AN EMPIRICAL INVESTIGATION OF EXPORT COMPETITIVENESS OF PAKISTAN’S MEAT SECTOR

M. B. Naeem, S. Naveed*, S. E. Samma and A. Nazuk

Department of Economics, School of Social Sciences and Humanities (S3H), National University of Sciences and Technology (NUST). Islamabad-Pakistan

^*Corresponding Author: samina.naveed@s3h.nust.edu.pk

ABSTRACT

This study attempts to explore the export potential and competitive position of Pakistan’s meat sector versus the World’s leading meat exporters using RCA scores of 26 meat products lines at HS 6-digit code from 2009-2018. The study also explores the untapped Halal Meat export potential for UAE and Saudi Arabia by using indicative trade potential. The findings of the study reveal that Pakistan possesses strong comparative advantage in low value-added bovine meat products while has a weak comparative advantage in high value-added categories of the same product line against its leading competitors like Brazil, USA, Netherlands and Australia. Poultry comes out to be an emerging sub sector, while the meat of goat, lamb and sheep witnessed a decreasing RCA score post 2013 and are categorized as the threatened products. The untapped Halal meat export potential to Saudi Arabia and UAE comes out to be worth $ 132 million. To become a global market player in high value-added meat products and to realize untapped export potential, Pakistan needs to address the issues of traceability, weak supply chains, insufficient number of local meat brands, weak infrastructure, improperly managed marketing strategies, noncompliance to international standards, and halal meat certifications. 

Key words: Meat, Exports, RCA, Comparative Advantage, Indicative Trade Potential

https://doi.org/10.36899/JAPS.2022.1.0416
Published online June 14, 2021

INTRODUCTION

The ‘Agriculture Sector’ of Pakistan is truly the main pillar of its economy as it contributes around 18.9 percent to the GDP and absorbs 42.3 percent of the total labor force. Within this sector, ‘Livestock’ plays a significant role by employing almost 8 million families. Over the years, the livestock sector has surpassed the crop sector and has become the biggest contributor to value-added production and income, as its contribution to the overall agriculture sector is slightly above 60% and share in GDP is 11.2% (Anonymous, 2019).

As a result of increasing awareness and the availability of better resources, global inclination towards healthier and hygienically preserved foods is on the rise. This has different effects on food products (quality-wise) and their preparation techniques all around the world. (Sohaib and Jamil, 2017). Clearly, it has its charm on the global meat industry too; of which Pakistan is very much a part of. In Pakistan, the livestock population mainly comprises of cows, buffaloes, goats, sheep, camel and poultry; that give a consolidated annual meat production of about 4.478 million tons. Pakistan is among the top producer of meat in the world; however, the export to production ratio of meat in Pakistan lies only in a range of 1 to 1.36 percent during 2009-2018 (Anonymous, 2019). Contrary to this, the world’s largest meat producers are also the ones who capture a significant proportion of global meat industry in terms of their exports, such as the United States, Brazil and Australia. Even though Pakistan is amongst some of the largest producers of meat with an annual production of 4.478 million tons (Anonymous, 2020), its exports are neither in line nor consistent with its status in the production category and is almost negligible when compared with the global leading meat exporters. The United States holds the highest position followed by Brazil, Australia and the Netherlands, with values surpassing $15 billion, $12 billion, $10 billion and $9 billion. Sadly, Pakistan’s exports are only $ 295.6 million, even less than $ 1 billion marks. Pakistan is ranked as the 8^th biggest producer in the world; however, its position falls to 57^th when it comes to meat export (FAO, 2018; UN COMTRADE, 2018).

Religion is considered to be an important determinant of food choices and preferences in many countries and the market for Halal foods has been on the rise since the products are generally acceptable to all consumers and have been scientifically proven to be more hygienic. Trade in halal foods is estimated to cross $ 3 trillion globally out of which meat sector alone contributes more than $ 600 billion. Pakistan’s total share in the entire market is a mere 2.9 %. (Sohaib and Jamil, 2017). These figures are bound to increase with time as a result of growing population and the acceptance from non-Muslims. Pakistan, being a Muslim nation with a huge livestock population implying total halal production can successfully exploit its given position and advantages if the industry transitions towards a more developed and efficient approach. Interestingly, even the biggest Halal meat suppliers/exporters are non-Muslim countries which just show the lack in capability and will of some of the potentially capable Muslim nations.

