Agriculture and Fintech

Corporate Strategy Term report

By: Hiba Saleem (06485)

Table of Contents
Part A: Agriculture Sector ............................................................................................................................ 2
Economy of Pakistan ........................................................................................................................ 2
Agriculture of Pakistan ..................................................................................................................... 2
Comparison of Pakistan Agriculture with Developed World ........................................................... 4
Use of Technology in Agriculture ..................................................................................................... 5
Forecast of Agriculture in the year 2030-2050 in Pakistan.............................................................. 5
Constraints ....................................................................................................................................... 6
PART B Fintech.......................................................................................................................................... 6
The inevitable Change - FinTech ...................................................................................................... 6
How Businesses can gain from this revolution? .............................................................................. 7
Role of Fintech in Financial inclusion ............................................................................................... 8
Pakistan's Digital Economy: National Perspectives on Bridging the Digital Divide ......................... 9
Part C: Creative thinking ........................................................................................................... 10
Blue Ocean Strategy....................................................................................................................... 10
Toward Blue Ocean Strategy ......................................................................................................... 10
The Defining Characteristics .......................................................................................................... 11
SWOT Analysis ............................................................................................................................... 12
Fintech in Agri Business ................................................................................................................. 13
Core Idea: ....................................................................................................................................... 13
Our Goals: ...................................................................................................................................... 13
4 Ps ................................................................................................................................................. 14
Product........................................................................................................................................... 14
Place ............................................................................................................................................... 14
Price ............................................................................................................................................... 14
Promotion ...................................................................................................................................... 14
Part A: Agriculture Sector

Economy of Pakistan

The economy of Pakistan is the 27th largest in the world in terms of purchasing power parity
(PPP), and 44th largest in terms of nominal GDP. However as Pakistan has a population of over
183 million (the 18 world’s 6th-largest), GDP per capita is low: the nation’s 2012 PPP-adjusted
GDP per capita of approximately US$2900 ranked 135th, 141st, or 147th in the world according
to the International Monetary Fund, World Bank, and US Central Intelligence Agency
respectively. Pakistan has a semi-industrialized economy, which mainly encompasses textiles,
chemicals, food processing, agriculture and other industries. Growth poles of Pakistan’s
economy are situated along the Indus River] the diversified economies of Karachi and major
urban centers in the Punjab, coexisting with lesser developed areas in other parts of the
country. The economy has suffered in the past from decades of internal political disputes, a fast
growing population, mixed levels of foreign investment Foreign exchange reserves are
bolstered by steady worker remittances, but a growing current account deficit – driven by a
widening trade gap as import growth outstrips export expansion – could draw down reserves
and dampen GDP growth in the medium term.

Agriculture of Pakistan

Pakistan is an agrarian country whose population and economy directly or in directly (70%
directly and 16% indirectly) depends upon agriculture. Agriculture is the mainstay of Pakistan's
economy. It accounts for 21% of the GDP and together with agro-based products fetches 80%
of the country’s total export earnings. Therefore any change in agricultural productivity creates
a ripple effect throughout the rural population of Pakistan. Thus rapid agricultural growth can
stimulate and sustain the pace of industrial growth, setting into motion a mutually reinforcing
process of sustained economic growth. Punjab contributes about 76% to annual food grain
production in the country.
The country has a variable climate, ranging from arid (33-254mm annual rainfall) in the south to
humid (1016-2032mm annual rainfall), sub-humid (508-1016mm annual rainfall) and semi-arid
(254-508mm annual rainfall) in the north. The Indus River that originates from the north along
with its tributaries irrigates the great plains of the country including Central Punjab. Therefore
crop rotation is preferred in such a country, where about 2/3 of the total agricultural area lies
under arid region.
The map shows major growing areas of crops. However, the trend has not changed much as the
weather of Baluchistan and NWFP is not supported much for farming. Due to this, Punjab is a
very important province of Pakistan as this is where river Indus flows. Therefore, one of the
important river civilizations where people made use of river as the source for earning.
In Pakistan, Cropping systems vary widely because of variations in agro- climatic and soil
conditions. Wheat is the major winter crop in all regions of the country. In summer, rice, cotton,
and maize are grown
in areas suitable for their production. Crop production takes place both on irrigated and dry
land, with irrigated agriculture contributing’ about 80 percent of the total production. The five
major crops are Wheat, rice, cotton, sugarcane, and maize.

