The State of Domestic Commerce in Pakistan Study 8 - Storage

THE STATE OF DOMESTIC COMMERCE IN
PAKISTAN

STUDY 8
STORAGE

For
The Ministry of Commerce
Government of Pakistan
November 2007

By
Innovative Development Strategies (Pvt.) Ltd.
House No. 2, Street 44, F-8/1, Islamabad

Table of Contents

List of Abbreviations .................................................................................................... i
Acknowledgments ..................................................................................................... iv

Executive Summary .................................................................................................. 3

Section 1: Introduction ......................................................................................... 5
1.1. Agricultural Storage Grains........................................................................... 5
1.2. Cold Storage of Agricultural Goods ................................................................. 6
1.3. Non-Agricultural Storage and Warehousing .................................................... 8

Section 2: Domestic Commerce Survey The Storage Sector ...................... 10
2.1 Storage Facilities Questions for Wholesalers and Retailers ....................... 10
2.2 Types of Facilities .......................................................................................... 11
2.3 Infrastructure and Facilities ........................................................................... 12
2.4 Operations ..................................................................................................... 15
2.5 Seasonality of Operations ............................................................................. 16
2.6 Losses, Risk and Insurance .......................................................................... 17
2.7 Viability of Commercial Storage ..................................................................... 18
2.8 Contracts ....................................................................................................... 19

Section 3: Domestic Commerce Survey Business Issues in Storage ......... 20
3.1 Market Competition ....................................................................................... 20
3.2 Constraints .................................................................................................... 20
3.3 Financing ....................................................................................................... 22
3.4 Employment................................................................................................... 22
3.5 Governance Issues ........................................................................................ 22

Section 4: Key Issues in the Storage Sector .................................................... 24
4.1 Business Volumes ......................................................................................... 24
4.2 Governance Issues ........................................................................................ 24
4.3 Conclusions and Policy Recommendations ................................................... 24

List of Tables

Table 2.1: Types of Storages ........................................................................................ 12
Table 2.2: Land or Building Acquisition for Storage ...................................................... 13
Table 2.3: Condition of the Access Road ...................................................................... 14
Table 2.4: Access for Trucks/Large Vans ..................................................................... 14
Table 2.5: Marketing Methods ...................................................................................... 16
Table 2.6: Seasonality in Storage Operations ............................................................... 17
Table 2.7: Main Cause of Loss ..................................................................................... 17
Table 3.1: Similar Enterprises within a Radius of 1 km ................................................. 20

List of Figures

Figure 1: Is the storage run commercially (goods are stored against payment)or for won
use (Cold storage)? ....................................................................................... 8
Figure 2: Cold Storage .................................................................................................. 8
Figure 3: Is the storage run commercially (goods are stored against payment) or for
own use (Retail)? ......................................................................................... 11
Figure 4: Is the storage run commercially (goods are stored against payment) or for
own use (Wholesale)? ................................................................................. 11
Figure 5: Land or Building Acquisition for Storage ...................................................... 13
Figure 6: Condition of the Access Road ...................................................................... 14
Figure7: Access for Trucks/Large Vans ..................................................................... 15
Figure 8: Marketing Methods ...................................................................................... 16
Figure 9: Main Cause of Loss ..................................................................................... 18
Figure 10: Most important constraint to growth ............................................................. 21
Figure 11: Second most important constraints to growth ............................................... 21
Figure 12: What is your sense of the market trend? ...................................................... 23

Innovative Development Strategies (Pvt) i
List of Abbreviations

ABAD Association of Builders and Developers
ADB Asian Development Bank
ADBI Asian Development Bank Institute
APCA All Pakistan Contractors Association
ATT Afghan Trade Transit
BAF Bank AlFalah
BCI Business Competitiveness Index
BOR Board of Revenue
CAA Civil Aviation Authority
CBM Cubic meter
CBR Central Board of Revenue
CDA Capital Development Authority
CIB Credit information bureau
CMR Contract for the International Carriage of Goods by Road
CPI Corruption Perceptions Index
CPIA Country Policy and Institutional Assessment
DFID Department for International Development
DHA Defense Housing authority
EDF Export Development Fund
EIU Economist Intelligence Unit
EOS Executive Opinion Survey
EPB Export Promotion Bureau
ESCAP Economic and Social Development in Asia and the Pacific
FBS Federal Bureau of Statistics
FCL Full Container Load
FDI Foreign Direct Investment
FIAS Foreign Investment Advisory Service
Ft Foot
FY Fiscal Year
GCI Global Competitiveness Index
GCR Global Competitiveness Report
GD Goods Declaration
GDP Gross Domestic Product
GoP Government of Pakistan
GOR Government Officials Residences
GRT Gross Register Tonnage
GST General Sales Tax
HBFC Housing Building Finance Corporation
HBL Habib Bank Limited
HDR Human Development Report
HFIs Housing Finance Institutions
IFC International Finance Corporation
IFS International Financial Statistics
IMF International Monetary Fund
ISAL Informal Subdivision of Agricultural Land
ISO International Standards Organization
IT Information Technology
ITU International Telecommunications Union
Survey Report on Domestic Commerce

