Horticulture Market Assessment Study:

A look at the Export Potential

**Prepared for: USAID**

**Prepared By: ATDP Research Team**

**\
***(Dr. Ferhat Anwar, Rouham Manzoor,* *Ashek Mahfuz,\
Dinesh Panday,* *Nii-Akwei Acquaye)*

**October 2005**

**[List of Abbreviations]{.underline}**

1\. **ATDP**: Agro-based Industries and Technology Development Project

2**. EC:** European Community

3\. **MIS:** Management Information System

4\. **ISP:** Internet Service Provider

5\. **BDS:** Business Development Services

6\. **AIUB:** American International University of Bangladesh

7\. **USAID**: U.S. Agency for International Development

8\. **BIST:** Bangladesh Institute for standard Testing

9\. **INFS:** Institute of Nutrition and Food Sciences

10\. **BASC:** Business Advisory Services Center

11\. **ADUST:** Atish Dipankar University of Science and Technology

12\. **CBDS:** Consortium for Business Development Services

13\. **BEI:** Bangladesh Enterprise Institute

14\. **EPB:** Export Promotion Bureau

# Management Summary

The Horticulture Sector in Bangladesh, according to a generally accepted
definition, includes the range of fruits, and vegetables and spices that
are grown locally and sold to the final consumer at various stages of
processed conditions.

The stated objective of this study is to identify the opportunities for
further development in the Horticulture sub-sector and the constraints
that prevent its development. In addition, an outline of possible
interventions and results to be expected is provided in the study.

Due to the wide range of fruits, vegetables and spices available and
their varying requirements, this study only provides a general look
across the total value addition chain to identify the potential
opportunity areas for development and the constraints that must be
overcome to achieve that potential.

The authors approach was to use a combination of primary and secondary
information to gather the information that is presented in this
document.

The study clearly shows that the potential for the horticulture sector
of Bangladesh to further develop is very attractive; yet, considering
the land availability, frequency of natural calamities and international
standards, it is not likely that the overall exports for the entire
range of horticulture products is likely to prosper in the near future.
However, a long term plan with particular focus on selected products for
the local market with gradual expansion into the export market is a more
feasible approach.

Presently the export market for Bangladeshi fresh fruit and vegetables
is limited to the ethnic markets and experts believe that restrictions
will be imposed on exports from Bangladesh if increasingly strict
international standards are not met. Unsurprisingly however, the
exporters strongly believe that they are capable of adjusting to the
international requirements. With regard to fresh horticulture products,
transportation (air transport) is highlighted as the bottleneck, which
under the present trade scenario is difficult to address. However that
perspective comes from the exporters. The transporters view is that the
value, quantity, return trips and to a certain extent quality of
packaging of the produce is sub-standard and results in them incurring a
cost to carry. Manufacturers of processed products claim they have
issues with local sourcing and production.

Based on identified issues, it appears that identifying and solving the
issues within the local value-chains of specific fruits and vegetables
will go a long way toward spurring the development of the Horticulture
sub-sector as a whole. Specific products to consider are tomato, banana,
bitter gourd, okra, turmeric, coriander and mango. Individual analyses
of these items value-chains and targeted solutions applied to them will
produce results that can easily be quantified.

Solutions to these items problems will spill over into others and will
serve to lift the productivity of those other value- chains as well.

