General Tariq Khan – CEO FFC, talks Food Security in Pakistan

CEO and MD of the Fauji Fertilizer Company (FFC) sat with GVS Managing Editor, Najma Minhas, to talk about the agricultural sector in Pakistan, food security and where he sees Pakistan going forward in the next decade on the agricultural front.

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GVS: Can you explain the transformation that Pakistan has done going from an agricultural economy to being in a position where agriculture contributes less than 20% to its GDP. Why has this transformation taken place, and what are the implications?

General Tariq Khan: Well, there hasn’t been much of a transformation in that sense. We haven’t gone into manufacturing or industry, or the economy has not shifted from one end to another end of the spectrum.

What happened is that money is coming in from abroad, remittances, as these have increased they have become the largest components of our budget. As far as the agricultural part of the economy is concerned, it has started diminishing because of bad practices.

Read more: Fauji Fertilizer invests millions of dollars in Thar as Urea sales pick up

It is because the way we use water, kind of crops we grow, not acknowledging the changes in the environment and the climate, and then the growth of the population. So, when you look at all of these things in the economy, the role of agriculture has reduced.

GVS: It is interesting you mention population growth, because there are UN statistics showing that around 37% of Pakistani households are food insecure. What are the major challenges that our agricultural sector is facing, that is creating this?

General Tariq Khan: Well, the food insecurity is due to the agriculture sector, and agriculture has diminished considerably since the past. First of all, agriculture itself is related to the way we practice agriculture, the yields, fertilizer that we use, mix of fertilizer that we use, kind of crops we grow, kind of markets that there are, and then again the stress by the population on the rural areas. There is a shift of people from rural areas to urban, and fewer lands are being used for farming, so they are shifting more into the commercial use, and so on.

Then how can we ignore climate change? There is a reduction in water, as it is becoming more scarce, yet, we are still not changing our ways of irrigation. We still do flood irrigation; we don’t believe in using drip irrigation or capillary irrigation, which is the new system that could be used.

Read more: Fertilizer company posts losses as govt. reviews pricing mechanisms

Secondly, there is no real control mechanism or regulatory mechanism, which looks at the country as a whole, so agriculture is on its own. Every farmer is left to his own devices, and you can get involved with cartels, and you can get involved with the middlemen. Hence, there is a lot of very disruptive business going on within agriculture. These are some of the main reasons why there is a threat to food security up to 2030.

GVS: How would you explain the fact that, for example, Indian Punjab has a much higher yield per acre than Pakistan does. What is the reason for the difference because its Punjab both sides, why is ours so low?

General Tariq Khan: Well, the agricultural industry in India and specifically fertilizer is the most heavily subsidized portion of the industry, and that’s not true here, so there is a vast difference in the kind of investment the government does there and what the government is doing here.

GVS: Subsidies in which areas?

General Tariq Khan: Well, fertilizer for one, then the pricing of the sales of the produce is another.

GVS: I have read about the fact that they subsidize their electricity, how does it subsidize fertilizers, is it directly through the price per bag that the farmers receive or is it through the cost components of fertilizers?

General Tariq Khan: It is directly done. It is done through gas. Gas is what is produced, what is done there is done through stickers; some of the subsidies we do on DAP is done through stickers also.

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GVS: After the 18th amendment, agriculture has gone to the provincial level. Do you think it’s the lack of bigger national government policy regarding the sector that is the reason why we are not seeing the development of the sector or would you say there is something else responsible?

General Tariq Khan: No, I think its essential governance related to agriculture itself. Is it a profitable business? Can people survive on that? There is a shift of population from the rural areas to the urban areas – because they can’t survive on agriculture. Those lands are then converted into commercial use, its kind of diminishing activity, and this needs to be looked at very carefully by the government.

Here we need to define what is the cash crop, what is the food crop, what is good for the people, what is healthy for the people, what should be there for the people to consume. What is there for the people to sell and what are the right prices, and who is going to look after farmers? There is no crop insurance. There is no proper pesticide control. Who helps the farmer if there is an emergency?

GVS: Is this another reason why, for example, on the Indian Punjab side we have a much higher yield per acre, the fact that we are not doing capital investment here? We don’t have proper government policies on the issues.

