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PROFIT MARGINS IN CITRUS FRUIT BUSINESS IN HARIPUR DISTRICT OF NWFP, PAKISTAN

NAEEM SHAH*, MUNIR KHAN**, NAUSHAD KHAN*, MUHAMMAD IDREES*** and IKRAMUL HAQ** * ** *** Institute of Development Studies, NWFP Agricultural University, Peshawar Pakistan. Department of Agricultural Extension Education and Communication, NWFP Agricultural University, Peshawar Pakistan. Department of Agricultural Economics, NWFP Agricultural University, Peshawar Pakistan.

ABSTRACT The present study was conducted during the citrus production season of year 2008. The study was designed with the core objective to examine the marketing margins in citrus fruit business in Haripur district of NWFP, Pakistan. The area of Haripur is one of the leading citrus fruit producing districts of the province. The results show that growers are receiving only 35.7% of the final price, while rest of the 64.0% price is accumulated into the profit basket of market functionaries. The various intermediaries share this profit bulk as; contractors get 21.3%, 9.8% of the profit margin is taken away by the commission agents and 14.9% by the wholesalers, while remaining 18.4 % profit margin goes to the retailers and other functionaries. This indicates that the marketing system in the project area is not properly regularized and because of which the growers do not receive logical return for their crops. Thus, bulk of the profit (almost 2/3rd) is taken away by the market functionaries. The involvement of multiple distribution channels in citrus marketing result in malpractices of multifarious natures. Because of these negative tactics the rate of return to the citrus growers is squeezed to the lowest. Study further suggests that to ensure a judicious return to growers the existing marketing system in the district needs to be regularized. The citrus growers in the study district have to be empowered and facilitated through soft loans /credit and skills and techniques of scientific citrus production. Thus they will be able to take rational crop management decisions and ultimately the crop production will increase and produce surplus will generate an export that will earn foreign exchange for the province and the country. Key Words: Citrus, profit margins, intermediaries, marketing, retailers, wholesalers and commission agent Citation: Shah, N., M. Khan, N. Khan, M. Idrees and I. Haq. 2010. Profit margins in citrus fruit business in Haripur district of NWFP, Pakistan. Sarhad J. Agric. 26 (1): 135-140. INTRODUCTION Marketing margins are actually the difference between the prices that consumers pay for the final goods minus the price actually received by the growers for the commodity produced at his/her farm. To Cramer and Clarence (1988) a marketing margin is the difference between the price consumers pay for the final product and the price received by producers for the raw product. Accurate and timely market information facilitates marketing decisions, regulates the competitive market processes, and lubricates the marketing machinery. Unfortunately, there is no appropriate source of market information in the country in general and in the study area in particular. The growers have to travel long distances to acquaint themselves with the current market information. Due to nonavailability of market information, the growers usually suffer huge financial losses at the hands of the intermediaries, who are much conversant with the market situation and are in a better position to exploit the situation. As reported by Tahir (2004) that marketing of citrus fruit in Pakistan lacks application of many international standard practices. In effect citrus fruits have been considered valuable commercial commodity to generate foreign exchange through export. Conventional methods of cultivation and non-technical harvesting and other farming functions result in low yield, high post-harvest losses and poor quality of fruit. Pakistan annually produces about 12.0 million tons of fruits and vegetables. Citrus fruit is leading in term of production followed by mango, dates and guava. Potato and onion are leading among vegetables and condiments. Fruit and vegetable export trade in Pakistan amounts to US$ 134 million (2003-04), of which fruits account for US$ 102.7 million (76.6%), vegetables US$ 25.7 million (19.2%) and fruit and vegetable preparations (mostly juices) US$ 5.6 million (4.2%). Their share in Pakistans total exports is slightly over one percent. Pakistan has unique but

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unsophisticated network of up to six or seven intermediaries between the primary source (producer and growers) and the end user. Because of the presence of so many layers and the lack of adequate marketing infrastructure facilities, 30 to 40% of the perishable produce gets spoiled before reaching the ultimate consumer (Tahir, 2004).
Table I Province-wise production of citrus fruit in Pakistan Province Production % 000 tons Punjab 188 94.5 Sindh 004 2.0 NWFP 005 2.5 Baluchistan 002 1.0 Pakistan 199 100.0 Area 000 hectares 1810 0030 0040 0014 1894

% 95.6 1.6 2.1 0.7 100

Source: Fruit, Vegetable and Condiments Statistics of Pakistan, 2003-04 Ministry of Food, Agriculture and Livestock, Islamabad.