Comparison of Pakistan Agriculture with Developed World

Crops
The most important crops are wheat, sugarcane, cotton, and rice, which together account for
more than 75% of the value of total crop output.
As discussed above Pakistan’s largest food crop is wheat. In 2005, Pakistan produced
21,591,400 metric tons of wheat, more than all of Africa (20,304,585 metric tons) and nearly as
much as all South America (24,557,784 metric tons), according to the FAO. Pakistan has also cut
the use of dangerous pesticides dramatically.
Pakistan is a net food exporter, except in occasional years when its harvest is adversely affected
by droughts. Pakistan exports rice, cotton, fish, fruits (especially Oranges and Mangoes), and
vegetables and imports vegetable oil, wheat, pulses and consumer foods. The country is Asia’s
largest camel market, second-largest apricot and ghee market and third-largest cotton, onion
and milk market.
The economic importance of agriculture has declined since independence, when its share of
GDP was around 53%. Following the poor harvest of 1993, the government introduced
agriculture assistance policies, including increased support prices for many agricultural
commodities and expanded availability of agricultural credit. From 1993 to 1997, real growth in
the agricultural sector averaged 5.7% but has since declined to about 4%. Agricultural reforms,
including increased wheat and oilseed production, play a central role in the government’s
economic reform package.
Outdated irrigation practices have led to inefficient water usage in Pakistan. 25 per cent of the
water withdrawn for use in the agricultural sector is lost through leakages and line losses in the
canals. Only a limited amount of the remaining water is actually absorbed and used by the
crops due to poor soil texture and unlevelled fields.
Much of the Pakistan’s agriculture output is utilized by the country’s growing processed-food
industry. The value of processed retail food sales has grown 12 percent annually during the
Nineties and was estimated at over $1 billion in 2000, although supermarkets accounted for
just over 10% of the outlets.
The Federal Bureau of Statistics provisionally valued major crop yields at Rs.504,868 million in
2005 thus registering over 55% growth since 2000 while minor crop yields were valued at
Rs.184,707 million in 2005 thus registering over 41% growth since 2000. The exports related to
the agriculture sector in 2009– 10 are Rs 288.18 billion including food grains, vegetables, fruits,
tobacco, fisheries products, spices and livestock.

Use of Technology in Agriculture

Below are technologies related to agricultural and natural manufacturing under four key areas
of accelerating change: Sensors, Food, Automation and Engineering.

Sensors help agriculture by enabling real-time traceability and diagnosis of crop, livestock and
farm machine states.
Food may benefit directly from genetic tailoring and potentially from producing meat directly in
a lab.
Automation will help agriculture via large-scale robotic and micro robots to check and maintain
crops at the plant level.
Engineering involves technologies that extend the reach of agriculture to new means, new
places and new areas of the economy. Of particular interest will be synthetic biology, which
allows efficiently reprogramming unicellular life to make fuels, byproducts accessible from
organic chemistry and smart devices.

Forecast of Agriculture in the year 2030-2050 in Pakistan

By the year 2030-2050, Pakistan’s population is estimated to be grown to a figure of 260 million
out of which majority of the people would be living in the urban cities. More than 60% of this
population would belong to the middle class by then and 67% of the total population would fall
in age group of 15-60 years. The literacy rate, household income, keeping in mind that multiple
people in a same family would be earning, would increase and also, the living standard and
health of the people would increase. More and more people would move to urban cities for
better life which would create an imbalance between urban and rural population. Such changes
in the composition of the population would exert demands for foods very different from the
existing pattern. The tastes and preferences of urban educated middle class, with higher
income will generate a shift in the food consumption basket away from cereals towards meat,
poultry, dairy products, edible oil, fruits & vegetables, sugar, fish, etc. The rate of the increase
in the global output has slowed down. The rate of investment in the agriculture sector is low.
Competition for water and land is getting tough day by day. For example the Bahria Project in
Multan which has destroyed acres of fertile land for construction of houses and buildings.
Projections show that the prices for food and the inputs for agricultural products would
increase due to the ever increasing prices of oil and gas. 42 Pakistan can now capitalize by
utilizing its’ irrigated land and cheap labor, and new technological innovations.