In the light of the given background, the critical and pertinent question that needs to be addressed is “Why Pakistan, despite being on the list of the world’s leading producers, is not a key player in the global meat industry”? Whatever literature is present in this area is mostly related to an overall investigation of livestock sector, or its sub sectors, (Iqbal et al., 1999; Jamal et al., 2010; Bradfield and Ismail, 2012; Mehboob et al., 2012; Hussain, et al., 2015) or a general trend analysis of production and exports of meat sector (Ahmed and Alvi, 1988; Ayyub et al., 2011; Mushtaq et al., 2013; Sohaib and Jamil, 2017; Ayyub and Pasha,2018; Randhawa et al., 2018). A study by Maqbool et al., (2018) moves one step further and investigates competitiveness and comparative advantage of Pakistan’s sub sector in livestock but that too is only confined to leather and leather products. Similarly, Sardar et al., (2019) also attempt to explore the potential markets to be targeted by Pakistan, however, the study is only restricted to an investigation of beef exports. All the existing literature overlooks the pertinent issue of incapability of the country to explore and tap the untapped export potential in meat industry, regardless of the fact that Pakistan is among the world’s leading producers in this sector.

On account of the literature gap in this particular domain, the current study attempts to explore the untapped export potential in Pakistan’s meat industry by having an in-depth analysis of meat sector for the year 2009 to 2018 in terms of its RCA under different product lines at HS 6-digit code. The study also compares Pakistan’s RCAs with World-leading meat exporter’s RCAs to explore the global standing of Pakistan’s meat sector. Furthermore, the study estimates the untapped Halal Meat export potential by calculating the indicative trade potential.

This topic is not only worth investigating on account of the fact that Pakistan being a global leading producer carries the potential to expand it export to the global market, but its importance seems more obvious in an ever dynamic globalized and liberalized world. A swift growth of the world economy through international trade on account of reduction and dismantling of the barriers offer a tremendous opportunity for a developing country like Pakistan. Pakistan, like other developing countries, now has access to the markets that were earlier restricted or where the access was limited on account of high tariffs and non-tariff barriers. By tapping this granted access, Pakistan not only can diversify its export destination but could achieve product diversification as well. This will not only lead to make the country more integrated with the global world but also would lead to bridge the huge external account deficit that Pakistan faces on account of low exports.

MATERIALS AND METHODS

For this study, the data on different meat related HS 6-digit products are retrieved from ITC (International Trade Centre), UN COMTRADE and WTO (World Trade Organization) from 2009 to 2018. The HS 6-digit product names are given in appendix A. For analyzing the trends of meat production in Pakistan, we also collected the data from Pakistan Economic Survey.

Empirical Method: The study employs the concept of revealed comparative advantage (RCA) which provides a way of analysing the comparative advantage of a country based on an actual trade performance. RCA was originally proposed by Balassa (1965) according to which the performance of exports of a country in specific product or industry could be used to explain the comparative advantage without the comprehensive data on factor cost. The RCA index formulated by Balassa (also known as Balassa index) can be defined as:

B =

Where:

B = Revealed comparative advantage, RCA index (Balassa’s Index)

X_ij = Exports from country i of product j

X_i = Total exports of country i

X_wj = Total world exports of the product j

X_w = Total world export

The RCA index (Balassa’s index) is also useful to examine the performance of exports of those industries that currently have a comparative disadvantage but hold the potential to gain a comparative advantage in exports over time. This can be attained by classifying the exports with HS 6-digit products into 4 broader line of products in terms of their RCAs (Mahmood, 2004; Shahzad, 2015). The further explanation of these product lines is given in Appendix B.

In addition to that, the research also includes the calculation of indicative trade potential to measure the maximum possible exports between the two countries. It helps to explore the untapped export potential with the assumption that the importing country absorbs all the exports (of a given product) of the exporting country (Helmers and Pasteels, 2006). Here, an attempt is made to explore the untapped export potential of Pakistan in halal meat for two major Muslim countries i.e., UAE and Saudi Arabia.

Mathematical formation of indicative trade potential is:

Where:

