DIAGNOSTIC STUDY

Rice Cluster Larkana, Sindh - Pakistan

Conducted By
Mr. Ikhtiar Ahmed Khoso RBC SMEDA Larkana

Supervised By
Mr. Muslim Raza – Provincial Chief SMEDA Sindh

April 2008

Developed under UNIDO Cluster Development Programme Pakistan

Partner Agency
Small and Medium Enterprise Development Authority (SMEDA)

Focal Point UNIDO:

Mr. Anjum Fayyaz –NPC UNIDO
Mr. Sarwar O.H. Hobohm – Team Leader CDP UNIDO Vienna

All rights reserved. No part of this document may be reproduced or transmitted, in any form or by
means, with out prior written permission from UNIDO or SMEDA
 S. No. Table of Contents P.

I. World Rice Production…………………………………………………………………...

a. Export…………………………………………………………………………….
b. Import…………………………………………………………………………….

II. World Rice Production & Consumption…………………………………………………

a. Production………………………………………………………………………..
b. Consumption……………………………………………………………………..

III. Pakistan Export Overview………………………………………………………………..

a. Rice Consumption………………………………………………………………..
b. Rice Export……………………………………………………………………….

IV. Introduction to Larkana…………………………………………………………………..

V. Description of Cluster………………………………………………………………........

VI. Rice Cluster Process……………………………………………………………………...

a. Analysis of Business Operation………………………………………………….
b. Flow Sheet………………………………………………………………………..

VII. Core Cluster Actors & other Actors……………………………………………………...

VIII. Problem Identified………………………………………………………………………..

a. Infrastructural…………………………………………………………………….
b. Economic Problems………………………………………………………………
c. Other Issues………………………………………………………………………

IX. Cluster Vision…………………………………………………………………………….

X. Strategy…………………………………………………………………………………...

XI. Marketing Issues…………………………………………………………………………

XII. SWOT…………………………………………………………………………………….

XIII. Action Plan for First Year………………………………………………………………..

XIV. Action Plan for 2nd and 3rd Year…………………………………………………………

XV. Cluster Map………………………………………………………………………………

 I. World Rice Production

World rice production in 2004 was just under 610 million t. At least 114 countries grow
rice and more than 50 have an annual production of 100,000 tons or more. Asian farmers
produce about 90% of the total, with two countries, China and India, growing more than
half the total crop.

Export

Total world rice exports in 2003 have recently been projected at 25,564,000 metric tons,
higher than the 24,949,000 tons estimated for 2002, according to the USDA. Thailand
will maintain its top position, with 7.5 millions tons estimated to be shipped in 2002 and
2003, unchanged from 2001. India and Vietnam will continue to trade places in 2003, as
the former is expected to become the world’s second biggest rice exporter with 4 million
tons, followed by Vietnam with 3.5 million tons. Traditionally, Vietnam has exported
more rice than India, but Vietnam is very likely to lose its position to India this year.
India has huge stockpiles, which keep prices very competitive, whereas low production in
Vietnam pushes prices up. In fourth place comes the US, which will export 2.95 million
tons next year. US rice exports have been steadily growing since 1999, thanks to
increasing crops and more competitive prices. China will be fifth, with 2.25 million tons
projected for export.

Burma (1.5 million tons) is expected to outdo Pakistan (0.8 million tons) in exporting
rice. As a matter of fact, the latter had exported more rice than Burma until 2001, but will
likely lose its place this year on account of poor production triggered by irrigation water
shortages. Pakistan’s 2002 exports are projected at 1.25 million tons, against 1.5 million
tons from Burma.

Trends in world rice Export (1999-2003)

2002 (Aug 2003 (Aug

Country 1999 2000 2001
12) 12)
Thailand 6,679 6,549 7,521 7,500 7,500
India 2,752 1,449 1,936 4,500 4,000
Vietnam 4,555 3,370 3,528 2,800 3,500
United States 2,644 2,847 2,541 2,950 2,950
China 2,708 2,951 1,847 1,500 2,250
Burma 57 159 670 1,500 1,500
Pakistan 1,838 2,026 2,417 1,250 800
Uruguay 681 642 806 650 650
Australia 667 617 618 400 500
Egypt 320 500 705 500 500
EU 348 308 275 275 325
Argentina 674 332 363 350 300
Guyana 252 167 175 150 175
Others 766 929 1,051 624 614
World Total 24,941 24,941 22,846 24,453 24,949
Units Thousand metric tons

Import

Indonesia is likely to remain the world’s number one rice importer in 2003, with
approximately 3.25 million tons, unchanged from this year’s estimate. The country needs
to import this much because its rice production is considerably limited by El Nino-
induced drought. Trailing behind are Iran and Nigeria, with 1.5 million tons each next
year. Iran’s projected imports next year will top those in the past few years, when figures
mostly exceeded one million tons each year, while import growth in Nigeria has been
steady at over one million tons each year as well.