The climate, soil and other environmental factors in Pakistan are quite suitable for producing fruits throughout the country. The climate of NWFP province is especially suited for growing almost all kinds of fruits (Asian Dev; Bank 1990). Among other fruits, citrus are the major fruits grown in the N.W.F.P. These fruits are grown mostly in Hazara and Malakand Divisions of the province. Though the area under citrus production in Hazara division is less and restricted to the study district of Haripur, average production per hectare in the district is higher as compared with other areas of the province. If properly managed this area has the potential to produce the worldclass yield in citrus fruits. The average per hectare yield of citrus in the NWFP is 8.0 tons and that of the country it is 7.6 tones per hectare. Average production of citrus fruits in the study area is 9.5 tones /hectare, which is higher than the average production of citrus fruits in the province and country (Govt. of Pakistan 2006 -07). The citrus variety produced in Haripur district is of the best quality. It is an export variety, which has unique taste and appearance. In appearance, it is dark yellow with plain and shining peel. This variety has a tasty juice that gives nice flavor. Due to unique features of the citrus fruit grown in the district its potential for export to Middle Eastern countries is tremendously high. Farooqi et al. (1981) studied that from diet point of view citrus consist of 80% edible portion containing 86.8% water, 0.5% protein, 0.35% fats, 11.6% carbohydrates and 0.40% crude fiber. If 100 grams of citrus is consumed, it would provide 53 calories of energy to the body, 0.36% ash, 0.02% calcium, 0.008% phosphorus, 0.002% iron and 0.1% potassium. A major problem with citrus production in Haripur district is that its overall production has gone up overtime, yet the pace of increase in per acre production is low. In addition, it is generally believed that a greater part of the final price is taken away by the intermediaries including the commission agents, the wholesaler and the retailers and only a small percentage of the consumers price reaches the hands of the growers. In fact, citrus exports from Pakistan declined from 3700 tons in 1983-84 to less than 20, 000 tons in 1988-89 due to defective marketing system and wrong policies of the Government. So far, no systematic study has been undertaken to investigate as to why the growth pace of fruit production in the study area is slow and what proportion of the final price goes to the citrus farmers. If a greater part of the final price is really taken away by the intermediaries, what factors are responsible for that and how to improve the situation in this respect? The present study was undertaken with the core objective to inquire into the marketing margins in citrus fruit business in Haripur district of NWFP, Pakistan. In light of the study findings to suggest measures to address the situation and remove the defects from the existing marketing system of citrus fruits in Haripur district and to rationalize profit margins amongst growers and functionaries in order to improve the rate of return to the citrus growers. MATERIALS AND METHODS This study is based on a sample survey conducted in Haripur District. The main author belongs to the study area and has a deep insight in the farmers matters. This area is selected based on the characteristics that it is major citrus producing area and the hot spot of citrus production of the province. The area is largest in terms of population (88,000) as well as total area under citrus in the province. Govt. of Pakistan (1981). For conducting the study, both primary and secondary data are obtained and used. Secondary data are obtained for the preparation of a village