Innovative Development Strategies (Pvt) ii
KBCA Karachi Building Control Authority
KDA Karachi Development Authority
KESC Karachi Electric Supply Corporation
KM(s) Kilometer(s)
KPT Karachi Port Trust
KSE Karachi Stock Exchange
LCL Less Than Container Load
LOA Length Overall
MCB Muslim Commercial Bank
MENA Middle East and North Africa
MOC Ministry of Commerce
MOD Ministry of Defense
MTDF Medium Term Development Framework
NBP National Bank of Pakistan
NCS National Conservation Strategy
NER Net Primary School Enrollment Rate
NHA National Highway Authority
NIE Newly industrialized economy
NIT National Institute of Transport
NLC National Logistics Cell
NTN National Tax Number
NTRC National Transportation Research Center
NTTFC National Trade and Transport Facilitation Committee
NWFP North West Frontier Province
PASSCO Pakistan Agricultural Storage and Services Corporation
PEC Pakistan Engineering Council
PHDEB Pakistan Horticulture Development and Export Board
PIAC Pakistan International Airlines Corporation
PIDE Pakistan Institute Of Development Economists
PIHS Pakistan Integrated Household Survey
PKR Pakistani Rupee
PQA Port Qasim Authority
PR Pakistan Railways
PREF Pakistan Real Estate Federation
PSDP Public Sector Development Program
R&D Research and Development
REER Real Effective Exchange Rate
REITs Real Estate Investment Trusts
RICS Royal Institute of Chartered Surveyors
SAI Social Accountability International
SBP State Bank of Pakistan
SKAA Sindh Katchi Abadis Authority
SME Small and Medium Enterprises
SPS Sanitary and Phytosanitary
SRO Statutory Regulation Order
Std Standard
TEP Total Factor Productivity
TEU Twenty-Foot Equivalent Units
TI Transparency International
TOR Terms of Reference

Innovative Development Strategies (Pvt) iii
TSDI Transport Sector Development Initiative
TTFP Trade and Transportation Facilitation Program
UK United Kingdom
UNDP United Nations Development Program
US United States
USA United States of America
USC Utility Stores Corporation
USD United States Dollars
WAPDA Water and Power Development Authority
WDI World Development Indicators
WEF World Economic Forum
WGI Worldwide Governance Indicators
WTO World Trade Organization

Innovative Development Strategies (Pvt) iv
Acknowledgment

The IDS team owes a debt of gratitude to the officers of the Ministry of Commerce for their
guidance, assistance and feedback during the course of this study. Our special thanks go out,
in particular, to Syed Asif Ali Shah, Secretary; Mr. Naseem Qureshi and Mr. Ashraf Khan,
Additional Secretaries; Mr. Abrar Hussian, Joint Secretary; Syed Irtiqa Zaidi, Consultant and
Mr. Qaseem Subhani, Section Officer, for sparing their precious time and efforts for the
study.

We feel a deep sense of gratitude for the Minister for Commerce. Mr. Humayun Akhtar
Khan, who took out considerable time from his busy schedule to guide us. It was his sincere
and deep conviction which enabled us to conduct and compile this detailed and
comprehensive study on Domestic Commerce of our country. His apt guidance and keen
analytical oversight were extremely helpful in finalizing the study and formulating the policy
recommendations.

This study has benefited from comments received from the following:
1. State Bank of Pakistan, Karachi.
2. Federal Board of Revenue, Government of Pakistan, Islamabad.
3. Planning and Development Division, Government of Pakistan, Islamabad.
4. Trade Development Authority, Government of Pakistan, Karachi.
5. (Management Consultants) Establishment Division, Government of Pakistan,
Islamabad.
6. Finance Division, Government of Pakistan, Islamabad.
7. Pakistan Institute of Development Economics, Islamabad.
8. NTTFC, Karachi.
9. FPCCI, Karachi.
10. Planning and Development Board, Government of Punjab, Lahore.
11. Planning and Development Board, Government of NWFP, Peshawar.
12. Planning and Development Board, Government of Sindh, Karachi.
13. Planning and Development Board, Government of Balochistan, Quetta.
14. Investment and Commerce Department, Government of Punjab, Lahore.
15. Ministry of Food, Agriculture and Livestock, Government of Pakistan, Islamabad.
16. Pakistan Hortriculture Development and Export Board, Lahore.
17. Agriculture Department, Government of Punjab, Lahore.
18. Statistics Division, Government of Pakistan, Islamabad.

1

STORAGE*

by

SAFIYA AFTAB
DR. SOHAIL J. MALIK

* For detailed survey results, please see separate volume entitled Basic Statistics of the Sample
Survey Data.

Innovative Development Strategies (Pvt) 3
Executive Summary
Introduction

1. Storage issues have been classified by sector in this report, with the two broad
categories being agricultural storage (storage of grains as well as of fruits and vegetables for
distribution to markets) and storage of manufactured products for distribution to retailers.
2. Grain storage in Pakistan is primarily in the public sector, and is the responsibility of
the Pakistan Agricultural Storage and Services Corporation (PASSCO), a department of the
Ministry of Food, Agriculture and Livestock; as well as of the four provincial Food
Departments. Storage practices at this level are very basic, and can range from storage in a
heap within the home compound, to storage in specially constructed mud bins or in bags.
Data on agricultural storage capacity in the country is sketchy, but total wheat storage
capacity in the public sector is estimated at about 5.2 million tons, of which 1.3 million tons
is with PASSCO, while the remaining is with provincial agriculture departments.
3. Cold storage facilities of agricultural goods are essential to promote trade, both
international and domestic, of perishable commodities. Unlike the developed world where
cold storage facilities are a link in a larger chain of logistics, a cold storage business in
Pakistan is often a stand-alone concern. Cold storage facilities in the country generally
consist of godown style facilities, which can accommodate 30,000 to 100,000 crates of
produce. In an effort to promote the provision of storage facilities in the private sector, the
Government announced a number of measures in the trade policy for FY2007, most to be
implemented through the Pakistan Horticulture Development and Export Board (PHDEB)
which provides cold storage facilities as part of its drive to promote export of horticulture
products.
4. Storage and warehousing of non-agricultural goods consists primarily of services to
production houses, with some storage and warehousing activity taking place for the
household sector also (primarily for diplomats). Producers of manufactured goods generally
use the services of distributors to supply goods to retail outlets all over the country.
Distributors generally use their own warehousing facilities, which differ depending on the
product being marketed and the spread of the business.