= Exports of Pakistan to the world of product j

= Imports of the country i from world of product j

= Exports of Pakistan to the country i of product j

RESULTS AND DISCUSSION

Table 1 classifies the exports of HS 6-digit products into 4 broader product lines with respect to their RCA’s. It enables to analyse the export potential of various types of meat products and helps to infer a somewhat decisive and firm opinion on the question, “Why does Pakistan lack behind when it comes to exports of some of the products under consideration”? In 2018, 6 out of a total of 26 products happened to fall under the category of CP (Competitively Positioned) products having RCAs greater than 1 and tend to show an increasing trend. As table 1 shows, these products are 020110 (fresh carcasses of bovine animals), 020210 (frozen carcasses of bovine animals), 020860 (fresh or frozen meat of camel), 020220 (frozen bovine cuts, with bone) and 021020 (meat of bovine animals, dried or smoked). Among these product lines, 020110 and 020210 are generally considered to be raw products and these are merely slaughtered animals without undergoing further complex processing. One of the reasons for their high RCAs is that very few countries around the world export this raw form of meat and world’s leading exporters in meat prefer to export high value added and processed meat that has more global demand and earn lucrative foreign exchange earnings (Sohaib and Jamil, 2017). The product line 020860 (fresh or frozen meat of camel) is also not globally a high demand meat item but its overall low production and specific/unique consumer market allows Pakistan to possess strong comparative advantage in this product line. Next is the product line of TP (Threatened Products) and 5 product lines fall under this category. These are the products having RCAs greater than 1 but tend to show a declining trend over time. These products primarily include lamb, sheep, and goat meat. Prior to 2013, these products were classified as ‘competitively positioned’ but bans imposed by importers on account of the prevalence of FMD (Foot and Mouth Disease) in animals had adverse impacts on exports (FAO, 2014). The Emerging Line of Products is further sub-divided into two tiers. EP 1 (Emerging products Tier I) covers the products with RCA < 1 but equal to or > 0.5, while EP II (Emerging products Tier II) have products with RCA even < 0.5 but with improving relative global position in the exports market. None of the products under the analysis fall under Tier I but 7 out of the total belong to EP II. Poultry meat products (with HS-Code 020711, 020712, 020714) are prominent in this category that show future potential of growth and carry promising reward in terms of export revenue generation. The reasons for the poultry to emerge as a vibrant sub sector in livestock with an impressive growth performance over the years is on account of modernization of the industry with high tech poultry production in intensive poultry, transformation of poultry production in the controlled shed system and improvement in poultry husbandry practices. (Anonymous. 2018; Anonymous, 2020).

The RCA values of the Weakly Positioned Line of Products for both the tiers (WP I) and (WPII) are less than unity, implying the products falling under this category experiencing negative growth. Highly value-added products are included in this category, such as, 020230 (frozen bovine meat, boneless), 020120 (fresh bovine cuts, with bones), 020130 (fresh bovine meat, boneless). The weak position of these highly value-added products is mainly on account of traceability issues, weak supply chains, insufficient number of local meat brands, weak infrastructure, improperly managed marketing strategies, and noncompliance to international standards on the parameters of safety, quality and nutritional status (Sarwar and Aleem, 2017; TRTAP, 2012).

Table 2 illustrates a brief comparison of the RCA Profile of Pakistan with some World-leading meat exporters from the years 2009 to 2018. (A detailed presentation of each product’s RCA with its competitor for each year is available with the authors and can be provided upon request). These countries were the largest exporters of these products in the time period under consideration. The first six products in this table consist of variations of ‘Bovine’ animals. Amongst this category, 020110 (fresh carcasses of bovine animals) and 020210 (frozen carcasses of bovine animals) tend to have consistently higher RCAs for Pakistan as compared to its leading competitors that are Netherlands (NL) and Australia (AUS). These two products are primarily the raw products with very low-value addition and are low priced in the international market. Contrary to this, Pakistan is nowhere in global standing when it comes to exports of high value-added meat products. Pakistan’s RCA score for more processed and high value added products is presented in Table 2, according to which the product with HS Code of 020120, 020130, 020220, and 020230, have significant low RCA’s for Pakistan versus the leading exporters in those particular categories. These results are in line with the already acquired results in Table 1, where high value-added Bovine meat was categorized under the Weakly Positioned Line of Products. The global lead exporters in these highly value-added categories are NL (Netherlands), AUS (Australia), USA (United States of America), and BRA (Brazil). These countries possess high RCA scores and have captured the major global share of these products in meat sector. Pakistan in spite of blessed with natural capabilities for an impressive growth of livestock sector and having world’s largest herd of cattle, sheep, goat, and pastures along with a suitable environment, still lacks behind the world’s leading competitors in meat industry (Noor, 2015). The negligible share of the value-added products in the global meat industry is attributed to host of factors. Pakistan faces severe limitations in terms of reliable supply chains, sufficient number of local meat brands, massive infrastructure, and properly managed marketing strategies. The issues of quality assurance and meat traceability along with the insufficiently developed local fattening animal breeds that can compete with the competitors breed further restrict the country’s potential export of value-added products. (Sarwar and Aleem, 2017). In today’s digitalized and modern world, the health and diet consciousness of the people is reflected in their demand for meat that is judged on the parameters of safety, quality and nutritional status. The countries capable of maintaining high quality standards, implementing safety protocols and with well-designed infrastructure are able to generate enough revenue through their dominance in the global meat industry (Fields et al., 2018).