Other prominent importers in 2003 were Iraq (1.1 million tons), Saudi Arabia (1 million
tons), the EU (0.85 million tons), Senegal (0.75 million tons) and the Philippines and
Japan ( 0.65 million tons each). On the whole, rice imports in these countries will remain
steady next year, either equal to 2002 figures or surpassing them. This robust import
demand could be attributed to rising consumption worldwide, especially in the face of El
Nino-induced drought affecting rice production in some countries, particularly Indonesia.

World’s rice import (1999-2003)

2002 2003
Country 1999 2000 2001 (August (August
12) 12)
Indonesia 3,729 1,500 1,500 3,250 3,250
Iran 1,313 1,100 735 1,250 1,500
Nigeria 950 1,250 1,738 1,500 1,500
Iraq 779 1,274 959 1,000 1,100
Saudi Arabia 750 992 1,053 900 1,000
EU 784 852 800 800 850
Senegal 700 502 863 900 750
Japan 633 656 680 650 650
Philippines 1,000 900 1,175 1,200 650
Cote d'Ivoire 600 450 654 575 600
Malaysia 617 596 633 600 600
South Africa 514 523 572 550 550
Bangladesh 1,220 638 402 300 500
Mexico 342 415 388 500 500
Cuba 431 415 481 455 475
 II. World Rice Production and Consumption

Production

Rice is the second largest produced cereal in the world. At the beginning of the 1990s,
annual production was around 350 million tons and by the end of the century it had
reached 410 million tons. World production totaled 395 million tons of milled rice in
2003, compared with 387 million tons in 2002. This reduction since the end of the
previous millennium is explained by the strong pressure put on land and water resources,
which led to a decrease of seeded areas in some Western and Eastern Asian countries.

Production is geographically concentrated in Western and Easter Asia with more than 90
percent of world output. China and India, which account for more than one-third of
global population (52,3% over the 1999-2003 period), supply over half of the world's
rice. Brazil is the most important non-Asian producer, followed by the United States.
Italy ranks first in European Market. World production has shown a significant and very
steady growth, almost exclusively due to increasing production in Western and Eastern
Asia.

Distribution of the world paddy rice production (average 1999-2003)

Source : UNCTAD Secretariat from the Food and Agriculture Organization of the United
Nations (FAO) data

Growth has not been homogeneous in this group of countries. Traditionally, production in
Asian increases, except in Japan. The decrease in Asian production at the end of the
1990s did not get enough attention as it was considered to be a temporary abnormality.
However, it has now begun to seriously affect some countries such as China where rice
areas have declined as a consequence of water scarcity and competition from more
profitable crops (oleaginous). Despite this trend, rice still plays a vital role in all the
countries in the region.

Consumption

Historical evolution of the main paddy rice consuming countries (human food) in tones
between 1961 and 2002

Source : UNCTAD Secretariat from the Food and Agriculture Organization of the United
Nations (FAO) data.

World rice consumption increased 40 percent in the last 30 years, from 61,5 kg per capita
to about 85,9 kg per capita (milled rice).Most rice is consumed in the same country that it
is produced. This is one of the most important characteristics of the rice production chain.
Domestic rice markets are, therefore, very segmented and often one of the most
protected.

III. Pakistan Export Overview

Pakistan total rice production in 2005 was 5339 thousand tons. Production of basmati was
2548 thousand tons and IRRI was 2367 thousand tons while rest of were other verities.
The trend in Pakistan rice production since last four years is increasing but with not
according to requirement due to the some basic problems such as supply of irrigation
water, quality seed, pesticides and field management. Despite low prices and increasingly
vocal complaints from rice producers, the government plays a minor role in the rice
market. Although the government establishes procurement prices for different grades of
paddy, it did not purchase any paddy.

Rice Consumption

Rice is not a staple and consumption is increasing slowly compared to wheat. About 60
percent of the crop is destined for local consumption and the remainder exported. The
government does not maintain grade standards for rice. An estimated 150,000 metric tons
of 40-percent to 100-percent broken rice used in the poultry feed annually.