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profile and market intermediarys profile. The main sources from which this information is obtained are: the public sector Agricultural Department, record of the local government and revenue department concerned, and other related agencies. For analyzing production and marketing practices, primary data were obtained from two sources i.e. a sample of 30 citrus growers in the district and a group of market functionaries at the Haripur Fruit and Vegetable market and citrus fields. There were about 11 commission agents in Haripur fruit and vegetable market. Out of these only six commission agents were actively involved in the sale of citrus fruit. From these active commission agents, four were interviewed for the purpose of this study. There were about 13 wholesalers in Haripur Fruit and Vegetable market. For the purpose of the study, four wholesalers were interviewed. Sample Size of Citrus Growers The sample size for the purpose of this study was decided as 30 growers from the list of citrus growers in the district. The total number of citrus growers in the district is 43, out of which the purposive sample was drawn. The thirteen left over growers were those whose orchards were not managed commercially and they were of mixed crops like citrus, loquat, Litchi and guava. The selected thirty growers were exclusively citrus producing farmers and were involved in its marketing locally in the study area+. Sample Selection Procedure For this purpose, first a list of Citrus growers is obtained from the Department of Agriculture and is categorized as in the Table II. Because of the limited number of growers all those farmers are selected who owned citrus orchards exclusively.
Table II S. No 1. 2. 3. Citrus growers division based on size of holding in Haripur district Size of holding 5 acres and below 5.1 acres to 12.5 acres 12.5 acres and above Total Number of citrus growers 15 18 10 43

The total sample of 30 growers is distributed over the given three categories of growers in proportion to each categorys share in the total population as is shown in Table III.
Table III S. No 1. 2. 3. Sample of citrus growers as selected from list Size of Holding 5 acres and below 5.1 acres to 12.5 acres 12.5 acres and above Total Number of citrus growers 10 13 7 30

Procedure of Execution For undertaking the survey, the following schedules were prepared and used for recording data from the respective group of people. The author personally interviewed all the respondents. i. An interview schedule for village profile and production activities ii. An interview schedule for market functionaries. RESULTS AND DISCUSSION According to Richard and Joseph (1985) transportation is the key link in the food system marketing chain connecting geographically specialized farmers and urbanized consumer population. Owing to bulk and perishable characters, agricultural produce like citrus and others need cheap and fast means of transport. The survey revealed that the project area is facing a critical situation in respect of transportation. There is no citrus market in the nearby area. The nearest market is at Haripur city, a distance of 45 kilometers from citrus farms in the district. The second nearest market is at Islamabad and Rawalpindi a distance of 70-80 kilometers from project area. The existing roads connecting citrus farms to market are not in good condition. The number of vehicles used for citrus transportation is also not adequate. Further these vehicles are even not appropriate in structure (tractor and animals driven carts) for the purpose of citrus marketing. Due to which average transportation cost per crate (100 citrus fruits) is the high i.e. Rs. 15.66 as per details shown in (Table IV).

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Table IV S. No. 1. 2. 3. 4. 5. 6.

Cost incurred on a crate (100 citrus fruits) from orchard to market Item Average Cost in Rs. Labor cost (packing etc) 10.00 Wages paid for watch & ward of the orchard 2.4 Transportation cost 15.7 Electricity charges 0.7 Crate material and labor 11.0 Other charges 0.7 Total 40.5

% of Cost 2.0 3.0 57.4 0.1 34.5 2.0 100

Market Place After harvesting, grading, packing and transportation the next important point in marketing is the market where agricultural products are brought for sale and onward distribution to the retailers and the consumers. The nearest market to citrus farms is in Haripur city at a distance of 45 kilometers. This is one of the biggest markets in Hazara division. In addition, to the large number of market functionaries operating in this market including contractors, commission agents, wholesalers, retailers and many other small functionaries such as auctioneers, laborers and transporters, some of the growers do market their produce to market by themselves. All these functionaries have their own role and affect on the purchase and sale prices of various commodities transacted in the market. The Growers/Contractor The growers/contractors are those people who either grow their own fruit or buy pre-mature orchards from the fruit growers and undertake the activities of harvesting, picking, grading, packing and transportation to market for sale. For the purpose of this study the author interviewed seven contractors who where engaged in transporting citrus fruit (Malta) from citrus farms to Haripur market. During the season 2008 - 09, they transported 93,000 crates of citrus from growers to Haripur market for sale (Table V). Few of the contractors were found playing double role of contractor as well as commission agents and thus earning double profit.
Table V Volume of citrus marketed at Haripur market by growers during 2008 Variety of Citrus Citrus fruit transported Citrus fruit transported by by contractors the citrus growers (crates) Blood Red 71000 22000 Kino 17000 Total 88000 22000