Domestic Commerce Survey The Storage Sector

5. A total of 200 storages were sampled in the domestic commerce survey, of which 101
were in Punjab, 66 in Sindh, 22 in NWFP and 7 in Balochistan. The storage sector revolves
mainly around agricultural storage either for grain (primarily wheat) or cold storage for
fruits and vegetables (primarily apples and potatoes). Of the total storages surveyed, 7.1
percent dealt only in wheat, 4.6 percent dealt only in other grain, 6.1 percent dealt only in
apples, and 6.6 percent only in potatoes. For non agricultural items, key items stored include
fertilizer, cement, petroleum products, pharmaceuticals, cloth and items of household use.
6. A substantial number of wholesalers and retailers (67 percent of the total interviewed)
had storage space within their wholesale or retail premises, while a further 9.8 percent owned
storage space in another building. Commercial storage (or a space where retailers or
wholesalers could place their stocks against payment) was not available according to almost
84 percent of respondents.
7. Zoning regulations in major cities do not delineate land specifically for warehousing
purposes, but industrial plots may be used to build warehouses, if city authorities are notified
of the altered use of the plot. A breakdown of data on how the land or building of the storage
facility was acquired shows that cold storages tend to be located on designated land, or in
industrial areas, whether they are owned or rented.

8. Enumerators were asked to document the condition of access roads. For godowns
(used primarily for grain storage), a little over half of access roads were classified as
average, but for open storages which tend to be located in fields, access was largely poor,
often with no metaled roads. Cold storages, which tend to be located near wholesale markets
also, have average to poor access facilities with potholed roads and poor drainage.
9. Storage and warehousing do not function as part of an integrated system of logistics
services in Pakistan, but largely as self-contained inventory holding for individual businesses,
or in the case of agricultural storage, as a primarily public sector managed system for holding
strategic reserves.
10. Storage of grain and other agricultural commodities as well as cold storage can be a
highly seasonal business, which has implications for the feasibility of dedicated storages and
for the use of storage facilities during periods when the facility is not being used as a storage
facility. The data from the questionnaire showed that only cold storages had a high degree of
seasonality, depending on the fruits they stored.
11. Storage owners were asked to assess whether commercial storage was a viable
business, or whether traders were increasingly inclined towards creating and managing their
own storage spaces. About 55 percent of respondents felt that wholesalers and retailers were
likely to continue with the trend of managing their own storages, while almost 45 percent
thought that demand for commercial storage would increase in the future as business volumes
grow.
12. Domestic Commerce Survey Business Issues in Storage
13. Market competition was intense in the storage sector also with about 51 percent of
storage owners saying that up to 5 similar enterprises existed in that location, within a radius
of 1 km. Almost 77 percent of storage owners interviewed reported that they had faced
barriers to entry, and when asked to rank the most important barriers, in order of importance,
almost 60 percent ranked capital requirements as the most important barrier. Access to
finance was also seen as the most important constraint to growth for retail enterprises, with
35 percent of respondents citing this as the most important factor restricting expansion. Of
the total storage owners, 78 percent had established their businesses, and the overwhelming
majority had funded the establishment of the business primarily through own or family
savings on an average, 76 percent of the paid up capital had come through own or family
savings. Over 72 percent of storage establishments were registered with city authorities.
14. Key Issues in the Storage Sector
15. The small scale of the commercial storage sector is linked with the preponderance of
small, single owner retail businesses in the country. Small businesses tend to prefer to keep
their inventories under their own control, and do not require sophisticated logistics systems
for the most part. In a business atmosphere where dealings are based largely on personal
contacts and word of mouth, with little reliance of insurance services or legal contracts, the
development of logistics services is clearly difficult. The institution of contracts is essential
for third party management of inventory.
16. Based on the key issues identified in the survey, it is recommended that the
government focus on the development of agricultural and cold storage as it can have
implications for value addition in the export of fruits and vegetables.


Section 1
Introduction

1. There is very little information from secondary sources on storage and warehousing in
Pakistan, although some studies mention the need for better and improved storage facilities
for perishable agricultural products, and upgradation of warehousing facilities at major ports.
Storage issues can be classified by sector, with the two broad categories being agricultural
storage (storage of grains as well as of fruits and vegetables for distribution to markets) and
storage of manufactured products for distribution to retailers. The market structure and issues
in these categories are discussed as follows.

1.1. Agricultural Storage Grains

2. The first level of storage is at the farm level, where grains are stored primarily for
own consumption. Storage practices at this level are very basic, and can range from storage
in a heap within the home compound, to storage in specially constructed mud bins or in bags.
Storage related losses are postulated to be high at the farm level, although estimates are hard
to come by. For the purposes of this study though, storage beyond the farm gate, at the stage
when food grains enter the market, is the focus of attention.
3. Grain storage in Pakistan is primarily in the public sector, and is the responsibility of
the Pakistan Agricultural Storage and Services Corporation (PASSCO), a department of the
Ministry of Food, Agriculture and Livestock; as well as of the four provincial Food
Departments. PASSCO and the provincial departments are also responsible for regulation of
agricultural commodity markets, and for the activities of provincial seed and fertilizer storage
agencies. Data on agricultural storage capacity in the country is sketchy, but total wheat
storage capacity in the public sector is estimated at about 5.2 million tons, of which 1.3
million tons is with PASSCO, while the remaining is with provincial agriculture
departments.
1

4. Public sector storage capacity is often in jute bags in shed style godowns, the
specifications of which differ by region, in accordance with weather conditions, capacity
required etc. For example, storage depots in Karachi, one of the bigger grain markets,
measure on average 51.21m x 12.19m with a storage capacity for about 1,500 tons of wheat.
2

The godowns do not provide significant protection against insect infestation, and cannot be
made gas impermeable to facilitate fumigation. Concrete or metal silos, which can store up
to 5000 tons of wheat, and which can be effectively fumigated and provide protection against