# Introduction

> Development of the horticultural sector depends to a large extent on
> the existence of the level/development of the value-chain of the
> product and on the efficiency of the marketing system. While little
> value addition takes place in the form of sorting, grading, quality
> control and packaging, etc. for fresh produce, the semi processed and
> processed products have reached the branding stage and are considered
> growth products.
>
> So far, considerable achievement has been made in the production,
> exports and technological realm of the sector. However, the broader
> goal of farmer's sustainability through successful marketing is yet to
> be achieved. A strategic shift is, therefore, demanded from production
> and technological orientation to marketing orientation. As such one
> needs to identify the bottleneck that is impeding growth of the
> sector.
>
> The cropped area under cultivation for fruits and vegetables is less
> then 5% and that too is seasonal in nature. The percentage of the
> total cropped area for vegetables is less than 2% and the overall
> production and productivity have remained fairly stable (*annex one*).
> Although the overall production of fruits has also increased
> marginally, the yield per acre has declined (*annex two*). Export
> growth of fruits and vegetables was phenomenal during the period
> 1997-98 (300%) however, the decline during 1999-2003 has also been
> alarming (145%). This shows both the potential as well as
> vulnerability of the sector. Key export destinations are UK (28%),
> Saudi Arabia (23%), UAE (14%), Kuwait (13%), Qatar (6%), Bahrain (6%),
> and Oman (5%). The target market is primarily ethnic population. Only
> recently BRAC has initiated entry in the EC market through ensuring
> EUREP-GAP standards. The major exports of vegetables and fruits for
> the two major destinations United Kingdom and the Middle East are
> presented in annex three.

# Objectives

> The major objectives of the study are as follows:

1.  Identification of constraints and opportunities existing in the
    sub-sector in general.

2.  Outline an intervention guideline for solving the problems at hand.

3.  

# Study Scope

> The scope of the study was initially limited to processed horticulture
> products, fresh vegetables for exports, and frozen vegetables.
> However, later the general problems for the domestic market were also
> reviewed. In addition due to the complex nature of the sector and the
> number and differences in the products, the study findings were kept
> general. This perhaps may be considered as the major limitation, since
> item wise study of major products was considered outside the scope of
> this study.

# Methodology

> The methodology followed primarily a qualitative method using a mix of
> secondary research followed by depth interview and purposive group
> discussions.

# Horticulture Value Chain Model

> The horticulture value chain model has been developed based on a
> generic concept of the sub-sector. The primary purpose of the model is
> to depict the complex nature of the sub-sector and to show the
> variation one may face while developing a single strategy for the
> entire sub-sector.

# Problems

> The problems have been addressed based on the basic value added
> characteristics of the product and the market as described under the
> scope of the study.

## Processed Products

> The following problems were identified:

-   Technology upgrading is a major problem restricting companies to
    compete in the international market outside the regional markets and
    provide limited product offerings.

-   Financial restriction is another major issue impeding growth of the
    sector.

-   Purchases are made primarily from the whole sale market thus
    increasing the cost of production.

-   Access to the rural market and making bulk purchase at that level is
    difficult.

-   Human resources require more professional outlook both at the
    employer as well as employee level.

-   Seasonality of products restricts manufacturers to produce all types
    of products throughout the year. In addition, environmental hazards
    also results in supply constraints.

## Frozen Vegetables

> The following problems were identified:

-   Demand in the international market is greater than the supply of
    quality vegetables. Information regarding the export market is
    either limited or inaccessible.

-   Another major problem identified is identification of new products
    for the export market.

-   Technology for processing and proper freezing of the various
    products is considered an additional issue.

-   Regular availability of vegetables and maintaining of quality is
    considered another major issue.

## Fresh Vegetables for Exports

-   Transport for exports is considered the major bottleneck. Only the
    national flag carrier is presently involved in the transportation
    since inbound flights do not have sufficient volume to carry.

-   No standard policy exists in terms of allocating the available space
    to the exporters. Thus some specific exporters get undue advantage
    over the others.

-   Support from government agencies for gaining international
    certification is limited.

-   No extensive research has been undertaken to identify prospective
    products and prospective markets.

-   Technological input for decreasing costs by increasing productivity
    of selected items versus inclusion of new variety is considered by
    some as an issue.

-   An MIS on exports is absent which makes it difficult to understand
    the demand and develop strategies accordingly.

-   Packaging, branding, sorting, etc. are far from satisfactory
    specially to ensure decline in wastage and identification of quality
    produce.

