Title of Thesis
Structure and Efficiency Anaylsis of Vegetable Production and Marketing in Sindh, Pakistan

Abstract

Onion, tomato and chilies are most common and important kitchen items in Pakistan. The consumption of tomato and onion has high-income elasticity of demand, while the demand for chilies is almost inelastic. Thus, increased demand for tomato and onion is anticipated with economic development and urbanization. Further, the demand for these vegetables will also increase with population growth. Per capita consumption of vegetables in Pakistan is currently very low when compared to other countries of the region and world. People in upper income strata consume well above the national calculated average, while the bulk of rural population and large percentage of poorer strata among the urban population consume very few vegetables.  For sustainability of vegetable enterprise, it is a prerequisite that the production and marketing system is profitable and efficient. Pakistan has unique but complex network of up to five or six intermediaries between the primary producer and the end user. The qualitative and quantitative analysis of vegetable production and marketing system determines the level and extent of production efficiency and market perfections. Realizing the importance of structure of vegetable enterprise and its efficiency and with a view to access the complexity of vegetable production and marketing for profitable production and efficient distribution system, the present study was designed and conducted. The main purpose was to conduct a detailed investigation of the present vegetable production and marketing system in Pakistan for analyzing production and marketing efficiency. For this study, primary data were collected from farmers by conducting surveys in three districts of Sindh, namely Hyderabad, Thatta and Mirpurkhas. Hyderabad was selected for onion crop, Thatta for tomato crop, and Mirpurkhas for chilies. Sixty farmers for each vegetable were randomly selected from these districts so the total sample size was 180 farmers for this study. Besides, 130 market intermediaries were also interviewed. Primary data were collected by survey method using a pre-tested questionnaire and secondary data were gathered from statistical bulletins. Time series panel data on market prices in four spatial markets of Pakistan for the selected vegetables was used to investigate long run market relationships. Similarly time series data of production of these vegetables was used for forecast estimates. A combination of analytical techniques including the measurement of growth rates of area and production of vegetables in Pakistan and across provinces, returns to scale analysis through using Cobb-Douglas production function, estimation of technical efficiency and technical efficiency rating across farms, marketing margins, market integration, and production forecast were used to assess the production and marketing system of onion, tomato and chilies in Sindh. Positive growth in area of vegetables in Pakistan was noted with higher growth of area in Punjab and Balochistan followed by North West Frontier and Sindh provinces, while the production of Punjab depicted a growth rate of 1.6 percent followed by Sindh (1.3%) and Balochistan (0.9%). The growth rate of NWFP in vegetable production was negative during 1986-87 to 2004-05. The growth rate of vegetable production and corresponding comparisons of area clearly indicated that the vegetable yields in Sindh had remained and grown higher than rest of the provinces of Pakistan. Cobb-Douglas production function was estimated to measure elasticity of production and the degree of returns to scale for onion, tomato and chilies producing farms in Hyderabad, Thatta and Mirpurkhas districts of Sindh. Coefficients of elasticity of production indicated significant contribution of land, labor and capital inputs in production of these crops. For returns to scale, the t-test was applied for testing the null hypothesis that degree of homogeneity equals 1. Null hypothesis was maintained at 5% significance level for each of onion, tomato and chilies crops. The results showed that the onion, tomato and chilies production exhibited constant returns to scale. These results indicated that if all inputs were increased proportionately, the output could be increased with the same proportion. The efficiency rating based on corrected intercept of the estimated production function indicated that a reasonably big number of farmers were using their inputs inefficiently. Thus, under the present standardized cultural practices, the vegetable growers seem to be operating at a lower level of production possibility curve in technological terms. The mean efficiency of chilies, tomato and onion was 0.83, 0.74 and 0.59 respectively. The results further revealed that chilies growers were more efficient when compared to the onion and tomato farmers, while, tomato growers were found more efficient than onion farmers. The relationships across marketing chains involved in the selected vegetable were studied by investigating marketing margins, distribution of costs and net returns across the functionaries. The results of price spread across marketing chain revealed that share of producer in consumer rupee was 58, 66 and 65 percent for onion, tomato and chilies respectively, while the rest goes to commission agents, wholesalers and retailers. The results further revealed that the average returns of retailer on capital employed were three times higher in onion business and almost two times higher in tomato and chilies. Spatial price relationship is an important indicator of overall market performance. In spatially integrated markets, competition among arbitragers usually ensures that a unique equilibrium is achieved since local prices in regional markets