1 Asian Development Bank. 2001. Report and Recommendation of the President to the Board of Directors
on Proposed Loans to Pakistan for the Agriculture Sector Program II. November. Page 10. Para 32. Of
the storage capacity with provincial Food departments, 2.45 million tons is with the Punjab Food
Department, 0.71 million tons with Sindh, 0.16 million tons with the NWFP and the remaining is with the
Balochistan Food Department.
2 See Khushk, Ali Muhammad and Bhugro Mal. www.pakissan.com/english/ advisory/storage.of.grain.shtml

insect infestation, are little used in Pakistan in the public sector, primarily for cost
considerations. The most common form of storage for wheat is actually open air storage,
with wheat being stored in bags on raised platforms. Although such storage is classified as
temporary in PASSCO records for example, PASSCO officials confirm that the grain has
sometimes been stored in this fashion for up to 36 months.
5. Storage losses for wheat in particular are estimated to be significant, where loss is
defined as a measurable decrease in quantity and quality, as opposed to superficial damage.
Loss assessment surveys dating from the late 1980s show that storage losses for wheat can
vary considerably depending on the type of storage container, and whether the area surveyed
supported irrigated or rain-fed agriculture. Storage losses can range from 6.6 percent for jute
bag storage in irrigated areas, to 2 percent for metal bin storage.
3

6. Multilateral financing agencies such as the Asian Development Bank (ADB) have
emphasized the privatization, rental or leasing of agricultural storage facilities, and policy
loans such as the $350 million Agriculture Sector Program Loan II, approved in November
2001, included conditionalities on the role of PASSCO (restricting its role largely to the
management of a strategic reserve of wheat, and restructuring it to compete with the private
sector), and stipulated that the provincial food departments be phased out. These
conditionalities, have, however, not been complied with to any significant degree, and
PASSCO continues its operations as before. The private sector has, however, entered into
wheat procurement since 2000 and in 2005-06; the private sector is estimated to have picked
up 1.3 million tons of wheat.
7. In August 2006, a UK based firm entered into a joint venture with a Pakistani partner
to set up a bulk storage facility for grains. This will be an integrated logistics facility,
providing storage as well as transport services. The company has yet to set up a fully
functional office in Islamabad, so more information on the venture will be forthcoming in
another two to three months.
4

1.2. Cold Storage of Agricultural Goods

8. Cold storage facilities are essential to promote trade, both international and domestic,
of perishable commodities. The availability of cold storage facilities for rent can facilitate
marketing and distribution of agricultural commodities, and help to stabilize prices. Using
common facilities can be particularly cost effective, given the proliferation of small trading
establishments in Pakistan who can reap economies of scale with the outsourcing of storage
facilities, costs of refrigeration (given power costs that are high and increasing) and lack of
space in wholesale and retail markets. International best practice models indicate that cold
storage facilities offer a range of cooling techniques (freezer, cooler and dry storage, blast
and room freezing), as well as product handling, shipment and distribution services. Ideally,
the storage facility should also have a data logging and documentation system to certify the
freshness of the produce. This is particularly true to satisfy export requirements in some
countries.
9. Unlike the developed world where cold storage facilities are a link in a larger chain of
logistics, a cold storage business in Pakistan is often a stand-alone concern. Cold storage
facilities in the country generally consist of godown style facilities, which can accommodate
30,000 to 100,000 crates of produce. The storages generally use industrial refrigeration
equipment with ammonia compressors. Rates charged can vary by location and facilities
provided, but on the average are Rs. 10 12 per month per crate. The storages provide some

3 See Baloch, U. K. et. al. 1994, Loss Assessment and Loss Prevention in Wheat Storage ... in Pakistan. In
Stored Product Protection ed. Ed Highley, CAB. International. Pp 906-10
4 See http://www.pakissan.com/english/news/newsDetail.php?newsid=10932
Storage

labor for handling services, but in general, transport and handling of goods is the
responsibility of the arti or trader who wishes to use the storage facilities. Most storages
employ at least one or two mechanics or machine operators to service the equipment,
watchmen or security guards, and an accountant who maintains an inventory, in addition to
one or two staff for handling. These are thus stand-alone operations, which function on a
seasonal basis and market their services with wholesalers and retailers of agricultural
products.
10. City administrations in Pakistan provide space for cold storage construction in areas
near wholesale fruit and vegetable markets. However, space for storage and warehousing
operations is typically designated as industrial space, which means that such facilities are
liable to pay industrial rates for basic infrastructure, particularly power. Land near wholesale
markets, which is designated specifically for cold storages is generally leased from the city
authorities, generally on 33 year leases.
5
However, for cold storages that are not located on
designated land, land can be purchased in industrial areas. In all cities except Karachi, when
land for storage is purchased in an industrial area, the city authorities have to be paid a
conversion fee to have the land re-designated as a storage facility.
6
Karachi is the only city,
which has land designated for construction of warehouses and storages.
11. In an effort to promote the provision of storage facilities in the private sector, the
Government announced a number of measures in the trade policy for FY2007, most of them
to be implemented through the Pakistan Horticulture Development and Export Board
(PHDEB) which provides cold storage facilities (two each in NWFP and Balochistan) as part
of its effort to promote the export of horticultural projects. The policy also specified that any
company setting up a cold storage can avail a facility whereby the first 6 percent of credit
obtained for the purpose is picked up by the Export Development Fund (EDF). This scheme
is being developed and a PC-1 has been submitted to the Ministry of Commerce for review.
The proposed project will be known as the Establishment of Cool Chain System under
National Trade Corridor Improvement Project. This facility will be open to everyone, and
not just to exporters. However, cold storage owners interviewed in focus group discussions
in the course of research for this study maintained that recourse to bank financing was not
feasible for them given that interest rates charged are too high to justify investment in a
commercial activity which has highly variable returns.
12. An increasing number of wholesalers of agricultural produce are now building their
own cold storages in their outlets. It is not clear whether this trend has picked up due to lack
of commercial cold storages, or whether this is happening because of lack of trust, and lack of
confidence in the services provided by cold storage owners.