-   The quality of exportable items is far from satisfactory and lack
    proper sanitation and other bio-security standards.

## Fresh Vegetables -- Domestic Market

-   Proper understanding of the marketing system is not available.
    Linkage issues between markets and production centers require
    clarification. The production centers are isolated from the actual
    market and operate based on myopic decisions of the government
    agencies.

-   Supply chain management issues directed towards increasing marketing
    potential is not available.

-   Low level of productivity results in higher costs per unit of
    production. In addition research targeted towards deriving economies
    of scale based on land size versus type of product being cultivated
    is far from satisfactory.

-   Information sought by the partners associated in the sub-sector is
    little known.

-   Lack of storage facilities severely restricts timely movement of
    products from producer to the ultimate consumers.

-   Inadequate packaging results in huge loss.

-   Inadequate market information regarding prices and demand result in
    unplanned plantation, wastage and dictation by the middle man.

-   The extension workers are more technical oriented and seriously lack
    management training capabilities.

-   Inappropriate and poor land management results in production of
    unprofitable crops and thus wastage of valuable land.

-   Inadequate quality standards result in low quality of fresh produce
    in the market.

# Intervention Program

The study indicates limited scope for intervention in this sector
particularly in terms of immediate intervention to enhance exports.
However, it is strongly felt that opportunity of intervention to enhance
domestic operations with an intention to increase future export
potential clearly exists. The following are some of the considerations
that may be undertaken to help improve the present status of the
industry.

## Processed Products

> The manufacturers are capable of linking themselves with organizations
> competent of transferring technology or imparting training.
> Furthermore, the processors are capable of introducing new products
> and improving quality of their products if required or considered
> essential. In addition, this level of the value chain is still at the
> introductory stage and thus it is considered too early to expand
> production without taking care of the supply chain. Moreover, since
> the market is primarily regional, market access is easy due to low
> entry barriers. Thus intervention in this area is not considered
> immediate and essential.
>
> However, the manufacturers can be organized to help the present
> farmers form cooperative to ensure effective and productive
> subcontracting and thus cutting down substantially on costs and
> ensuring availability. The DOYEL model of ATDP could be used to bring
> efficiency through subcontracting operations.

## Frozen Vegetables

> The study indicates that not much is required at this level of value
> chain apart from linking the exporters with the farmers through the
> mechanism of sub-contracting to ensure smooth supply of raw materials.
> Moreover, this sector is also very much in the introductory stage and
> Bangladesh is still not in a position to fulfill the huge
> international demand due its low production capability and scarce land
> mass.
>
> Thus, efficiency building within the available land area may be looked
> at as future intervention program. This clearly implies that focus be
> given at the domestic level rather than improving export potential.

## Fresh Vegetables for Exports

> The bottleneck of arranging transport facility is outside the purview
> of the intervention design and thus no action can be taken to ensure
> increase in exports of fresh vegetables from Bangladesh. Moreover, the
> present production capability clearly indicates limited growth
> potential in the near future without strengthening the supply status.
>
> However, a policy guideline in line with quota allocation procedure
> may be designed for the exporters to ensure a level playing ground
> amongst the exporters and eliminate discrimination. In addition Export
> Promotion Bureau and the Exporters Association may be helped to
> measure product potentiality and market potentiality to ensure that
> the exporters and finally the farmers can derive maximum benefit from
> exports. For example, it is clear that even after inclusion of
> transport costs, the UK market has greater potential in terms of
> profitability but not given due importance. In addition, products that
> fetch greater profits should be identified and promoted to ensure
> effective utilization of limited cargo space available to the
> exporters. Finally, the exporters may be helped to join hands to
> increase their own marketing capability. This can be attained through
> sharing marketing costs and specializing in products or countries.

## Fresh Vegetables -- Domestic Market

> The study strongly suggests that intervention strategies could be
> directed at the farmer level to improve the status of the farmers in
> general and also help them improve relationship with the exporters.
> The strategies can be developed with private sector partnership
> approach and may include the following.