Rice Exports

Pakistan is a major rice exporter and for the year 2005 total export were 3.689 M.T.
consisting of 0.839 M.T. of Basmati and 2.850 MT of other verities including IRRI

All trade is done by the private sector. The state-owned Rice Export Corporation was
abolished several years ago. Today, another state trading agency, the Trading Corporation
of Pakistan (TCP), plays a limited role in the rice trade by facilitating government-to-
government exports through the private sector. The GOP in consultation with the Rice
Exporters Association of Pakistan (REAP) has established a quality review committee to
certify the quality of Pakistani rice prior to shipment in an effort to boost the image of
Pakistani rice, and especially Basmati rice.

Mostly rice is exported to African and Middle-East countries.

IV. Introduction to Larkana

A glance of the map of Sindh reveals that Larkana, from location point of view enjoys a
strategic position. After Karachi it is largest city on the west bank of river Indus in Sindh.
It include on an area of 7423sq Km. with a population of 1927066.The city is located in
upper Sindh at a distance of about 85 km south west of Sukkur.

Larkana is high yielding paddy producer district in the Sindh and is famous for its rice
and guava production due to the network of barrage canals, which irrigates the entire area
of the district. Its annual guava production rose to 23 371 M.T and rice production
touched the figure of 6,36,932 tons. Due to the paddy production in the district
encouraged the rice milling industry in the district. Presently it touched the figure of 300
mills in Larkana and Shahdadkot. This not only employed the labor force but also
encouraged the export of rice from the country.

Though, Industrial Estate in Larkana was established in 1946-65 with aim to promote
small industries within the city but it has not achieved significant progess. Textile, sugar
manufacturing and rice husking are the important industries in the district. At present
there are more than 500 industrial units of textile, food manufacturing, ginning and
pressing of cotton, rice husking etc.
The existing manufacture units operative in Larkana are flour mills, rice mills, chilies and
spices units, processed foods, ice factories, oil mills, plastic pipes, steel pots, clay pots,
handicrafts, ready-made garments, candle making, simple to stylish bricks, furniture and
gold ornaments.

V. Description of Cluster

Rice is consumed as a major food item after wheat and is third largest crop after wheat
and cotton by acreage. It is annually cultivated on an area of around 5 million acres. The
crop occupies about 10% of the total cropped area. Annual rice production averaged at
4.75 million tones in 2004-5. It accounts for 17% of value added by major crops. Punjab
is the leading producer of rice in the country. It accounts for 59.5% of the total
production the next leading province is Sindh it accounts 29.5%. The remaining
provinces NWFP and Baluchistan contributes 11% of the total production. On the world
level Pakistan ranks 14th in rice production. It is the 6th largest exporter of rice, holding
6% share in rice export of the world. Rice export hovered around 2 million tones in 2004-
5.Pakistan Basmati rice has been a favorite among international rice buyers.

Rice Crop in Sindh has been grown since centuries as its cultivation dates back even
before the civilization of Moen-e-jo- Daro. There was substantial area of 487 thousand
hectares under rice cultivation even before the barrages the area further increased with
the opening of barrages in 1932 and reached at 704 thousands hectares in 1998 and
produced 1.5million tons paddy.In Sindh Rice is cultivated in two different geographical
areas i.e Northern or upper Sindh (comprising Larkana, Qamber-Shahdadkot, Shikarpur,
Jacobabad, Kashmore and Dadu Districts) and Southern or Lower Sindh (comprising
Thatta, Badin, and Tando Mohammad Khan Districts.
There are approximately 850 Rice Mills are working in Sindh-Baluchistan and
approximately 700 are working in Sindh to process the paddy among 700 rice mills 200
are in Larkana.

Before the 1978 there were old iron hullers for the husking in Larkana but in the mid 90’s
Sheller were introduced then soon after Rubber polisher SM 18 were introduced to
achieve high yield and know one Silky/water polisher is installed in Larkana. Perhaps
first is Northern Sindh. Mostly millers in cluster have outdated units hardly few has
SM18 rubber polisher. More then 60 percent millers are un-educated and almost 95%
doesn’t know what is happening in international market or interest in international
market. If we compare existing cluster set-up with Japan, China and Thailand cluster
machinery is out dated.