5 The lease for an industrial plot is 99 years, but for commercial plots it is 33 years in general.
6 The conversion charge in Islamabad for commercial plots is currently Rs. 3000 per square yard.

Figure 1: Is the storage run commercially (goods are stored against payment)or for won
use (Cold storage)?
Commercial Non-commercial
Is the storage run commercially (goods are stored against
payment) or for own use_Cold storage?
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Figure 2: Cold Storage
Number of crates Dimensions Other
Cold storage
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1.3. Non-Agricultural Storage and Warehousing

13. Storage and warehousing of non-agricultural goods consists primarily of services to
production houses, with some storage and warehousing activity taking place for the
household sector also (primarily for diplomats). Producers of manufactured goods generally
Storage

use the services of distributors to supply goods to retail outlets all over the country.
Distributors generally use their own warehousing facilities, which differ depending on the
product being marketed and the spread of the business. In general, most distributors use field
warehousing and satellite warehousing models, with field warehouses servicing main
consumption areas at the district level, and satellite warehouses then servicing smaller towns
and villages. Satellite warehouses are in the most close proximity to retail outlets. For some
commodities which require significant storage space, field warehouses are normally
constructed by private owners against a letter of intent from the marketing companies, saying
that they will rent the premises for a specified period. Once the construction is complete,
warehouses are rented legally.
14. In general though, distributors simply rely on retailers to provide storage space, often
in or close to retail outlets, and simply deliver goods to retailers. Karachi is the only city in
Pakistan where warehousing is provided on a commercial basis for domestic distributors,
with distributors being able to rent space in warehouses. Retailers prefer to have their own
storage space primarily because of lack of confidence in the business environment, and the
perception that the inventory is best kept close at hand, with retailers themselves taking full
responsibility for security.


Section 2
Domestic Commerce Survey The
Storage Sector

15. A total of 200 storages were sampled in the domestic commerce survey, of which 101
were in Punjab, 66 in Sindh, 22 in NWFP and 7 in Balochistan. Identifying storages for the
survey was not straightforward, given that commercial storage facilities, other than cold
storages which typically are located near fruit and vegetable wholesale markets, are often not
advertised as such. Many storages are not run commercially, but are maintained by
distributors or wholesalers and sometimes also by retailers. The key findings of the survey
on storage and warehousing are discussed in this section.
16. Other than the questionnaires specifically designed for storage outlets, a brief section
on storage modalities was also included in the questionnaire on wholesale and retail trade, as
it was surmised that many wholesalers and retailers might not be using dedicated storages for
their goods. The findings of that section are also included in this report as follows.

2.1 Storage Facilities Questions for Wholesalers and Retailers

17. A substantial number of wholesalers and retailers (67 percent of the total interviewed)
had storage space within their wholesale or retail premises, while a further 9.8 percent owned
storage space in another building. Almost 86 percent felt that the space was adequate for their
needs. Those (270 in total) who needed more storage space were constrained by cost of
additional space and the fact that additional space was generally not available close by.
Traders were asked if they had looked for premises with storage space when they were
looking for a space for their shop, and the response was evenly split, with half of respondents
saying that storage space was not a consideration in their choice of location.
18. Commercial storage (or a space where retailers or wholesalers could place their stocks
against payment) was not available according to almost 84 percent of respondents. For those
to whom the option of using commercial storage was available, almost 80 percent said that
they would not be interested in using the option. When asked why commercial storage was
not used, almost 70 percent of respondents felt that commercial storage was either too
expensive, or not secure enough (35 percent of respondents each, out of a total of about
1300). Location was also an issue about 22 percent of respondents said that commercial
storages were not conveniently located near their places of business. Although only one
respondent specifically mentioned that the small size of his business was a reason for not
using commercial storage facilities, a number of respondents mentioned that they had no need
for additional storage facilities. As mentioned earlier, a significant number of respondents
had said that storage located within their premises was adequate. It would appear that
Storage

business volumes in general do not support the development of large scale commercially
viable storages.
19. For the small number (56 respondents) who had used commercial storage, the
majority had rented space per square foot, or had rented a room in a commercial building for
storage purposes. The median annual cost of storage was Rs. 30,000 while the maximum
paid (by one respondent) was Rs. 180,000.

Figure 3: Is the storage run commercially (goods are stored against payment) or for own
use (Retail)?
payment) or for own use_Retail?
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Figure 4: Is the storage run commercially (goods are stored against payment) or for own
use (Wholesale)?
payment) or for own use_Wholesale?
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2.2 Types of Facilities

20. Of the total storages sampled, 39 were in the form of godowns, used mainly for
agricultural storage. Ten of the storages were open stores, used again primarily for grain, but
also in one case for wood. The sample also included 65 cold storages, 24 storages belonging

to distributors, and storages affiliated with wholesale and retail outlets. Table 2.1 below
gives the complete breakdown.

Table 2.1: Types of Storages
Type of Storage Number
Grain Storage
Godown 39
Open storage 10
General Storage
Cold storage 65
Distributor's storage 24
Storage for retail outlet 15
Storage for wholesale outlet 47
Total 200

21. Of the total godowns, 14 (or about 36 percent) were run commercially meaning that
goods were stored at these facilities against payment. The same was true for 8 open storages
and 59 of the 65 cold storages. Storages run by distributors and wholesalers, were for the
most part not run commercially.
22. The storage sector revolves mainly around agricultural storage either for grain
(primarily wheat) or cold storage for fruits and vegetables (primarily apples and potatoes).
Of the total storages surveyed, 7.1 percent dealt only in wheat, 4.6 percent dealt only in other
grain, 6.1 percent dealt only in apples, and 6.6 percent only in potatoes. For non agricultural
items, key items stored include fertilizer, cement, petroleum products, pharmaceuticals, cloth
and items of household use.