-   Develop an MIS for the agriculture sector in general and specific
    for the horticulture sector to serve both the domestic as well as
    the export market. The MIS can be designed keeping into perspective
    the internet service providers at the data bank end and the
    telecommunication network including mobile phones as the
    distributors of information for the country. A private ISP Access
    telecom is in the process of developing a system and may be
    considered as a partner.

-   The MIS should contain detailed information on land availability
    against each product, geographical location, domestic versus export
    market consumption, productivity, profit status, etc.

-   Develop clusters or cooperatives of horticulture farmers to support
    the exporters and creation of bulk and thus increasing cost
    efficiency. The clusters should be developed not only based on
    products but also in terms of annual cycle to ensure maximizing of
    land utilization, increasing potential for BDS activity, linking
    with markets (consumer markets, institutional markets, domestic
    markets, and export markets) and ensuring the right size.

-   Before choosing a strategy, cooperatives must understand the
    economic underpinnings of their existing businesses---a considerable
    change for organizations that have never really determined what it
    costs to serve their farmer-owners or, in marketing cooperatives,
    their buyers. Cooperatives can then work out which of their
    offerings and customers do and do not create value and assess their
    capabilities and their opportunities to improve performance. Only by
    presenting a clear strategy and by providing real options for
    redeeming investments may coopratives persuade their members to
    invest more. The strategy could be to concentrate on an offering or
    customer segment that now creates value, though a cooperative may be
    able to transform a weak offering so much that it can serve hitherto
    unprofitable customers and perhaps new ones. A cooperative might
    even see that it had the ability and the opportunity to develop an
    entirely new business.

-   The plan should include organizations already involved in this
    sector. Example, HORTEX foundation may help in the production,
    packaging, and distribution operations; BASC or BEI could help in
    training facilitation; private universities such as AIUB or ADUST
    could help in the diploma program; CBDS or EPB could help in the
    marketing efforts, BRAC or Grameen could help in the formation of
    cooperatives or clusters, etc. In short an integrated approach is
    sought.

-   Help the farmers in the overall packaging, sorting, distribution,
    and branding of their products to ensure smooth marketing effort and
    ensure standards, traceability, cost efficiency, increased product
    range, etc.

-   Emphasis upon increase in productivity rather than increase land
    area for production of horticulture products should be the goal. It
    is essential to bear in mind that Bangladesh has limited land for
    cultivation and its growth has been almost stagnant. In addition, it
    is essential that any expansion strategy must consider the entire
    range of agricultural crops before deciding upon or planning
    diversification. Thus, it is strongly recommended that emphasis be
    given on productivity of selected crops that can result in enhanced
    economic and nutritional status of the community in general.

-   Develop a management training program for the extension workers to
    help the farmers in both technology as well as management. This can
    be undertaken by developing programs through partnership with both
    public as well as private universities. The courses should be
    designed to address management functions rather than purely
    technical issues. In addition the courses must be designed to ensure
    participation of the present extension workers involved in both
    public as well as private sector. This calls for international
    certification programs designed in modular (small time frame)
    context stretching over a reasonable period resulting in a diploma.
    The selection of university should be done carefully since too rigid
    a system or too expensive a program, or too theoretical an approach
    may not interest the target market.

-   Help set international standards both at the production as well as
    the farm gate level to ensure both consumers protection at the
    domestic level as well as easy access in the international market.
    The participation of organizations such as BIST, INFS, etc will be
    essential to develop a standard of quality and institutionalize
    standard testing laboratories.

-   The integrated model must have a financial support component which
    can be easily integrated in the system once an economically feasible
    business unit based on the cluster or cooperative concept and the
    integrated model based on strong MIS is institutionalized. Initial
    support from USAID may be necessary to promote the concept.