Total citrus transported to Haripur market in (creates) 93000 17000 110000

On the average about 18333 crates were handled by each commission agent in the Haripur fruit and vegetable market. The average per crate price received by the growers was Rs. 161 during 2008-09. In other words, approximately 93000 crates of citrus have been transacted in Haripur fruit and vegetable market. The Commission Agent The commission agent is another important market functionary in the distribution channel of agricultural produces in Haripur Fruit and Vegetable market. Usually the commission agent acts as selling agent on behalf of the producers or the contractors. The commission agents charged a fixed rate of commission both from the sellers and buyers. From the sellers they charged Rs. 15.8 per crate which includes labor charge, market fee, salary for staff, License fee, cost of stationary etc., as shown in (Table VI). Similarly from the buyers, the commission agents charged Rs. 6.3 per crate of citrus purchased in the market premises.
Table VI Cost incurred by a commission agent during the season on a crate Cost items Average cost/crate (Rs.) Labor cost 6.00 Market fee 1.00 Wages for Assistance (auction, cleaning & weighing etc.) 2.00 License Fee 0.20 Cost of stationary 0.10 Cost for stay, food etc. 1.60 Electricity bill 0.90 Rent for shops 3.20 Total 15.00

Percentage of total cost 40.0% 8.0% 15.0% 1.0% 1.0% 10.0% 6.0% 19.0% 100.0%

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The Wholesalers The wholesaler is yet another important middleman involved in the business at market level. He usually purchases fruit from the commission agents in auction and sells in small quantities to the retailers. The information provided by the wholesaler revealed that on the average about 93000 crates of citrus fruit blood varieties and an equivalent amount of other varieties of citrus were transacted during the season. The wholesalers reported to have charged about Rs. 368, in the peak season, from the retailers and consumers for a crate of Blood red malta when full supplies are available in the market. However in the beginning as well as at the end of the season when supplies are limited, the wholesale prices are higher than the peak season price, reaching a maximum of Rs. 368 per crate. A crate of oranges purchased by the wholesalers from the commission agents cost him Rs. 301, while it fetched him about Rs. 67. The wholesalers spent Rs. 7.0 per crate by way of selling out.
Table VII Cost incurred per crate by a wholesaler in Haripur market Cost Item Aver cost per crate Labour Cost 3.00 Wages for Assistance (Auction/Cleaning/Weighing) 3.00 Cost of Stationary 0.04 Cost for Entertainment 0.40 Market Fee 0.70 Total 7.14 Percentage of total cost 46.5 37.6 00.6 04.9 10.0 100%

Profit Margins in the Market Cramer and Clarence (1988) stated that margins vary widely among agricultural commodities because of such factors as: the amount of processing that is necessary; perishability of the product; bulkiness of the product; and the seasonal nature of production. From the discussion given in the section on market place, it can be concluded that bulk of the profit from sale of citrus fruit goes to the market functionaries (Table VIII). The profit margin of the functionaries involved in marketing however vary from one another. Overall, the growers receive only about 35.7% of the final price, and the contractors get 21.3% of it. Of the rest, almost 43.0% of the profit margin is taken away by the commission agents, the wholesalers and retailers, i.e. 9.8% by the commission agents and 14.9% by the wholesalers. The remaining 18.40% profit margin goes to the retailers and other functionaries. This indicates that the marketing system in the project area is not properly constituted due to which the growers do not receive reasonable return for their crops and bulk of the profit 64.3% almost 2/3rd is taken away by the market functionaries. Kotler, et al. (2002) also advocated the rationalization of profits while discussing the Approach to Profits, Growth & Renewal.
Table VIII Margins of the functionaries in the citrus marketing Functional groups Average price paid in Rs./ crate Growers 161.0 Commission Agents 257.0 Wholesaler 301.0 Retailers and Other 368.0 Average sale price Rs. /crate 257.0 301.0 368.0 451.0 Profit/crate Rs. 96.0 44.0 67.0 83.0