2.3 Infrastructure and Facilities

23. Zoning regulations in major cities do not delineate land specifically for warehousing
purposes, but industrial plots may be used to build warehouses, if city authorities are notified
of the altered use of the plot. In Islamabad and Karachi, if a warehouse is built on an
industrial plot, a conversion fee has to be paid to the city authorities, but zoning regulations
of other cities are not explicit about such rules.
7
As such, storages and warehouses that are
not located in port areas tend to be located in rented accommodation rooms or shops in
commercial locations, and often even in houses. City authorities also provide land for cold
storages near fruit and vegetable markets.
24. A breakdown of data on how the land or building of the storage facility was acquired
shows that cold storages tend to be located on designated land, or in industrial areas, whether
they are owned or rented. The same is largely true for grain storage, which is primarily in
the public sector, in designated godowns. Distributors storages and storages for retail and
wholesale outlets are generally placed in rented accommodation in market places or
commercial areas. In some cases, storage facilities located in commercial areas were
classified as existing on plot for storage when owners claimed that the commercial space
was primarily for storage purposes based on its proximity to retail or wholesale space.
Overall, other than agricultural storages and cold storage, space for storage and warehousing
is generally not designated as such by city authorities, and warehousing facilities are either
developed on industrial plots or in non-designated commercial or residential areas.

7 Only 24 respondents reported having to pay a conversion fee for use of an industrial plot for storage and
warehousing. 16 of these respondents were based in Sindh.
Storage

Table 2.2: Land or Building Acquisition for Storage
Industrial
plot
Plot for
storage
Lease of
industrial
plot
Lease of
plot for
warehouse
Other
(mainly rent
of non-
designated
space)
Total
Godown 5 12 1 2 18 41
Open storage 1 2 2 1 8
Cold storage 21 19 3 20 64
Distributor's storage 5 2 2 4 10 24
Storage for retail
outlet 5 5 10
Storage for
wholesale outlet 7 13 5 15 41
Total 39 54 5 14 69 189

Figure 5: Land or Building Acquisition for Storage
0
5
10
15
20
25
Godown Open storage Other Cold storge Distributor's
storage
Storage for
retail outlet
Storage for
wholesale
outlet
Outright purchase of
industrial
plot/building
Outright purchase of
plot/building for
warehouse
Lease of industrial
plot/building
Lease of
plot/building for
ware
Other

25. For those respondents (about 100) who acquired land and set up storage facilities
from scratch, acquiring utility connections could potentially be very difficult. There appeared
to be little standardization in time taken to get the requisite services the median time taken
to get an electricity connection was 3 weeks, but the mean was almost 90 weeks! Natural gas
and water connections generally took less time (from a mean of 9 weeks and median of 3
weeks for gas and a mean of 6.2 weeks and median of 2 weeks for water).
26. Enumerators were asked to document the condition of access roads and the results of
their observations are documented in Table 2.3. It should be kept in mind that an average
classification here is entirely relative, and by no means implies average by international
standards. As one enumerator pointed out, in many cases (in rural areas where agricultural
storages are located, or in the vicinity of wholesale markets) the presence of a rudimentary
metaled road, even if in bad condition, would be considered a blessing, and enumerators
would classify access as average.
27. For godowns (used primarily for grain storage), a little over half of access roads were
classified as average, but for open storages which tend to be located in fields, access was
largely poor, often with no metaled roads. Cold storages, which tend to be located near
wholesale markets also have average to poor access facilities with potholed roads and poor
drainage. Distributors storages and storages maintained by wholesalers for own use, many

of which were located in commercial areas in relatively up-market localities tended to fare
better, with average to superior access facilities.

Table 2.3: Condition of the Access Road
Superior Average Poor Total %
Average
Godown 9 21 8 41 51%
Open storage 2 6 8 0%
Cold storage 14 25 25 64 39%
Distributor's storage 6 15 3 24 63%
Storage for retail outlet 5 2 3 10 20%
Storage for wholesale outlet 10 23 8 41 56%
Total 46 86 54 189

Figure 6: Condition of the Access Road
0
5
10
15
20
25
30
Godown Open st orage Ot her Cold st orge Dist ribut or's
st orage
St orage for
ret ail out let
St orage for
wholesale
out let
Superior
Average
Poor

28. Enumerators were also asked to record their impression of truck access, the results of
which are given in Table 2.4.

Table 2.4: Access for Trucks/Large Vans
With
difficulty
Not at all With
ease
Dont need
truck
access
Total
Godown 12 25 1 41
Open storage 6 2 8
Distributor's storage 6 3 15 24
Storage for retail outlet 4 6 10
Storage for wholesale outlet 14 2 23 2 41
Total 63 7 107 9 189

Storage

Figure7: Access for Trucks/Large Vans
0
5
10
15
20
25
30
35
40
Godown Open st orage Ot her Cold st orge Dist ribut or's
st orage
St orage for
ret ail out let
St orage for
wholesale
out let
Wit h difficult y
Not at all
Easily
Do not need
t ruck acces

29. Other than open storages, most facilities could be accessed with relative ease by
trucks or large vans. This was particularly true of urban based facilities not centered on
wholesale markets, which were presumably deliberately located in areas where access for
large vehicles would be possible.