Constraints

Pakistan’s agricultural sector is already declining and it’s average growth rate has decelerated
from 5.4% per annum to 3.2% per annum. Agriculture currently comprises of 1/5th of the
national output and it’s share will likely slip by 12-15% by the year 2030-2050. The constraints
that would occur would be use of obsolete technology, highly educated and skilled labor force
which would not participate in agriculture sector and movement of population from rural to
urban areas. Unless these constraints are not addressed, the situation for agriculture sector
does not look very promising. Past historical evidence, however suggests, that labor and land
productivity gains can take care of the additional demand for food, provided all the inputs such
as energy, irrigation water etc. are available proportionately and input price hikes do not
outstrip the output price increases. Productivity per unit of land and per unit of water in
Pakistan relative to Indian Punjab is low and there is thus much scope for increasing
productivity. Furthermore, the mix of agriculture output has to change from staple grains and
cereals to high value agricultural commodities. Livestock and Dairy products now account for
more than 50 percent of the agriculture value added while 35 percent originates from the
major crops, 11 percent from minor crops (lentils, fruits, vegetables etc.) and 3 percent from
fisheries and forests. By 2030, the contribution of Livestock, Diary subsector and Minor Crops
will have to rise at the expense of grains and cereals. There are a host of sectoral reforms that
have to be implemented in the next 20 years to achieve the postulated productivity gains and
meet the changing demand pattern.

PART B Fintech

The inevitable Change - FinTech

Fintech or ‘Financial Technology’ has become a buzzword in financial industry. Fintech simply
refers to the use of software and digital platforms to deliver financial services to consumers.
These digital tools are beginning to disrupt traditional banking models by creating new and
efficient means of providing services. The blurring of technology into every part of our lives is
becoming the norm. However, the impact that the 4IR will have or the direction it will take are
not yet known. Besides having one of the most complexes ecosystems, where traditional banks
are failing, FinTechs are succeeding. As clients are becoming used to the digital experience
offered by companies such as Google, Amazon, Facebook and Apple, they expect the same level
of customer experience from their financial services providers. There are technological
innovation in the financial sector, including innovations in financial literacy and education, retail
banking, investment and even crypto-currencies like bitcoin.

How Businesses can gain from this revolution?