The major malpractices observed in the Haripur fruit and vegetable market are the overcharging, informal and tacit understanding among the market functionaries to exploit the growers. Non-availability of market information mechanism and storage facilities are the critical malpractices due to which the farmers cannot retain their crops. The most important one is the lack of credit facilities to farmers for practicing self-marketing. If remedy to these problems is provided, the farmers can have a better share in the final price. CONCLUSION AND RECOMMENDATIONS The broad conclusions drawn are that in the study area the intermediaries dictate the marketing system due to which the growers do not get a reasonable return for their produce and the major chunk of profit margin (64.0%) is taken away by the intermediaries. Yet again because of poor financial conditions and non regular markets growers are trapped by the contractors and other non institutional money lenders by purchasing the premature orchards and later on grabbing away bulk of the citrus business profit. As stated by Bloom (1972) that transportation facilitation is prerequisite for a profitable marketing activity. Thus, it is obvious that the means of transportation and communication are not efficient and cheap in the study area that is resulting high losses in the transportation process. Lack of market information and remoteness of the market place put the growers in a precarious situation. High

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charges such as commission, handling charges coupled with malpractices among the market functionaries and weak financial position of the growers etc., force the growers to dispose off their produce at much lower rates contrary to their expectations. The margin of return to the growers can be increased by simply regularizing the current citrus marketing practices in the study area. The citrus growers in the project area are badly in need of credits, human resources development trainings in modern technologies used in citrus production and processing. The public and private sector agriculture extension and research services need be mobilized to play an effective role in the citrus production and in evolving varieties warranting maximum yield. The government has established a collection point in the area through the public private partnership that will boost the surplus citrus produce and high incomes to citrus growers in the area as and when it starts operations. However, this effort of the government needs to be supplemented for ensuring positive results with good farm to market road network and transport services specially designed for citrus fruits transportation. This will reduce the cost of transportation as well as help save the fruit damages resulting during transportation process. Citrus grown in Haripur is best of its kind in the region and has ample opportunities for export, especially to the nearby Middle East countries particularly Saudi Arabia, Arab Emarates and Kwait. As such, special export incentives need to be given to the growers and market functionaries to attract attention of the exporters. Citrus exports from the study area will earn foreign exchange for the country. Additionally, it will transpire into high farm income to the citrus growers in the area. REFERENCES Asian Dev. Bank. 1990. Pakistan Fruit and Vegetable Export Marketing Study. Bloom, G.F. 1972. Transportation, productivity in the food industry. MIT Press, Cambridge, Mass. Cramer, G.L. and J.W. Clarence. 1988. Agriculture economics and agribusiness. 4th Ed. John Welley & Sons, New York. 283p. Farooqi, W.A., M. Ahmad, Z.M. Khalid and S.A Khanum. 1981. Studies on the shelf life extension of citrus fruit. Govt. of Pakistan. 2006. Economic survey of Pakistan. Statistics Div. Islamabad. Govt. of Pakistan. 1998. Population Census. District Abbottabad Census Report. Statistics Div. Islamabad. Kotler, P., D.C. Jain and S. Maesincee. 2002. Marketing moves : A new approach to profits, growth and renewal, Harvard, HBS Press. Richard, L.K. and N.U. Joseph. 1985. Marketing of agriculture products. 6th Ed. Macmillan Publish. Co. USA. Tahir, A. 2004. Marketing of citrus fruit in Pakistan. Thesis, Deptt. of Commerce, Univ. of Karachi.