2.4 Operations

30. As expected, storage and warehousing does not function as part of an integrated
system of logistics services in Pakistan, but largely as self-contained inventory holding for
individual businesses, or in the case of agricultural storage, as a primarily public sector
managed system for holding strategic reserves. Transportation services are de-linked from
the storage system, with 70 percent of storage companies not providing transport services.
Even loading and unloading services, which should be essential in storage facilities were
provided by only 52 percent of storage owners. About 12 percent of storage owners provided
distribution or shipment services. About 20 percent of storage owners provided data logging
services, although these were generally of a highly rudimentary nature, comprising for the
most part just inventory registers.
31. Storage owners did not, for the most part, use any marketing services for their
products, given that storages are generally not operated commercially. Even for those
facilities that were operated with some commercial intent, for example grain storages and
open storages, marketing primarily took the form of contacts with wholesale agents
(artis) and for distributors, contacts with manufacturing companies. For largely commercial
ventures like cold storages, contacts with artis was the paramount form of marketing. Thus,
as observed in the analysis of wholesale and retail trade in the country, storage owners also
rely primarily on reputation and personal contacts to drum up business. Only wholesale
storage depots seemed to practice some form of formal marketing with the use of
advertisements in addition to contacts. Interestingly only 2 companies each in Punjab and
Sindh mentioned the use of print advertisements, and these were primarily distributors
probably advertising their distribution capabilities with manufacturing firms, rather than their
storage expertise per se.


Table 2.5: Marketing Methods
Contacts
with artis
Contacts
with
companies
Print
advertisements
Other
(primarily
combinations
of 1, 2 and 3)
No
marketing
Total
Godown 8 7 6 21
Open storage 2 1 5 8
Distributor's
storage
1 12 2 1 5 21
Storage for
retail outlet
2 1 1 1 5
Storage for
wholesale
outlet
3 12 1 5 13 34
Total 40 53 4 9 45 151

Figure 8: Marketing Methods
0
5
10
15
20
25
Godown Open st orage Cold st orge Dist ribut or's
st orage
St orage for
ret ail out let
St orage for
wholesale out let
Insect s/infest
at ion
Damp
Pilferage
Ot her

32. Storage owners were, however, more inclined to use the services of business support
companies than retail and wholesale traders. Almost a third of storage owners had used
engineering services (these were primarily cold storage owners who needed to use these
services for their air conditioning units); while a little above a quarter of respondents claimed
to have used advertising services and accounting services.

2.5 Seasonality of Operations

33. Storage of grain and other agricultural commodities as well as cold storage can be a
highly seasonal business, which has implications for the feasibility of dedicated storages, and
for the use of storage facilities during periods when the facility is not being used as a storage
facility. The data shows that only cold storages have a high degree of seasonality, depending
on the fruits they store.

Storage

Table 2.6: Seasonality in Storage Operations
Seasonality
Yes No Total
Godown 4 31 35
Open storage 3 5 8
Cold storage 38 24 62
Distributor's storage 6 16 22
Storage for wholesale outlet 11 28 39
Total 64 111 175

34. In spite of the high degree of seasonality, over 92 percent of respondents who had
reported seasonality said that their facility was not converted to any other use when it was not
in seasonal use. About 40 percent of these respondents said that the facility could not be used
for any other purpose and therefore lay vacant when not used for storage. A further 40
percent said that they did not need to convert the space to any other use out of season, and
therefore had not considered this option at all. Almost 15 percent of respondents said that
regulations did not permit the use of the storage facility for any other purpose.

2.6 Losses, Risk and Insurance

35. On an average, information from 187 respondents indicated that 5 percent of items in
storage ended up being wasted in a year. However, the standard error for this estimate was
46 percent, and the maximum reported as wasted was as high as 40 percent. Of a total of 137
respondents who reported reasons for loss, almost 44 percent said that losses occurred due to
damp, while in 32 percent of cases, losses were due to insect infestation (mainly true for cold
storages and godowns, but insect infestation also occurred in wholesale outlets). Other
causes for loss included electricity loadshedding (particularly true for cold storages) and rains
and dust storms (true for grain storage whether in godowns or open storage). Three
respondents also mentioned faulty handling and loading and unloading procedures as reasons
for loss. Interestingly, pilferage did not appear to be an issue. In about 61 percent of cases,
the storage owner bore the loss, but the extent of the loss is determined by mutual consent in
almost 60 percent of cases. In almost 19 percent of cases, the storage owner alone
determined the extent of the loss.

Table 2.7: Main Cause of Loss
Insects/infestation Damp Pilferage Other Total
Godown 6 8 1 6 21
Open storage 1 1
Distributor's storage 7 9 5 21
Storage for wholesale outlet 6 18 1 6 31
Total 42 62 5 28 137


Figure 9: Main Cause of Loss
0
5
10
15
20
25
Godown Open st orage Cold st orge Dist ribut or's
st orage
St orage for
ret ail out let
St orage for
wholesale out let
Insect s/infest
at ion
Damp
Pilferage
Ot her

36. Almost half of respondents (95 in number) said that goods were assessed before being
placed in storage, to check what was being placed in the facility, and to assess condition of
goods to protect storage owners against damage claims. In almost 80 percent of cases, this
assessment was carried out by storage owners themselves, while in the bulk of the remaining
cases, customers who were placing goods in storage provided declarations of the value of
goods. Almost 73 percent of respondents said that such assessments were done as a routine.
A further 18 percent said that assessments were only done when there was suspicion of
damage, while 7.6 percent claimed that assessments took place when losses were known to
have occurred due to natural or unnatural causes.
37. In spite of the fact that storage owners were generally held liable for losses, 90
percent of storage owners had no form of insurance against losses. According to storage
owners, customers also did not insure goods (storage owners claimed that over 90 percent of
goods were not insured by customers in any form). The insurance market thus simply has not
penetrated the storage sector although in case of grain storage and storage of fruits and
vegetables, the need for protection seems apparent. Only 13 respondents claimed to have
used some form of insurance, and 10 of those said that insurance was available at viable rates.

