Value Added Processing of Potato in Pakistan

This study entitled ‘Value-Added Processing of Potato in Pakistan’ has been completed by The Pakistan Business Council (PBC) as part of its “Make-in-Pakistan” initiative. To carry out this sector study, PBC conducted discussions with the stakeholders and secondary research.

Pakistan’s surplus potato crop and its globally competitive price makes it an ideal destination for processing potato-based products. The country has the potential to convert potato into value-added products, increase exports, and create manufacturing jobs. Pakistan primarily produces potato crisps and french fries on a large scale, while manufacturing of potato starch and other value-added potato products is limited. The entry of PepsiCo with Lay’s crisps has boosted cultivation and distribution channels for industrial-grade potatoes. French fries present an opportunity for Pakistan to increase exports; as its domestic demand is growing, there is potential to build scale locally, and to cater to the available global demand.  The international market for crisps is smaller as compared to french fries, making crisps a less attractive product for export. Pakistan’s potential for growth in other value-added potato products like starch, flour, and flakes is limited due to lower returns.

One of the key limitations facing potato processing in Pakistan is the lack of suitable potato varieties. Only a small percentage of potatoes harvested in Pakistan belong to industrial-grade varieties. The suitability of a potato variety for processing depends on factors like dry matter content, color, length and shape. Lady Rosetta (LR) is the most commonly used variety for industrial processing in Pakistan, suitable for making crisps.  Because of the lack of demand, knowledge and access to capital, farmers do not grow other industrial varieties. Farmers in Pakistan, other than those who work with reputed processors, rely mainly on seeds sourced from the informal sector, hence resulting in low quality harvests. They also practice flood irrigation, which lowers the output and quality of the produce. Import of potato seeds has increased in recent years, which further accentuates the need for local production of high-quality seeds.

Potato cultivation in Pakistan has seen significant growth over the past decade, with an increase in both production and the total cultivated area. The total production of potatoes in Pakistan has doubled in the last decade, primarily due to increased cultivated area rather than higher yields per acre. Pakistan’s yield per acre is lower as compared to countries like Turkey, Iran, and Egypt. To improve output, Pakistan needs to focus on adopting better seed varieties and improving on-farm management. Punjab, the largest province, accounts for over 85 percent of annual potato production, followed by the Gilgit Baltistan region. Punjab’s potato clusters contribute a significant share of total potato production and supply crops for domestic consumption, industrial processing, and exports. Gilgit Baltistan provides off-season potatoes for commercial and domestic utilization, and has potential as a seed multiplication region. The availability of fresh potatoes throughout the year is supported by investments in cold storages. A few districts in Sindh like Badin, Sanghar, and Tando Allah Yar also have potential for potato cultivation, especially for varieties suitable for french fries. Investments in new varieties and regions may be important to cater the challenge of rising global temperatures which pose a threat to potato yields.

Pakistan has the potential to position itself as a french fries exporting country. The domestic market for french fries has grown, and companies like Opa and Panda Fries have increased their production capacity. Regulatory duties on imports and the devaluation of the Pakistani rupee have created market space for domestic production. However, to be globally competitive, local manufacturers need to build a supply chain of potatoes suitable for french fries and work with farmers. The global market for french fries has been growing, with increasing demand from developing countries, and the trade volume reached USD 8 billion in 2021. Industrial-grade potatoes are preferred for producing the right size and quality of fries. The global import market for french fries is dominated by developed economies like the United States, France, and the United Kingdom. Pakistan should aim to become a regional supplier of french fries by working with international fast-food brands. Contract farming and local seed production can help overcome the limited availability of suitable potatoes for mass production. With improvements in seed quality, farming practices, and collaborations with international partners, Pakistan can capitalize on its resources and meet the increasing demand for potatoes and french fries both domestically and internationally.

The potato crisps market in Pakistan is primarily dominated by PepsiCo, which holds over 70 percent of the domestic market share with its brand Lay’s. The second leading brand is Snack City with about 10 percent market share, followed by Oye Hoye with around 5 percent market share. Other companies such as Triple Em, Lotte Kolson, and Dalda Snacks also have a presence in the market. Additionally, there are smaller companies and cottage industries producing unbranded crisps for local markets and bakeries. The manufacturing process of potato crisps involves slicing the potatoes into thin cuts, frying them at high temperatures, and then seasoning and packaging them. In the global market, the crisps industry has experienced growth, with trade reaching USD 2.76 billion in 2021. The top importing countries for crisps include the United States, France, Germany, Canada, and the Netherlands. These countries also have significant domestic manufacturing capabilities, indicating that the import figures only capture a portion of the market size. Among the top exporting countries are the Netherlands, Belgium, the United States, Poland, and the United Kingdom. Pakistan has limited opportunities for exporting potato crisps due to several factors. The domestic market is primarily served by PepsiCo, and smaller companies struggle to achieve scale and lack the infrastructure and brand power for international expansion. Exporting crisps would require significant investments in manufacturing facilities, packaging, and brand development. The high transportation costs associated with shipping crisps further discourage smaller companies from exporting. The best chance for Pakistan to have significant exports in the crisps segment would be if PepsiCo gears its production in Pakistan for export.

Pakistan currently relies on imports to meet its domestic demand for potato starch. The potential for localized production of potato starch exists, but the opportunities for exporting potato starch are negligible. Potato starch is used as a binding agent and thickener in the food industry and as a binder and adhesive in paper making. Globally, around 60 percent of potato starch is used in the food industry, while the remaining 40 percent is primarily used in the paper and paperboard industry. Pakistan’s cheap potato supply presents potential for substituting imports and generating limited exports of potato starch in the future.

By improving the availability of affordable and high-quality potato seed, Pakistan can enhance potato yield and compete with other countries. Currently, most farmers in Pakistan rely on seeds passed down through generations, making their crops susceptible to diseases and blight, resulting in lower overall output. The high cost of procuring certified seeds makes them unaffordable for many farmers, who often opt for cheaper informal seeds. The government’s in-vitro labs and seed multiplication centers have limited production capacity and lack commercial viability. Encouraging formal seed multiplication companies and providing a supportive regulatory environment can help meet the local seed demand. Improving technology adoption in potato cultivation, such as implementing drip irrigation to replace suboptimal canal water flooding, can enhance productivity. The government can collaborate with the private sector to develop financing mechanisms that promote the adoption of better technologies and seeds, leading to an increase in farming efficiency and higher potato yields.

The PBC is a private sector not-for-profit advocacy platform set-up in 2005 by 14 (now 89) of Pakistan’s largest businesses. PBC’s research-based advocacy supports measures which improve Pakistani industry’s regional and global competitiveness.