General Tariq Khan: Exactly, one it’s like I said it’s a highly very subsidized industry in India, and there is a heavy investment in the agricultural produce, as well as, fertilizers and the things of that sort. So there is a lot of heavy incentive given to farmers, farming and food that is not done here.

Read more: Fauji Fertilizer makes a strong comeback in the second quarter of 2019

GVS: We talk about CPEC in every field of Pakistan whether it’s infrastructure, power plants, and now we are talking about it for agriculture, and a lot of people are talking about the dangers of China being so involved in every part of Pakistan’s economy. What are your thoughts on that?

General Tariq Khan: Well, there are some fallouts which could be negative, and one needs to be careful, but taking safeguards, I suppose one can move ahead. What is much more important to understand is that CPEC is not as much a Pakistani need as a Chinese need. Look, the Chinese have built the BRI.

The BRI connects Africa, and it connects through the oceans, Asia and Europe. We are talking about 30% of the world’s population. A country which has a GDP over 17% of the world, putting together a consortium of countries that will have something like 29% of GDP, and they require connectivity, and the connectivity has to be through the sea [hence importance of Gwadar].

Read more: The Karakoram Highway – A forerunner of CPEC

Now, the only route that the Chinese have today only for their trade is the Malacca Strait, and the Malacca Straits takes $5 trillion worth of business annually, 80% of the world volume, 70% of the world value, one-third of the world’s shipping, and it is being threatened. So, the South China Sea has Taiwan, it has Vietnam; it has the US-led consortium of countries hostile to the Chinese routes.

Whereas, the route from Gwadar to Kashgar is 1700 kilometres, and the distance from Kashgar to the Chinese ports is twice as much, so they save 24 days circumventing the Malacca Straits, so I think the Chinese need is as much as ours. So, when Pakistan talks about safeguards and controls and regulations for CPEC, they should keep this in mind, that it is not just a game-changer for us (it’s a game-changer for China also).

GVS: I was reading somewhere recently that the Chinese Ambassador said that under CPEC phase 2, China will be helping Pakistan to increase its productivity. What kind of projects does it have in mind?

General Tariq Khan: Well, this is something we in FFC are directly involved in, and we have put up an organization called FACE. FACE is the Food and Agricultural Centre of Excellence. We have done a pilot project, and we think it has been a huge success and we put together some farmers, and we have gone down that road, but we can discuss that later.

Read more: CEO FACE talks about FFC’s farmers program

Right now the question that you asked about Chinese, it is not just the Chinese. There is a Chinese interest, but there is also the Middle East element who are interested, and everyone is looking at it from a food security point of view.

GVS: For themselves or Pakistan?

General Tariq Kan: Well, they say food security, but look at the way they want to do it. They want to do it through taking those lands, which are vacant here in the country, leasing them out and then regulating and controlling agriculture on those, by using labour that is hired.

To my mind, that’s a no go, labour that is hired is not going to work in the agriculture sector. This is not going to be very helpful! Controlling and regulating agriculture in this way means it will be focused on exports from Pakistan, and it is not going to help food security here.

Read more: FACE – FFC’s Farmer’s Support Program

We are giving it a name ‘corporate farming’, but corporate farming can be done in many ways. We have 39%-40% of our population already involved in agriculture, all we have to do is put them together, lump them together into clusters, and then have the same effect that you want to see from one large-sized plot, so what does that mean? That means whether it is the Chinese or whether it is us or whether it’s a combination of us doing it, we need to know how to give the right kinds of seeds, pesticides, control the water, irrigation, do environmental control, bring in artificial intelligence, drones, etc.

GVS: So, who is going to do this, will you expect the government to do this or will this be private sector-led?

General Tariq Khan: Well, it should be private sector-led, but encouraged by the government. There should be some regulation done by the government; KPI’s set out, what is expected, what will be grown and where.

Then there are the outputs; where is it going to be marketed, how will it sold, how will it be transported, where is the warehousing and so on. So, all this is involved, but it doesn’t end here. When you look at the one thing, we are talking about the emancipation of women in the farms, giving them soft loans, which we already are, what I am telling you is what we have done.

