GROWING domestic and foreign demand, coupled with efficient e-marketing and backed by bank lending, are fueling the growth of the lucrative food business.

In FY12, when overall growth in large-scale manufacturing was just 1.2pc, food sector’s output grew by 6.4pc. In FY13, the food sector’s growth of 9.4pc beat overall LSM growth of 4.3pc and in FY14 production of food, beverages and tobacco companies expanded 7.16pc against aggregate LSM output increase of 3.95pc, official statistics show.

The changes in output of food sector is computed on the basis of variations in production of around 1900 companies of which the number of tobacco companies is no more than a dozen or so.

Some success stories, particularly those of big food companies, get public attention while a vast majority of smaller food firms do not come under spotlight

The stats, therefore, reflect more or less a true picture of what’s happening in the food sector.

Wheat, sugar and rice milling make up the core of food business with rice millers regularly catering to foreign buyers as well, and wheat and sugar millers tapping foreign markets off and on.

Maize being the country’s fourth major food crop has huge export potential and in recent years Pakistan has been exporting more of value-added corn products than the mere maize grains.

Moreover, dairy, meat and seafood sectors’ output has been growing on the back of higher domestic demand due to growth of population, urbanisation and income levels, annual economic surveys of the last few years reveal. Exports of dairy, meat and fish and fish products, too, have recorded a modest to high growth.

Also, business groups with focus elsewhere have realised how profitable it is to be in food sector and have accordingly ventured into it or, if they were already in this business, expanded their production capacity.

That is why, in recent years food companies, including multinationals, have witnessed robust growth in sales and profits.

Half yearly sales of Nestle Pakistan, for example, rose to Rs50.3bn between January-June 2014 from Rs42.4bn a year-ago and its net profit swelled to Rs4.6bn from Rs3.5bn.

The company’s full year sales had increased two and half times within five years, from Rs34.2bn in 2008 to Rs86.2bn in 2013. And, its net profit had surged from Rs1.55bn to Rs5.86bn.

Engro Foods’ net sales also increased to Rs12.4bn in the fourth quarter of 2014 from Rs9.9bn a year ago. In full year 2014, too, the company reported sales of Rs43bn against that of Rs37.9bn in 2013 which quadrupled its net profits to Rs889m from Rs210m.

Similarly, Unilever Pakistan Foods’ sales grew to Rs4.105bn in the first half of 2014 from Rs3.465bn a year-ago and its net profit increased to Rs619m from Rs 469m. Earlier the company’s sales had surged to about Rs6.96bn in FY13 from around Rs5.86bn in 2012 and its net profit had reached Rs1bn, up from about Rs729m.

These are just glimpses of how food is performing but reflects a trend not setting in, but taking roots.

Most of the non-listed companies are also doing good business taking advantage of low cost of production and highly diversified market in terms of purchasing power of the middle class end-consumers.

The food companies’ successes are attributed to growing demand of processed and value-added items on the back of a growing trend of processed food consumption.

Fusing foreign demand for Pakistani food items has increased exports of fruits and vegetables, pulses, spices, nuts, meat, fish and other seafood, dairy products and hundreds of other items. Dollar earnings of all food items, (minus rice, wheat and sugar), increased from $1.762bn in FY11 to $2.023bn in FY12 to $2.256bn in FY13 before slipping to $2.167bn in the last fiscal year. Behind the increasing trend in these food items are success stories of dozens of large and thousands of small food companies engaged in production or value-addition of food products.

Whereas some success stories particularly those of big food companies get public attention, a vast majority of smaller food sector companies do not come under spotlight.

The strong performance of food business has attracted bank lending, making it possible for producers and exporters of various sub-sectors to build capacity and improve quality of their products. In FY14, banks net loans to food sector rose to Rs26bn from Rs16bn in FY13. And in the first half of this fiscal year banks’ have so far lent Rs15bn to this sector, SBP stats reveal.

As more and more food companies continue to obtain international standardisation certificates, bankers say they find it easier to lend to them. The certification enables the industry to sell more to high-end local markets and boost exports with better returns required to repay bank loans.

Published in Dawn, Economic & Business, February 23rd, 2015

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