-   To have a clearer understanding of the integrated approach and
    reduce risks of initiating a mammoth undertaking, it is further
    recommended that initially a couple of products be selected for an
    extensive value chain analysis and intervention. Some of the
    products that may be of interest are -- tomato, banana, leafy
    vegetables, bitter gourd, and okra. These products have common
    characteristics of having a high demand in the market and low shelf
    life. These studies may be in the form of pilot project that will
    help in designing the following:

    -   Prioritization of intervention points across the value chain.

    -   Identification of FAQ for designing the MIS for the horticulture
        sector as a whole.

    -   Designing f the system for the MIS model.

    -   Assessment of the participation and selection of private sector
        partners.

    -   Outline requirements for BDS partners, in terms of promotion,
        distribution, training, etc.

    -   Outline requirements for quality standards.

    -   Finally, assessment of future export potential and laying the
        foundation towards smooth entry into the export market.

# Conclusion

Bangladesh seems to be a potential source of valuable horticulture
products in the future though at present the limited land availability
restricts any major move towards such a shift. Moreover, the present
exporters are quite satisfied and doing well within the limited
framework especially in case of processed and frozen commodity level.
The technological upgrading can easily be obtained by them. They can
easily obtain the technological upgrading through their present
networks. The fresh vegetable export is not feasible in large quantities
due to current quality and scarcity of cargo space which is presently
difficult to resolve. However efforts can be made at the farmer level
with a view to improving the overall status of MIS, marketing,
distribution, technology, and other management effort of the farmers.
This will substantially help quality growth of the domestic market as
well as increase the efficiency of the exporters.

# Bibliography

1.  Md. Akmal Hossain. National Case Study on Environmental Requirement
    Market Access/Entry & Export Competitiveness in Horticulture in
    Bangladesh. UNCTAD Geneva, 2004.

2.  Prema-Chandra Athukorala and Kunal Sen. Processed Food Exports from
    Developing Countries: Patterns and Determinants. 1996.

3.  Integrated Horticulture & Nutrition Development Report. Department
    of Agricultural Extension, UNDP, and FAO. Annual Report, 2003.

4.  Sajjad Zahir. Designing a Prototype E-Marketplace for Horticultural
    Products of Bangladesh: Forget the Hype and Embrace the Reality.
    Faculty of Management, University of Lethbridge. 2005.

5.  Hortex Foundation. Production Increase and market Expansion for
    Vegetable, fruits and Flower for Exports. 2000.

6.  IMF and World Bank. Market Access for Developing Country Exports --
    Selected Issues. 2002.

7.  Craig Matthews, \"Proposed dairy mega merger,\" *Rural Bulletin*,
    New Zealand Ministry of Agriculture and Forestry, June 2001.

8.  Business Development Services in Russia: New Business Development
    Program: Case Study, International Labor Organization, 2000.

## Annex One

Vegetable Production During 1993-94 to 2002-03

  ---------- ----------- ------------ ------------ ------------ ------------
  Year       Total       Vegetable    \% of        Production   Yield/acre
             cropped     area in '000 vegetable    in '000      in metric
             area in     acres        area to      metric tons  tons
             '000 acres               total                     
                                      cropped area              

  1993-94    \-          447          1.34         1165         2.61

  1994-95    \-          457          1.37         1204         2.63

  1995-96    33355       472          1.41         1244         2.64

  1996-97    34090       487          1.43         1289         2.65

  1997-98    34727       496          1.43         1307         2.64

  1998-99    34082       572          1.68         1433         2.59

  1999-00    35495       609          1.72         1559         2.56

  2000-01    35408       626          1.77         1578         2.52

  2001-02    34615       615          1.78         1567         2.55

  2002-03    35005       625          1.79         1625         2.60
  ---------- ----------- ------------ ------------ ------------ ------------

Source: UNCTAD

## Annex Two

Fruits Production During 1993-94 to 2002-03

  ---------- ----------- ------------ ------------ ------------ ------------
  Year       Total       Vegetable    \% of        Production   Yield/acre
             cropped     area in '000 vegetable    in '000      in metric
             area in     acres        area to      metric tons  tons
             '000 acres               total                     
                                      cropped area              

