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The meat processing industry has witnessed a flurry of activity recently. A much-celebrated IPO last year has been followed by several firms gaining market access to various regions, finally culminating in the opening of the coveted Chinese market to domestic processors. And although the industry has witnessed resurgence in both volume and value of exports, a lot still warrants attention.

Just last year, the sponsor group of the largest meat processing plant in the country recognized a loss of Rs 5 billion out of its Rs 7 billion equity investment in the subsidiary. The plant – which began operations in 2016 – has consistently booked losses since its inception and operated at roughly 10 percent capacity until last financial year. The predicament of the widely hailed ‘first-ever’ listed meat processor has been no different, as it has put a pause to disclosure of ‘revenue from exports’ due to its paltry amount!

Although listed firms (and their holdings) receive an undue share of attention in the financial press, most of the players in the export-oriented meat processing segment have been scraping the bottom of the barrel for past many years. And while some may throw around common refrains such as “Foot and Mouth disease” and, “overvalued currency” as one-size, fit all explanations for long-term ills facing the segment, it helps to start with the basics.

According to official statistics, Pakistan’s annual meat production stands at 5 million tons, of which half is bovine meat, or beef. By industry’s own estimates, the local red meat market is currently valued at Rs 1.25 trillion. Of this, annual export volume of 75 thousand tons – valued at roughly Rs 50 billion – is no more than three percent of total beef output.

Given the insignificant share of exports in total output, finding the premium animals for export shouldn’t really be a challenge. Pakistan meat processors do not have to battle with domestic buyers for animal procurement, even though beef prices in domestic market have been rising at an average 7.5 percent per annum over much of the past decade. Instead, the category may suffer from a different challenge altogether.

This space has argued that 90 - 95 percent of Pakistan’s total meat exports are in the low value adding segment. This claim is not without basis. These exports are concentrated in the fresh or chilled category, of which 75 percent consist of whole carcasses air cargo-ed to destinations in Gulf.

And therein lies the rub. Many of the prominent names in the meat exporting segment pride themselves in their specialization in the fresh or chilled segment, even though its bottom-of-the-ladder status in global meat trade. Consider that against average Rs 40-50 billion annual meat exports, the outstanding amount of SBP’s Export Refinance Scheme is an embarrassing Rs100 million over the past 12 months. That’s because over 97 percent of export value is against HS codes on the negative list for EFS, due to their commodification.

Which makes sense, because what else is export of whole carcasses of bovine and lamb than commodity trade? Naturally, it points to buyer destinations’ lack of faith in suppliers’ ability to match demand for customized meat cuts, a prized skill in more developed markets. Export of short-expiry chilled carcasses means distributors/retailers in export destinations can instead process the meat themselves while it is still fresh. But if prime cuts is all it takes, are Pakistani exporters lagging behind out of sheer sloth?

Afterall, the meat processing companies draw their butchery talent from the same pool of semi-trained local butchers that supply to rest of domestic end consumers. Interestingly, most of the prominent players also have domestic retail operations – either in brick and mortar or e-commerce form. Rapid gentrification in large cities has also helped the shift from live to processed meat, especially in higher income segments. So, why do the companies that have attained reasonable success locally, are grappling to keep their head above water in the international market?

Simpler explanations are often appealing but fail to do justice to complexity of most businesses. As the joke goes, “if butchery is an art, all desi dads are artists on Eid ul Adha”. Pakistanis may love meat in their biryanis, pulao and nihari, but culinary tendencies suggest that Pakistani families are hardly discerning when it comes to the quality of beef cuts, for as long as their meals are loaded in meat.

While the processed meat retailers may have sharpened their blades in the local market over the past decade, the market has hardly evolved in terms of buyer sophistication and demand. The rib eyes, T-bones, briskets, and siloins – staples for the upwardly mobile in developed markets – are hard to find at domestic processed retailers. And if you don’t have practice at scoring sixers at home ground, it is much harder to improve the batting average in away series.

Fortunately, the mushroom growth in local restaurant and fine dining scene offers hope. Although steakhouses have existed at local top hotel chains forever, many more have popped up across Karachi and Lahore in recent years. So far, many of these places serve imported variety – an awkward moment for the “value-adding” meat processors – but the opportunity is just sitting tight, waiting to be exploited by any player hunting for a first mover advantage. Once local players can establish their brand equity in local market, it won’t be long before the fruits of labour spill over to exporting destinations, at least to where most of the diaspora is located.

Industry insiders claim that Pakistan’s cattle is largely free-grazed – and if the organic label were to be slapped on local beef (subject to requisite approvals) – it could earn the suppliers an impressive premium. With so much going right for the industry, what’s stopping?

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