We must acknowledge that an economic industry composed of companies that use technology
to make financial systems is more efficient than of its competitors using old ways. It is a
movement to upend traditional banking and lending’s heavy regulation and strong resistance to
change in order to make sending and receiving money easier FinTech industry is a quickly
evolving technological umbrella that covers many different and diverse ideas related to the
financial services industry. For small businesses especially, this revolution seems highly
beneficial to them.
The ease in payment processing, money transfers, alternate lending options, Wealth
Management/ Automated Investing Services, etc. are becoming more adaptable, flexible and
convenient form to run such businesses. The use of machine learning algorithms and enormous
amounts of data to make investing easy and inexpensive by cutting out the costly human
advisor element. FinTech provides different benefits for its various customers, whether
consumer or business. Accessibility and speed play a part in every one of them. For businesses,
the accessibility gained is immediately obvious. Utilizing much faster, always on Internet
connections, big data computing, and mobile connectivity, businesses are now able to buy in to
complex, feature rich financial software suites and managed services that a decade ago would
have cost millions of dollars in setup fees for equipment, program licenses, and trained
technicians, not to mention the IT team to manage the whole solution. Smarter displays of
information with real-time updates and the insights of big- data have provided business leaders
with unparalleled business insights, allowing savvy businesses to update their marketing on the
fly to take advantage of favorable conditions.
Those same factors also allow businesses to provide a similar level of enhanced accessibility to
their customers. Greatly improved software designs and user experiences, fast internet
bandwidth, and the universal adoption of smartphones has provided real-time access to
financial information and transactions at a level never before possible. This has led to the rise of
omnichannel payments processing, mobile banking, peer-to-peer payments, and even new
ways of evaluating credit applications.
Role of Fintech in Financial inclusion
The importance of digital and mobile solutions is huge, both in terms of streamlining business
processes and its ability to bring common man into the financial mainstream for the first time in
their lives. A recent research carried out by McKinsey found that digital finance solutions have
the ability to lower the cost of providing financial services in emerging economies by upto 90
percent, thus illustrating the power of technology in overcoming social and economic
challenges.
For example, Person–to-Merchant (P2M) payment solution implemented by MasterCard in
Africa solves the problems that millions of MSMEs (micro, small and medium enterprises) and
their customers have faced for years. The simple and secure application removes the need for
expensive POS (point-of-sale) infrastructure for these companies, while simultaneously
eliminating the need for customers to carry cash in order to pay for the goods or services they
purchase. Instead, the solution utilizes the power of mobile phones, something a large number
of people in Africa (and the World) already carry.
Another example is the MPOS solution implemented by MasterCard in Nigeria which takes
advantage of the popularity of mobile. It enables merchants in the MSME sector to accept
efficient and safe mobile payments from customers that previously paid with debit or credit
cards. The solution is effectively turning smartphones into POS terminals, making it easier for
customers to make payments than ever before.
In the context of financial inclusion, fintech provides huge potential. Using the blend of finance
and technology, financial services can be provided with greater speed, accountability, and
efficiency.
Access to financial products and services is becoming more attainable than ever, especially for
consumers that live in rural locations or regions without the structures of a modern economy.
Not only can fintech make these products and services more accessible, it can also make them
more affordable by lowering the cost of doing business for the financial institutions and
ultimately the savings can be passed on to the consumer. Coupled with the availability of
affordable mobile phones and cellular networks, and a world where no one is excluded from
the financial system may not be that far out of reach.
Here are few areas where we think Fintech is playing a big role in revolutionizing the financial
sector:
• Microfinance: This is traditionally a people and paper intensive industry and often involces
far-flung rural locations. Electronic loan applications and banking services are now allowing
speedy credit decisions and loan disbursals. This is allowing bank staff to service more clients
than ever before. The microfinance sector is growing at a rate of 30% annually. The fact that
most telcos in Pakistan also have a microfinance bank attached to them now is an evidence that
these companies see huge growth potential for microfinance in Pakistan. They’ll be able reach
customers in areas and location where traditional brick and mortar banks can only think of.
• Money Transfers (Remittances): This traditionally required a trip to your nearest MoneyGram
or Western Union office for international remittances. This was an expensive solution and
useless for local transfers. Solutions such as Mobicash and Easypaisa have simplified this
process by allowing people to send money around Pakistan for a fraction of what traditional
vendors charge.
• Credit History: This can be a huge road block for people that have never dealt with a financial
institution before. Without one, many traditional institutions will not offer products, such as
credit, to entrepreneurs that need support to start or expand their business. Fintech makes it
possible to harness data from other sources, such as mobile phone payment history or online
accounts and social media activity to create an alternative credit history and help a financial
institution to make a loan decision.
• Cashless Payments: Pakistan is traditionally a cash based economy. Cashless payments
present a big opportunity for merchants in Pakistan and rest of developing world who do not
currently enjoy the simplicity and security of digital payments. Dealing with cash is risky, and as
more consumers move to digital financing, merchants will need to keep pace. Solutions like
Easypasa allows merchants to accept payment from mobile money sources and Easypay gives
merchants the ability to easily accept payment from credit and debit cards.
• Deferred Payment Plans: This is another upcoming idea that allows consumers to purchase
big tickets items slowly over time, eliminating the need for large sums of cash. For example one
day you will have the convenience to purchase solar lamps on a pay-as-you go basis and thus
bringing light to remote villages that lack electricity. Technology will enable connection of these
devices to wireless networks, transmits data, and control device functionality remotely. This
will allow service providers to turn a device on or off depending on a customers’ account status.