  1993-94    \-          429          1.29         146          3.40

  1994-95    \-          436          1.31         147          3.36

  1995-96    33355       447          1.34         149          3.33

  1996-97    34090       451          1.32         149          3.30

  1997-98    34727       456          1.31         150          3.28

  1998-99    34082       458          1.34         143          3.12

  1999-00    35495       451          1.27         140          3.11

  2000-01    35408       473          1.34         149          3.14

  2001-02    34615       481          1.39         155          3.22

  2002-03    35005       499          1.43         163          3.27
  ---------- ----------- ------------ ------------ ------------ ------------

Source: UNCTAD

## Annex Three

Top Ten Items of Exports of Vegetables & Fruits to United Kingdom &
Middle East During 1996-97

  --------------------------- --------------- --------------- -------------
  Name of Crop                Volume in ,000  Value in %      Average Price
                              KG                              US\$/KG

  United Kingdom                                              

  Green Chilly                67              16.5            2.18

  Jack Fruit                  54              13.4            1.97

  Lemmon                      36              8.9             2.90

  Stolon of Taro              27              6.7             2.10

  Taro Tuber                  27              6.5             2.10

  Egg Plant                   25              6.1             2.11

  Snake Gourd                 22              5.3             2.10

  Yard Long Beans             19              4.6             2.21

  Bottle Gourd                18              4.4             2.10

  Green Papaya                15              3.8             2.11

  Others (55 items)           97              23.8            

  Middle East                                                 

  Bitter Gourd                2086            16.6            1.20

  Yard Long Beans             1827            14.5            1.21

  Green Chilly                1135            9.0             1.20

  Potato                      1084            8.6             1.21

  Snake Gourd                 795             6.3             1.20

  Stolon of Taro              658             5.2             1.20

  Pointed Gourd/Paleval       600             4.8             1.20

  White/Wax Gourd             505             4.0             1.20

  Spiny Gourd                 438             3.5             1.66

  Green Papaya                418             3.3             1.20

  Others (77 items)           3048            24.2            
  --------------------------- --------------- --------------- -------------

*Source: HORTEX Foundation*

## Annex Four 

## [List]{.underline} ***[of]{.underline}*** ***[Industry Stakeholders]{.underline}*** [Interviewed ]{.underline}

## *[Fresh and Processed Food Exporters]{.underline}*

## **General Amjad** **Chowdhury** ***--*** ***Managing Director --*** ***Agricultural Marketing Company*** ***Ltd.*** ***(AMCL -- PRAN)*** 

## **Md. Akmal Hossain** ***-- Managing Director*** ***--*** ***HORTEX Foundation***

## **Mohammad Monsur** ***-- Senior Vice President*** ***--*** ***BFVAPEA***

## **Syed Salahuddin Mamun** ***-- Vice President*** ***--*** ***BFVAPEA***

## **Mujibul Haque Raju** ***-- Joint General Secretary -- BFVAPEA*** 

## **S.M. Jahangir Hossain** ***-- General Secretary -- BFVAPEA*** 

## **Md. Zakiul Haque** ***--*** ***Manager*** ***(Export Program) -- BRAC Vegetable Export Program***

## **Md. Moinul Islam Chowdhury** ***-- Managing Director*** ***--*** ***Eurasia Food Processing (BD) Ltd.***

## *** ***

## *[Processed Food Manufacturers]{.underline}*

## **Mr. Humayun Kabir** ***-- Managing Director -- Mark Foods***

## **Mr. Khairul Islam** ***-- Managing Director -- Ideal Foods Products***

## **Mr. Atikur Rahman** ***--*** ***Marketing*** ***Manager -- Square Consumer Products Limited***

## **Mr. Tauhidul Islam** ***--*** ***Deputy*** ***Managing Director -- AgroFresh Ltd.***

## 

##