Pakistan Food and Drink Report Q2 2008

Pakistan continues to represent a very high risk investment opportunity for food and beverage manufacturers within the Asia Pacific region. The market once again places last in BMI's Asia Pacific Food & Drink Business Environment Ratings, which assess a market's investment potential in comparison to its regional peers; its rating primarily being due to low existing consumption levels and the high economic and political risks facing investors looking to drive up these consumption levels.

However, as BMI's newly-published Q208 Pakistan Food & Drink Report discusses in more depth, the country does offer a glimmer of opportunity to confident and non-risk-adverse investors. Healthy economic growth, which is intrinsically linked to demand for non-essential food and beverage items, is one such opportunity. To 2012, BMI is forecasting average annual GDP growth of 6.7%. Coupled with healthy population growth - BMI expects a population increase of 10.9% to 173.9mn in 2012 - and rapid urbanisation - the urban population is expected to account for 49.8% of the population in 2030, up from 34.8% in 2005 - Pakistan provides a steadily emerging audience for food and drink manufacturers.

Keen to unsure that the benefits of emerging consumerism are felt beyond urban centres, the government has proved keen to attract international investment in key food processing and agricultural sub-sectors, the dairy industry perhaps having been the primary beneficiary of these efforts to date. The first few months of 2008 have seen a flurry of activity in the dairy sector. In February, the Pakistan Dairy Development Council, a public-private partnership (PPP), announced plans to accelerate its model dairy farm development initiative with the aim of boosting both dairy output and quality. Other such measures being explored to ensure that Pakistan's contribution to global dairy exports matches its contribution to global dairy production include greater investment training and the establishment of more PPPs.

Thanks to the involvement of Swiss dairy giant Nestl, development of Pakistan's dairy sector has been swift and efficient by typical local standards. The State Bank of Pakistan expects fresh milk production to increase by 15.9% to 2010, although consumption growth will outstrip this at 17.4% to 2012, as slightly more affluent consumers continue to demand dairy products more regularly.

Pakistan's government now faces the challenge of attracting investment in other key agricultural subsectors.

While its dairy forays certainly provide a useful template for how this should be achieved, there is one notable difference between this and other agricultural sub-sectors. Dairy lends itself well to the transition from commodity producer to added-value manufacturer, more so than other agricultural commodities do. Pakistan's considerable investment risks - among them perceived bureaucracy, poor infrastructure, vulnerability to external shocks and low per capita GDP - may well prove more off-putting when it comes to less immediately profitable sub-sectors.