VI. Rice Cluster Process

1. Analysis of Business Operation

Human beings cannot consume Paddy in its raw form. It needs to be suitably processed
for obtaining rice. Rice milling is the process, which helps in removal of hulls and barns
from paddy grains to produce polished rice. Rice forms the basic primary processed
product obtained from paddy and this is further processed for obtaining various
secondary and tertiary products.

Milling process of paddy starts when the paddy is brought from fields and gathered in an
open space of milling area where it is gathered for drying and is placed in an open place
till it achieve desire moisture level. Then paddy is brought and placed in a ware house
where it is processed into following stages:

Cleaning: Removes foreign objects, such as hey, stone, tree stump, from the paddy.

Hulling: Rubs excessive husks off cleaned paddy. On removed, brown rice is separated
from the husks though ventilation process and mechanical equipment leaving pure brown
rice available for milling.

Milling: The milling, or whitening, stage removes the bran layer from brown rice. The
modern multi-break, vertical whiteners use both abrasion and friction to gently and
efficiently convert brown rice to milled white kernels. The bran layer is by air ventilation,
which sucks in the brand layer process usually takes 2 to 3 cycles, depending on the
required milling degree.

Polishing: Smoothing and brightening a surface of rice grain by a roll or series of rolls.

Grading: Separates milled rice (mixture of different sizes: Whole grain, head rice, and
broken rice) by a sieve grader include several sizing techniques.

Sorting: Removes rice defects, such as discolorations, yellows, immature (green),

chalky, peck, seeds, red rice, glass, stones. Add value to white rice, parboiled rice to
ensure that only the cleanest rice is passed.

Pack / Storage: The finished rice will be packed and stored in individual bads, according
to its grade, and the rice is ready for delivery to customers
 Analysis of Business Operation

VII. Core Cluster Actor & Other Actors

Core Cluster Actors

• Sindh-Baluchistan Rice Millers Association.

• Larkana Chamber of Commerce & Industry.

Support Service Providers

• Importer of Machineries.
• Local Manufacturers of Machineries.
• Suppliers of Machinery Items.
• Financial Institutions.

VIII. Problems Identified

Infrastructural Problems:
• High electricity charges.
 • Improper awareness of export market.
• Warehouses.
Economic Problems:
• Problem of proper rate and delay in payment by brokers and exporters
Other Issue:
• Unorganized nature, Lack of mutual trust.
IX. Cluster Vision
Cluster would become centre of high quality produces of milled rice in next three years.
X. Strategy
To improve the existing infrastructure of cluster by conducting awareness seminars and
trainings for slowly and gradually replacing of units with high yield and less broken
percentage units.
XI. Marketing Issues:
• Lack of awareness of world market
• Intimacy development between grower and miller and exporter and miller
• Degraded quality and weight

XII. SWOT Analysis

The SWOT analysis of the cluster will be useful for clean under standing of the
capabilities of the cluster to face the challenge a head..
Strength:
• Easy availability of paddy.
• Easy availability of fuel(diesel).
• Easy availability of Machinery and maintenance.
• Easy availability of labor force.
• High capacity for investment of entrepreneur.
• Exposure to export market.
• Encouraging Industries policy of Govt.
• Good transport facilities.
• High demand in local and international market.

Weaknesses:
• Low level of education.
• Non availibity of quality paddy.
• Un-willingness to use moisture meters.
• High broken percentage.
• Low milling yield.
• Un-hygienic conditions within milling process.
 • Low level of modernization and up gradation technology.
• Lack of marketing awareness.
• Lack of common facility within the cluster.

Opportunities:
• Up gradation due to involvement of different stake holders.
• Improvement in quality and high milling yield.
• Increasing demand of milled rice in world market.
• Demand for low price.

Threats:
• Quality requirement of international market (e.g. Aflatoxin).
• Supply of mix-up verities.
• Rejection of product by exporters.

XIII. Action plan for first year:

• Awareness seminar on:
1. Milling operations.
2. Use of paddy moisture meters.
3. World demand and quality requirement.
• Visit of technical advisor of rice mill.
XIV. Action plan for year2 and 3:
• Building Association as a source of knowledge for millers.
• Formation of network.
• Gradually up-gradation in milling process.
 XII. Cluster Map

Public Policy

Government, Financier, Exporter etc.

Backward Forward
Linkages Production Process Linkages

Firm Firm
Raw Material Brokers
Suppliers
Firm

Direct
Machinery Consumer
Supplier Firm Firm

Paddy and Milled Rice Direct

Exporter

Public & Private, Support & Service Institute

Rice Millers Association, Banks, LCCI, etc.

International Factors