Regarding the export of lamb, sheep, and goat meat that fall under the HS code of 020410, 020421 and 020450, the RCA Index shows a relatively better result versus the competitors. A general analysis of these products’ RCAs show that although on average, post-2013 the RCA of competitors as well as of Pakistan, has gone down with the exception of product line 020410 (Fresh carcasses of lamb) for Netherlands. However, the percentage decline post-2013 is more pronounced in case of Pakistan as compared to other countries. This result is backed by our already acquired result in the same study where these products were categorized under the threatened products after 2013 but were positioned under the competitively positioned products before 2013. The bans imposed by importers on account of the prevalence of FMD disease in animals due to the absence of proper system to restrict the animal movement and the roaming lifestyle, had adverse impacts on exports of these products. (FAO, 2014)

The poultry related products are covered as the last three products in Table 2 and Pakistan seems to possess low RCA scores in all categories as compared to leading world exporters of these products. However, RCA scores show a rising trend over time and poultry meat can be considered as an emerging sub sector. These results are consistent with the results obtained in Table 1 where Poultry meat products with HS-Code 020711, 020712, 020714 were categorized under emerging products. The poultry Industry of the country has been performing well with robust growth rate of 8 to 10 per cent annually during the last decade and has outpaced the growth in other livestock subsectors. It has also attained the status of one of the country’s technologically advanced industry and has moved towards high value added and processed products. (Anonymous, 2018). The rising RCA scores over time are backed by these developments in the poultry industry. However, low RCA scores with competitors point to the fact that despite improvement in this subsector, Pakistan still lags behind in terms of global competition. The challenges faced by the industry renders this vibrant industry to become a lead competitor in poultry products. The challenges faced by the industry are multifaceted in nature and include high cost of production, several legal, procedural, administrative and tax requirements, non-provision of subsidies and tax refund facility, existence of illegal practices in form of smuggling and the adherence to different regulations and protocols followed by different importers. (Anonymous,2018).

Source: International Trade Centre, Author’s Calculation

The investigation of the RCAs of 26 meat-related products at HS six-digit code leads us to sort out 11 products possessing strong comparative advantage as their RCA scores are greater than 1, and it signifies the importance of the export potential attached to these products. On the basis of these findings and country’s status as a Muslim nation along with Halal meat production, Pakistan become an exemplary case to be investigated for exploring untapped export potential in these 11 products. The study explores the untapped export potential in 11 products by calculating the indicative trade potential for the UAE and Saudi Arabia. The idea behind selecting these countries was twofold. Firstly, these are the largest halal meat importers that are Muslim countries too, and secondly, Pakistan has a strong comparative advantage in the export of meat to these countries.

Table 3 illustrates current and potential exports of Pakistan to UAE and Saudi Arabia. For these countries, the highest export potential emerges in the product line of 020110 (fresh carcasses of bovine animals), followed by other significant potential export items like 020450 (fresh or frozen meat of goats), 020629 (frozen edible bovine offal), 020410 (fresh lamb carcasses), and 020210 (frozen carcasses of bovine animals). An interesting insightful result from Table 3 is the significant potential capacity of some products where the current levels of exports are zero or is almost negligible. Product lines in this category are 020629 (frozen edible bovine offal), 020210 (frozen carcasses of bovine animals) and 020450 (fresh or frozen meat of goats. Pakistan’s export to these countries is predominantly the chilled form of meat that has less shelf life and is routed via air. The country’s inability to realize its potential in frozen meat category owes to the weak capacity of the meat value chain in the country (Sarwar and Aleem, 2017). The other important factors restricting country’s potential export to these markets are existence of informal practices in meat industry, unhygienic way of slaughtering, absence of Local Halal Accreditation body, and incapability of the domestic producers to meet stringent safety protocols demanded by importing countries (KCCI, 2016). Both UAE and Saudi Arabia are currently importing most of their meat from Brazil, Australia, and the Netherlands, since these countries adhere to the standard and qualifications required by the importing countries. If Pakistan is capable enough to resolve these issues, the country can easily get a market access to these countries earning revenue worth 99 million dollar from UAE and 32 million from Saudi Arabia, which will collectively make up additional 132 million dollars to our export revenue. If Pakistan becomes able to manage and utilize its export potential, the country can transform it all into an impressively lucrative venture in its favor.

