Food business: Branded versus unbranded

Will promoting corporate farming hurt the livelihood of people associated with agriculture and dairy sectors?

One of the most successful CEOs in Pakistan’s corporate history once remarked that promoting corporate farming brazenly in a country like ours was ‘criminal’ because it was likely to hurt the livelihood of people associated with agriculture, dairy and livestock sectors. Of course, his opinion matters and can’t be dismissed as the rant of a so-called leftie.

However, I’m not sure if protecting the source of livelihood of a select few at the expense of the overall market efficiency should be a preferred alternative either. We’re all driven by self-interest, and my interest as a consumer who lives in an urban centre and works in the services sector lies in having easy access to food and dairy products that are both cheap and hygienic.

Let’s take the example of the milk market. Pakistan is the fourth largest producer of milk worldwide. But its packaged milk segment is only about eight per cent of the total annual market of 38 billion litres. Needless to say, sellers of unbranded, loose milk with a 92 per cent market share remain out of the tax net.

Yet, the difference in the per-litre retail prices of branded and unbranded milk is less than Rs5-10 in most cases. In fact, a milk brand launched by a relatively new entrant into the market is cheaper than unbranded milk. Moreover, sellers of loose milk in Karachi charge at least Rs8-12 more than the official rate notified by the local government.

The food business is big. It can fill the coffers of the government if taxed fairly. According to the Forbes’ list of the largest American private companies, five of the top 10 corporations belong to the food industry. You can imagine the amount of sales and corporate taxes these companies contribute to the US exchequer annually.

Remember, food is really cheap in the United States. Similarly, Pakistani corporations in the food and dairy business aren’t doing badly either. According to the latest financial results, the earnings of Engro Foods grew by five times between 2010 and 2011. An increase in the share of branded dairy products will ensure better enforcement of hygienic standards and lead to a guaranteed improvement in tax collection.

Sticking to old ways of doing things, assuming new methods may hurt some people financially, negates capitalism’s basic premise of creative destruction.