Pakistan's Digital Economy: National Perspectives on Bridging the Digital Divide

Pakistan has one of the largest markets in the global digital economy and internet penetration
has been growing fast. In 2016 smartphone users constituted 31% of total mobile users.
Pakistan has the lowest cost as a percentage of income for broadband for people living in
poverty (at 5.5% for people living at below $3.1/day).
The main barriers to broadband connectivity in Pakistan are poor infrastructure; low literacy
rate; regulatory hurdles; geographic barriers; and low rates of urbanization. Pakistan’s public
and private sector has embraced the digital economy with a wide range of services now offered
electronically, including social welfare payments, citizen liaison services, and automated border
control. Some of these services have been exported to other developing and LDC countries. The
road forward for Pakistan includes focusing on its regulatory regime and updating its law to
facilitate its growing digital economy.
Banking plays an important role in the financial life of a business, and the importance of banks
can be seen from the fact that they are considered as to be the life-blood of modern economy.
Although no wealth is created by Bank, but their essential activities facilitates the process of
production, exchange and distribution of wealth. In this way they become the effective partners
in the process of economic development and growth. In the words of Stephenson & Britain
“Banks are the custodians and distribution of liquid capital, which is the life-blood of our
commercial and industrial activities and upon the prudence of their administration depend the
economic well-being of the nation”.

Part C: Creative thinking

Blue Ocean Strategy

Kim and Mauborgne begin with a discussion of Cirque du Soleil, a company founded in 1984
with the tagline "We reinvent the circus." Cirque created new uncontested market space that
made the competition irrelevant. According to Kim and Mauborgne, the business universe
consists of two very different kinds of space, red oceans and blue oceans. Red oceans are all the
industries currently in existence where boundaries are defined and accepted. Blue oceans are
all the industries not currently in existence where demand in created, not fought over. Blue
oceans can be created as new industries, but are more often created by altering the boundaries
of an existing industry. Over the past 100 years, more than 150 blue oceans have been created
in over 30 industries, usually with a consistent pattern of strategic thinking. The purpose of this
paper is to present the concept of blue ocean strategy and to describe its characteristics.

Toward Blue Ocean Strategy

Kim and Mauborgne provide a table showing 13 companies that represent examples of
key blue ocean creations drawn from their study of over 100 years of data. Examples
include Ford's 1908 Model T, GM's 1924 car for every purse and purpose, Japanese 1970's
fuel-efficient autos, Chrysler's 1984 minivan, CTR's 1914 tabulating machine, IBM's 1952
650 electronic computer and system/360, Apple's 1978 personal computer, Compaq's
1992 PC servers, Dell's 1990s build-to-order computers, the 1905 Nickelodeon (short films
for 5 cents), Palace theaters 1914, AMC 1960s multiplex theaters, and AMC 1995
megaplex theaters.

They found a pattern of strategic thinking as follows:

1. Blue oceans are not about technology innovation - Blue oceans come from linking
technology to what buyers value, e.g., Ford's assembly line can be traced back to the
technology used in the meat-packing industry.

2. Incumbents often create blue oceans and usually within their core businesses - Most
blue oceans are created from within an existing industry.

3. Company and industry are the wrong units of analysis - The strategic move, or set of
management decisions and actions involved in creating a major market is the most
appropriate unit of analysis.