GVS: So you are doing this under FFC or FACE?

General Tariq Khan: We are doing it for the country, but the organization that we have put up is FACE, and we hope to replicate this all over the country. We also want to now get on to the CPEC.

Read more: FFC achieves net profitability of Rs13.76bn

GVS: Where is it happening right now?

General Tariq Khan: Right now, it is happening in central Punjab and Rahim Yar Khan and those areas, and we have got a cluster of around 500 farms, and we’ll show the crops. It is their farms. We don’t have to do anything. We have to help the farmers get their things together, and we have got some very promising results, excellent cotton results, very good food crop results.

GVS: What is FACE helping them with? Training and development or giving them capital investment?

General Tariq Khan: What FACE does is that it gives the inputs, it helps with the right kind of fertilizer application, helps with the balanced fertilizer application that has to be done and pesticides. Let me explain the pesticides. We [Pakistani farmers] do broadcasting of pesticides and the pesticide quality that we [Pakistani farmers] use is very doubtful, it’s a dubious kind of a thing.

So, we brought in Syngenta and those companies that are certified. Now with the pesticide, what happens is that a drone takes off and goes up and checks out the data in the entire farm and it tells you where the pests are, and where the pesticide has to be applied, so it is not broadcasted.

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It’s a very specific thing, and it is followed by another drone that is linked up, that automatically flies, and it goes and does whatever it has to do on related fertilizers and pesticides and the things of that sort. So it is very efficient, it saves you a lot of money, you don’t have to throw pesticides everywhere. Also, it also checks out what kind of water is under the soil and fertilizes it accordingly, so that it balances it correctly.

GVS: So, this is happening under those projects where FACE is working.

General Tariq Khan: Yes. So, what do we do so, now the inputs are the fertilizers, the seeds, the pesticides, the climate control, the water management, and then the high-end technology, that we brought in already from China.

What are the outputs? It is the insurance of the crops, the sale of the crops, the marketing of the crops, the transportation of the produce of those agricultural goods, warehousing etc. So now what happens is that the middleman is out and the cartels are not effective.

GVS: What kind of percentage yield increase have you seen as a result of this?

General Tariq Khan: We are looking at 30% increase in cotton. And since it’s a very new project we are expecting very good results elsewhere, we think it will help everywhere, but if you take this as a benchmark, I think we can do anything up to and look the potential for the yields to go up in Pakistan is huge, because we have got the lowest yields in the world, so the sky is the limit for us we can start moving by huge percentages.

GVS: One of the essential elements to increasing the yield is the right input of fertilizers and the fact that Pakistani farmer is not able to put in the right combination of Potash, Urea and DAP. Is there ways the farmer can be trained, or is this just something that the farmer needs to be subsidized, what is your view on that?

General Tariq Khan: Look, the fertilizers inputs used in the country, the basic inputs into the soil, are the NPK formula that is the Nitrogen, Phosphate and Potash. Now we [our farmers] are generally Nitrogen-based fertilizers, because of which we use 6 million tonnes of Urea.

Read more: Fertilizer company posts losses as govt. reviews pricing mechanisms

GVS: Is that cheaper is that why we are using Nitrogen?

General Tariq Khan: It is cheap because of a gas and fertilizer policy that was formulated, somewhere in the late seventies, in which we are supposed to be getting gas at a specific rate, which is related to the Middle East price.

However, that did not happen; because the price of gas kept going up, but, we are supposed to as an industry be responsible and keep the price of fertilizer less than the international prices.

Right now, the price of gas is nowhere near the Middle East price, it is much more, but our price of fertilizer and Urea is 1000 rupees less per bag. So let’s say for argument’s sake, if we stop producing fertilizers today, what happens? You will import it, and foreign exchange will be used.

GVS: Are we currently importing fertilizers or not?

General Tari Khan: No, we are not. We are self-sufficient in Urea, though at times we do import, I am against that import, I don’t think we need it, it is something that affects the market.

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We shouldn’t do that. But, if you do import, and this important to understand because going ahead, we are going to have problems, if you do import, we are going to use the foreign exchange, you would not get government revenues, because we can’t put revenue on imported Urea.