Table 3: Untapped Export Potential with UAE and Saudi Arabia

Summary and Policy Options: The findings of the study well evidently present Pakistan to lag behind the major global competitors in high value-added meat products and to possess high comparative advantage in low value-added products that don’t carry enough allure in the international market. A greater awareness and global inclination towards healthier and hygienically preserved food demand processed and value-added meat that qualifies for quality standards and safety protocols. The world’s leading competitors in meat sector qualify those safety protocols and quality standards. Pakistan not only lags behind in terms of those qualifications required by importing countries but also face severe limitations in the form of traceability issues, weak supply chains, insufficient number of local meat brands, weak infrastructure, and improperly managed marketing strategies. The findings of the study bring forth certain emerging products in which the country has the potential to expand and that have a sufficient demand in the international market. The Halal meat export potential to UAE and Saudi Arabia also comes out to be enormous. However, to increase competitiveness and to realize the untapped potential in meat exports, the dire need of the hour is to address the issues faced by meat sector. The meat industry needs to strengthen the supply chain linkages by developing an integration of meat exporters with feedlot farmers and to address the issue of traceability through proper documentation and registration of feed lot flattening farms. The leading competitors in global meat industry such as Australia, USA, Brazil, and the Netherlands, etc. have a proper mechanism to trace their animals right from birth. This enables them to obtain and retrieve information on the animals primarily related to health and their upbringing environment. In the current study, some meat categories that carry export potential on account of strong comparative advantage in comparison to competing countries are banned by the World Health Organization (WHO) (as a result of the prevalence of FMD disease in animals). If these issues are resolved by creating special FMD free zones under the WHO’s guidelines for export only, the meat export of Pakistan can significantly increase. The proper documentation and traceability of animals will ensure the provision of hygienic and safe products that will be in compliance with the international standards. The international quality and safety protocols can further be qualified by investing more in R&D, adopting mechanized slaughtering and proper animal welfare and feeding system, in addition to following smart marketing strategies. The burdensome legal, procedural, administrative and tax requirements also need to be simplified for the industry to earn a substantial global share and become competitive in high value-added meat products. 

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Appendix A:

List of Product Names

Appendix B:

Classification of 4 line of products

Competitively Positioned Line of Products:

These products have RCA’s greater than unity and show consistent improvements. The particular criterion is as follows:

1. RCA index of a product line, “i”, is > 1 in 2018, i.e., (Bi )₂₀₁₈ > 1
2. Difference between RCA index of product line “i” in 2018 and its last three years average RCA’s is positive, i.e., (Bi)₂₀₁₈ – (Bi)_{Average (2015-2017)} > 0

Threatened Line of Products:

Similar to the previous category, RCA’s are greater than unity, but the values are in fact declining over time. The criterion is below:

1. RCA of a product line, “i”, is > 1 in 2018, i.e. (Bi )₂₀₁₈> 1
2. Difference between RCA of product line “i” in 2018 and its last three years’ average RCA’s is negative,

i.e. (Bi)₂₀₁₈ – (Bi)_{Average (2015-2017)} < 0

Emerging Line of Products:

This category is itself divided into two main sub-categories, namely Tier I and Tier II. The RCA’s are less than unity for both (implying a revealed comparative disadvantage) but their relative global position in the exports market is improving. As the name itself suggests, the products falling in this category show signs of a potentially positive future.

Tier I

1. RCA for a product line, “i”, is < 1 but equal to or > 0.5 in 2018, i.e. (Bi)₂₀₁₈ < 1 and equal to or > 0.5
2. Difference between RCA of product line “i” in 2018 and its last three years average RCA is positive, i.e., (Bi)₂₀₁₈ – (Bi)_{Average (2015-2017)} > 0

Tier II

1. RCA of a product line, “i”, is < 0.5 in 2018, i.e. (Bi)₂₀₁₈ < 0.5
2. Difference between RCA of product line “i” in 2018 and its last three years average RCA is positive,

i.e., (Bi)₂₀₁₈ – (Bi)_{Average (2015-2017)} > 0

Weakly Positioned Line of Products:

The RCA’s in this category are less than unity for both of the tiers, implying either domestic or global factors for the declining pattern. This group’s sub-categories and their criteria are as follows:

Tier I

1. RCA of a product line, “i”, is < 1 but equal to or > 0.5 in 2018, i.e. (Bi)₂₀₁₈ < 1 and equal to or > 0.5
2. Difference between RCA of product line “i” in 2000 and its last three years average RCA is negative, i.e. (Bi)₂₀₁₈ – (Bi) _{Average (2015-2017)} < 0

Tier II

1. RCA of a product line, “i”, is < 0.5 in 2018, i.e. (Bi)₂₀₁₈ < 0.5.
2. Difference between RCA of product line “i” in 2018 and its last three years average RCA is negative, i.e., (Bi)₂₀₁₈ – (Bi)_{Average (2015-2017)} < 0