, and various other industries. The main export markets for Pakistani processed Potatoes are Middle East, Far East, China, Malaysia, and neighboring countries. Apart from this, the local demand will also be met by such processing units.

Potential products

Dehydrated potato flakes are used in retail mashed potato products, as ingredients in snacks, and even as an aid for producing other food products. Potato powder, another dehydrated product, is used by the food industry to bind meat mixtures and thicken gravies and soups.

Potato Powder is a dehydrated vegetable made from the whole potato which absorbs large amount of water. The manufacturing of potato powder is based on the efficient dehydration of peeled cooked potatoes on single drum dryer. The thin dried sheet of potato solids is then ground to the desired fineness. As a dehydrated vegetable, Potato Powder can be used in a wide variety of industries including: food production, beverage, agriculture/animal feed, and various other industries

Potato  flakes  can  be  used  as:  Nutritional  supplement  in  food  production,  Bread improver in baking, Breading for fried foods; frozen fried chicken and seafood products, Thickening agent; used in soup mixes sauces and baby foods, Base material for many snack foods including potato-chip like fried products, ingredient formula in making pharmaceutical and cosmetic products, Nutritional supplement in Agriculture/Animal Feed.  Potato Flakes are hence used in confectionery and processing industries to make potato snacks, potato chips, mashed potato and potato pie to name just a few. They are also used in snacks, bakery and food items. Potato  flakes  are   most  often   used   as   an ingredient in snacks or bakery food items.

Location

The unit can be installed anywhere in Pakistan where the raw  material  (fresh  potatoes) is  easily  accessible. As  per current agricultural practices, Okara is the largest producer of Potatoes not only in Punjab Province but in Pakistan. In 2014-15,   Okara   district   produced   1.4   million   tons   of Potatoes which is 37% of the production of Punjab and 34% of the Pakistan’s total potato production. Total production of Potatoes in Pakistan during 2014-15 was 4.16 million tons out of which Punjab province is producing 97% of the potatoes.


Other key areas to invests

Dates

Pakistan is the 5th  largest date producing country in the world, producing 550,050 thousand tonnes of dates annually. The location of Pakistan makes it ideal for growing high quality dates. Already exporting a huge proportion of dates to India (reduced import duties)  and  EU  (zero  tariffs),  Pakistan  has  the  potential to  expand  this significantly as both these locations import dates extensively. Key areas to grow dates are Khairpur and Sukkur.

Fish and fish Products

Marine fishery is rich in Pakistan with a variety of shrimps, prawns, octopus, squids and fish being found in the coastal regions. Already exporting to neighboring countries, there is increased opportunity to tap the growing markets of China, India and Bangladesh, as well as other countries.

Fish  processing  plants  to  produce  value-added  products  will  be  very lucrative in terms of targeting both the domestic and international market.

Pine nuts

Pakistan is the 3rd  largest producer of pine nuts in the world, which are produced in KPK, Balochistan, Northern areas, Kashmir and Gilgit.

About 3,400 metric tonnes of pine nuts are produced by Pakistan (13% of the global share) annually. There is ample potential to increase exports of this, owing to the superior quality that Pakistan can produce.


Areas to Invest Halal Food Market

Halal food is a high growth market with untapped potential

•   Not confined to meat and poultry and includes other food items as well such as confectionary, canned and frozen food, dairy produce, bakery products and organic food

•   Increasingly made available in modern retail channels apart from being widely available in traditional corner shops and neighbourhood butchers •   Introduction of accreditation to oversee certifiers; set to reduce complexity and encourage more players to enter the

Segments / services, Unaddressed halal demand

Halal meat snacks: ► Few large companies are addressing demand for Halal snacks, in particular for dried meat. Only select online players in non-Organisation of Islamic Cooperation (OIC) countries present right now

Baby food:  ► Many leading players are not Halal certified, with gelatin and other non-permissible ingredients included in popular products

Health focused halal products: ► Across US and UK, there are only few leading Halal organic meat suppliers — Crescent Foods and Euro Quality Lambs. ► Plant-based products gaining prominence

Meat kit and fresh food delivery services: ► Meat kit delivery: Leading providers do not provide a Halal option, however, there is an increasing demand for convenience among Muslims ► Fresh food delivery: Although few services have emerged (Halal On-Click and Halal handful of cities


Regulation

In Pakistan, every province has its own food safety regulations.

►        Investors setting up plants in Pakistan will need to review and comply with the regulations of the relevant province.

►        There are also certain standards through Pakistan Standards and Quality Control Authority (PSQCA) that have to be complied with by the manufacturers of food and food grade materials.

►        The Government of Pakistan has adopted 22070 ISO Standards and developed 8857 Pakistan Standards.

►        Compliance with the Halal Food Authority Act, 2016 is also required as Pakistan is a Muslim country. Hence, this act applies to all imports, exports, trade and commerce with foreign countries and inter-provincial trade.