differ by no more than transportation and transaction costs. The results of empirical evaluation of spatial price linkages among four regional markets of Pakistan using monthly wholesale real prices of onion, tomato and chilies indicated that these markets were efficient as their speed of adjustment for reaching an equilibrium level was higher. The difference in per unit prices of onion, tomato and chilies was due to transaction and transportation cost, thereby confirming the spatial integration of regional vegetable markets in Pakistan. The results of unit root test for onion and tomato show that the production time series is represented as a random walk model with drift, which indicates that the shocks to production in a year have permanent effect on the level of future production, while the time series of chilies production showed a pure random process. The forecast results show that production of tomato and onion, respectively, is expected to grow by 12825 and 40226 tonnes per annum, which results in little growth in per capita production of these vegetables. The efficiency of long run relationship across regional vegetable markets confirmed that price information flow is adequate. The higher returns on capital employed by the market agents including wholesalers, and commission agents indicated a collusive oligopoly among market intermediaries and they were not operating as competitive and efficient institutions. The vegetable forecast results revealed that per capita onion and tomato production would maintain upto 2020, and chilies production would not decline upto 2020. The outcome of the present research was tosuggest policy measures for government and to extend recommendations for further research. The results have revealed that the yields of vegetables in Sindh have grown at higher rate when compared to other provinces, perhaps due to higher demand based on the urbanizations. Sindh is major producer of chilies as it produces 75 percent of chilies in the country. Results reveal that other provinces have also started increasing its areas as well as production of chilies. Punjab province is also increasing onion production for reducing its dependence on Sindh and Balochistan provinces. As Sindh and Balochistan are relatively efficient in onion production, and Punjab province has neither comparative nor competitive advantage on Sindh and Balochistan provinces to produce onion. Hence, Ministry of Food, Agriculture and Livestock, Government of Pakistan may intervene in giving guidelines for promoting efficient production of onion and optimum land use in Pakistan. Onion and chilies production is highly elastic to labor inputs, which indicates the significance of labor and their skills in production of these crops. Better vocational and skills training and technology transfer to laborers in onion and chilies production may help not only in increasing level of efficiency for producing these crops but it may change the steady state of production function by its upward movement. The vegetable production exhibited constant returns to scale and inefficiencies across farms; therefore, it was suggested that agricultural extension, support services, credit and technology transfer may be improved to increase output and generate exportable surpluses. It was also suggested that agrarian reforms be introduced including asset redistribution on selective basis to maximize the benefits of growth across households and reduce poverty through high value vegetable crops. Further inter-provincial trade may be promoted by developing road and other infrastructure in order to reduce transport and other transaction costs. It was further suggested that the Government may formulate an appropriate policy to invest in research and development for enhancing the yields of these vegetables. Major investment in supportive infrastructure was recommended to facilitate marketing and trade of vegetables including onion, tomato and chilies. Need was established for collaboration between private and public research and development programs to improve management practices, particularly the use of available technology for timely and efficient production.  The analysis highlighted that farmers need to move the production upward and change the steady state of the function in order to attain the yield levels of experimental stations, which may, in turn, develop new production frontiers for vegetable production and quality enhancement. The results of this study indicated that the vegetable production system is partially efficient, while the marketing system is moderately efficient. An important role may, therefore, be envisioned for government as facilitator and promoter of an efficient production and marketing system. Government has also a role to play for stabilizing prices of perishable commodities to protect producers in the short run, and establish market infrastructures including cool chains as a long term solution.  Government should also give incentives for growth and promotion of input industry required for onion, tomato and chilies production and to industries like packaging, processing, transportation and storage to promote trade along with employment. Profits of middlemen may also be rationalized through regulation and selective control. Government role needs to be invoked, wherever necessary, to remove market imperfections in the interest of producer and consumer. Pakistan needs to focus on vegetable exports particularly onion, tomato and chilies. The study pinpointed the need for maintaining time series data for different indicator so as to create a reliable management information system for planning, appraisal, implementation, monitoring and evaluation of production, marketing, imports, and exports for vegetables in the long run.

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