Pakistan Food and Drink Report Q1 2009

Rampant inflation, and sizeable holes in Pakistan's fiscal and current accounts are three urgent problems that recently democratically elected President Asif Ali Zardari will have to address in order to repair the confidence of investors. With a growing threat from militants in the country's tribal border regions, as evidenced by a string of bloody suicide blasts over the past few months, and growing international pressure to adopt a tougher stance against the insurgents, the government's energy may be scattered across multiple priorities. Widespread rural poverty, inadequate transport and labour infrastructure and acute consumer price sensitivity also provide barriers to investment. On the other hand, Pakistan does offer some commercial opportunities for companies willing to be exposed to higher risk, due to its vast population and the food and drink market immaturity.

In this context the major development of the quarter was undoubtedly the announcement from Carrefour that it is to launch hypermarkets on the Pakistani market in conjunction with its Middle East franchise partner, Majid Al Futtaim (MAF). The Lahore outlet, to be run on a franchise basis by MAF, will be one of 10 stores the joint venture has planned for Pakistan over the next five years. It is as yet unclear whether the joint venture will use the Carrefour name in Pakistan. The two companies already have a subsidiary in the country - Carrefour MAF Hypermarket Pakistan (Pvt) Ltd - which sources Pakistani produce for global distribution and yet neither brand is known to consumers. What is clearer is that market entry and expansion is likely to follow the technique adopted by the joint venture throughout the Middle East - opening hypermarkets attached to large shopping centres or malls that already boost considerable customer footfall, as opposed to opening stand alone stores. This development is likely to considerably boost the growth of mass grocery retail (MGR) distribution in Pakistan and could lead to other multinational retail players following suit and entering the market.

The country continues to need external investment to help boost its food processing and agricultural sectors. In a concrete development in this context, in September, DeLaval Pakistan and the country's Livestock and Dairy Development Board (LDDB) signed a memorandum of understanding for a partnership to assist and support dairy farmers to increase milk production, both in terms of quality and quantity.

BMI is forecasting a 36.4% increase in overall food consumption in local currency terms in Pakistan to 2013. We forecast that per capita food consumption will increase by 18.8% in dollar terms to a still very modest US$158.80 in 2013, a reflection of the acute poverty from which much of the country suffers.

However, Pakistan should now be able to steer away from the balance of payments precipice it has been drawn towards over the past few months. With a US$7.6bn International Monetary Fund (IMF) 23- month standby credit granted in November, the country will be in a much better position to raise funds from other bi- and multi-lateral sources.