Along with that you have to subsidize it by 1000 rupees a bag. So the government gets hit three times. Now, because Urea is available, that is what the farmers can get, so we have an imbalanced application of fertilizers.

GVS: Now going forward; however, we are all hearing about how Pakistan’s indigenous gas is diminishing and expected to reduce by 2024, so what is the plan that the fertilizer industry has for the next decade because we are at the start of a new decade now.

General Tariq Khan: There are three possibilities. First, we cross our fingers and hope for getting fresh gas from somewhere, which doesn’t look like anywhere near the horizon. The other is that we do a mix of RLNG and the present gas and give it greater life for some time, and the third is that we do gasification of coal.

Now we have got one of the largest world’s resources available to us, so it would be ridiculous not going down that road. But, it is an expensive project and gasification is somewhere in the region of three billion dollars.

GVS: Is it cheaper than if we started importing Urea and fertilizers?

General Tariq Khan: We will still be able to produce lower than the international prices, we will be able to produce cheaper Urea out here if we would follow this road. If we don’t do it, then we will have to import Urea as a whole, and I just told you the disadvantages.

Read more: Ensuring Food Security in Pakistan

So this is where we are. We have already done the studies for gasification, we are talking to the government, and there is a reluctance to tie it up with food security and keep it more on the industrial level.

GVS: When you say that there is a reluctance to tie it to food security, what do you mean?

General Tariq Khan: I don’t see enough people understanding the implications of what is going to happen in the future and how the price of food will go up.

When you are looking at 2030, you are looking at a population of 240 million people, and there is just not going to be enough food and what is available is going to be very expensive. People need to start now looking at, and there should be some concern, and there should be some steps taken to try and mitigate that.

GVS: So you have talked about the challenges that the fertilizers industry is going to face going forward in this next decade. What do you see as your opportunities?

General Tariq Khan: For the fertilizers itself, well gasification is what moving along on to, there are alternatives also to farming, there is vertical farming and other nutrients that one can do. We are trying to convince the government that we need to bring in DAP; we are already producing 800 tons of DAP. We want to bring it at a million tons.

Read more: Challenges faced by our Agriculture Sector

We have got the investor-ready, we have got everything ready, we just need a certificate from the government that they are willing to provide us with gas. If they are willing to give us gas at a proper price, we will be able to provide people with about a million tons more of DAP and bring their price down to that of Urea, and therefore balance our fertilizers in Pakistan.

GVS: Fauji Foundation has a controlling share in Fauji Fertilizer Company, the Foundation itself started in the 1950s. Can you tell us a little bit about the history of Fauji Foundation and how did it come into being?

General Tariq Khan: Fauji Foundation was started up with seed money given by the British. This was the war reparations given for the Second World War, in which people from the Sub-Continent fought for the British army, so they divided it up, and the Indians got their share, and we got our share.

The Indians distributed that money amongst the soldier’s families that existed at that time. However, we put that money up together, and we set up a foundation for the welfare of the troops, and then we had a corporate face to it.

GVS: So, Fauji Fertilizers is one of the corporate faces?

General Tariq Khan: Now being the corporate face, we are run by SECP rules, and the stock exchange governs us, we have been certified as the most transparent company in the region, as well as, in the country.

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GVS: Military corporates are criticized by international organizations and others, as costing the economy, being subsidized by the economy and not as competitive. What are your thoughts on that?

General Tariq Khan: Well, first of all, we paid the government Rs.42 billion, the highest amount of tax ever last year, so I’m afraid I have to disagree, and that was only the FFC. So, I don’t see how anybody can say that, but its obviously misinformation or they are not informed. We have international external auditors.

Our reinsurance is done by Alliance, which is abroad, they are very careful about who they insure. And we compete on the stock exchange, and anybody can buy our shares. So we are a very transparent company, and we have been awarded by the IFA (International Fertilizers Association) for the best practices in the fertilizer industry.

So we are competing on a fair basis, there are no officers from the armed forces who is getting paid while serving, there is an odd one like myself who is retired and who is serving maybe at the MD level, but the majority the people are professionals, we have engineers and finance department and things of this sort.