4. Creating blue oceans builds brands - A blue ocean strategic move can create brand
equity that last for decades.

The Defining Characteristics

There are a number of common characteristics of blue ocean strategic moves as

indicated in the illustration below.
SWOT Analysis
Strengths
 Pakistan’s economy is largely dependent on the agriculture sector and majority of the
population, directly or indirectly, dependent on this sector.
 It is the second largest sector contributing about 24% of Gross Domestic Product (GDP)
and about 45% of employed labour force and is also the largest source of foreign
exchange earnings. (statistics n.d.).
 Agricultural land of Pakistan is 47% of the total land , which is its key strength.
 Both large scale manufacturing and SME have deep links with the agriculture sector.
Weakness
 Despite its critical importance, this sector remains largely unorganized and fragmented.
 Small farmers in Pakistan constitute nearly three fourth or 75% of the total population
of farmers to dominate the agricultural sector.
 Owning small stretches of land less than 12 acres these farmers face myriad problems
including shortage of inputs, price volatility, low bargaining power and changing
government policies in the favor of large farmers.
 Agricultural credit facilities are not sufficient in Pakistan.
 Rate of interest on agricultural credit is high and loan is not provided in time.
Opportunities
 Pakistan has one of the largest markets in the global digital economy and internet
penetration has been growing fast. In 2016 smartphone users constituted 31% of total
mobile users. Pakistan has the lowest cost as a percentage of income for broadband for
people living in poverty (at 5.5% for people living at below $3.1/day).
 Using Fintech opportunities to address the prevalent finance shortages.
 Technological advancements around the world in farming production techniques.

Threats
 Owing to financial constraints, small farmers are reliant on traders, middleman and
input suppliers. These traders facilitate farmers by providing them credit on the
condition that the farmer will sell all the crop to the trader only at the time of harvest.
 In the absence of a relationship between the farmers and the banks, credit needs of the
agriculture economy are being met though the informal sector. This informal sector is
very dynamic in Pakistan and serves the financial need of these farmers. These traders
are referred to as “arthis”, or wholesalers.
 Pakistan is based on conservative method for production and also based on self-
 reliance which is main cause for low productivity. Most of the developed countries use
advanced technology and go to maximize per acre productivity. When per acre
productivity is low its mean that lower of former profit and when farmer did not earn
more profit then they have not excess money to purchase high quality seeds, better
pesticides , advanced technology due to lack of these things next productivity is also
lower and this vicious circle is continue.

Fintech in Agri Business

Core Idea:

Access to credit is one of the main issues faced by the Pakistani farmers due to the limited
penetration of microfinance firms and commercial banks into the agriculture system. Lack of
access credit and poor credit scoring creates roadblocks to leading farmers who are excluded
from the formal financial system. On the other hand, Pakistan’s agriculture sector is dominated
by poor farmers who lack finance to invest in capital, land, machinery and equipment. This
loophole effects farmers to expand their operations, therefore, they do not produce more as
the problem with present market structure is that it is highly unorganized, fragmented, with no
standardized pricing and low asset utilization.
We want to provide an E-commerce platform to connect farmers directly to the local and
international buyers.

Our Goals:

Our aim is to develop a system which caters to the monetary needs of the farmers. It will
provide them with credit ratings, based on which banks, financial institutions, and individuals
can feel safe while lending money to small farmers.
Currently, the small farmers are rejected loans from financial institutions due to no proper
records of their credit rating. As a result, they are dependent on landowners and feudal lords
for loans to purchase seeds, cultivate their lands, and grow crops. This enables the feudal lords
to exercise a lot of control on these poor farmers and manipulate them in every walk of life.
The farmers keep drowning in the burden of debts, are never able to repay back their loans,
and continue to lead a life of slavery.
With our system, the farmers will have more ease and better chances of obtaining loans from
banks and lending institutions rather than relying on feudal lords.

This will result in achieving overall goals of addressing the challenges faced by small farmers by:

 Eliminating the need of Middle man and hence, eradicating exploitation

 Fair prices means enhanced profits and increased productivity
 History of transactions could serve as a basis of credit scoring for farmers which can
enable them easy access of finance through formal sources.
 Reduced inputs costs as farmers can directly purchase inputs from the website.

4 Ps
Product

The interface would enable farmers to focus on the following key areas:
1. Record keeping platform
2. Farm analytics
3. Financial trainings
4. Partnership with FI’s and Banks

Place

Registering with us is easy. Farmers can access the platform using any type of phone and or
laptops.

Price
A flat rate of commission would be charged on every transaction.

Promotion
 Free registrations for both farmers and consumers.
 Awereness and training sessions for farmers to educate them about the service.
 24/7 customer assistance to address any issue.