2.7 Viability of Commercial Storage

38. Storage owners were asked to assess whether commercial storage was a viable
business, or whether traders were increasingly inclined towards creating and managing their
own storage spaces. About 55 percent of respondents felt that wholesalers and retailers were
likely to continue with the trend of managing their own storages, while almost 45 percent
thought that demand for commercial storage would increase in the future as business volumes
grow.
39. About 150 storage owners gave reasons why commercial storages were not widely
used as yet, and location and expense were cited as key reasons in this regard. 63 percent of
those who responded said that commercial storages are not conveniently located for most
wholesalers and retailers, and almost 84 percent felt that they were not cost effective.
Traders with small inventories would not like to use commercial storage when they can
accommodate their own storage needs. Over 60 percent of respondents did not think that
security and trustworthiness were issues in this regard.
Storage

2.8 Contracts

40. Almost 60 percent of the 165 respondents who answered queries on contract
modalities said that the only form of contract in commercial storage was a simple receipt
given by the storage owner to the consumer. About 20 percent of storage owners said that
records were computerized, and that electronic receipts were given out, while 18 percent
mentioned working with more formal contracts. Over 92 percent of contractual and other
disputes were reportedly solved through negotiation, with courts being resorted to relatively
seldom.


Section 3
Domestic Commerce Survey
Business Issues in Storage

41. The previous section detailed issues specific to the storage sector, and explained the
nature of storage facilities in Pakistan. This section focuses on the economics of the storage
business, how businesses are set up, and how day to day dealings occur.

3.1 Market Competition

42. Market competition was intense in the storage sector also with about 51 percent of
storage owners saying that up to 5 similar enterprises existed in that location, within a radius
of 1 km. The responses were roughly similar across revenue categories, indicating that both
large and small enterprises faced similar competition.

Table 3.1: Similar Enterprises within a Radius of 1 km
Frequency Valid Percent Cumulative
Percent
1 to 5 96 51.1 51.1
6 to 11 33 17.6 68.6
12 to25 16 8.5 77.1
More than 25 14 7.4 84.6
Dont Know 29 15.4 100.0
Total 188 100

43. Almost 77 percent of storage owners interviewed reported that they had faced barriers
to entry, and when asked to rank the most important barriers, in order of importance, almost
60 percent ranked capital requirements as the most important barrier. The need to have
personal contacts in the proposed business was cited as the most important barrier by 5.6
percent of respondents, while almost 24 percent of respondents cited it as the second key
barrier to entry. Government regulations and tariffs were also cited as important barriers to
entry, with 20 percent of respondents ranking this at no. 2.

3.2 Constraints

44. Access to finance once again came across as the most important constraint to growth
for retail enterprises, with 35 percent of respondents citing this as the most important factor
restricting expansion. However, taxation and regulation systems were also cited as the most
Storage

important constraints by just over a quarter of respondents. The quality of public services
was cited by almost 22 percent of respondents as the most important constraint. Interestingly,
corruption and law and order were cited strongly as the third ranked constraints to growth,
with almost 20 percent of respondents ranking corruption at no. 3, and 26.7 percent ranking
law and order as the third ranked constraint to growth. Interestingly, less than 13 percent of
respondents considered the lack of clear regulations on property ownership etc as
impediments to growth at any level.

Figure 10: Most important constraint to growth
Taxation and
regulation
system
Quality of
public
services (
Electricity
roads etc)
Lach of
access to
finance
Lack of clear
rgulation for
property
rights
Corruption Law and
order
situation
Most important constraint to growth
0
10
20
30
40
P
e
r
c
e
n
t

Figure 11: Second most important constraints to growth
Taxation and
regulation
system
Quality of
public
services (
Electricity
roads etc)
Lach of
access to
finance
Lack of clear
rgulation for
property
rights
Corruption Law and
order
situation
Second most important constraints to growth
0
5
10
15
20
25
30
P
e
r
c
e
n
t


3.3 Financing

45. Of the total storage owners, 78 percent had established their businesses, and the
overwhelming majority had funded the establishment of the business primarily through own
or family savings on an average, 76 percent of the paid up capital had come through own or
family savings. Similarly, an average of 11 percent of funds had come from sale of assets.
46. In spite of the fact that access to finance was repeatedly mentioned as an obstacle to
growth, and an impediment when it came to starting a business, only 23 respondents reported
having applied for a loan in the last three years. When asked to rank reasons why they had
considered applying for loans, about 46 percent of respondents they did not need funds, while
40 percent expressed reservations about contracting loans for religious reasons. About 3.3
percent said it was more convenient to rely on family and friends, while 7.3 percent felt that
interest rates would be too high.
47. Of the few storage owners (23 in total) who had applied for loans in the last three
years, 10 applied to commercial banks and 10 to friends and relatives, while the remaining
three had gone to private money lenders. The average loan amount asked for was just over
Rs. 500,000. However, the distribution of loan amounts asked for showed that 35 percent of
loans requested were up to Rs. 300,000 only.
48. Payment systems for commercial storage systems show a degree of risk taking on
behalf of storage owners. Of the 153 respondents who answered questions on payment
systems, 70 percent that payment for use of storage facilities is not taken in advance, and 77
percent of respondents said that clients are only required to make payments when goods are
being taken out of storage.

3.4 Employment

49. Storage facilities employ on an average 10 persons as full time paid employees and 6
persons as part time paid employees (where part time is defined as employees working less
than 5 hours a day). The sector provides employment largely to non-skilled workers, with
only 5 percent of employees, on an average, having completed primary school.

3.5 Governance Issues

50. Over 72 percent of storage establishments were registered with city authorities.
However, about 73 percent of respondents who had not registered their businesses said that
registration was not required. A further 12 percent cited high registration fee as the reason
for not registering the business.
51. The analysis of the governance data reveals some interesting anomalies. Over 90
percent of respondents agreed, or strongly agreed with the statement that they relied on the
reputations of those that they entered into contracts with. But 88 percent also agreed or
strongly agreed with the statement that contracts would prevent them from being cheated.
About 48 percent agreed with the statement that the legal system was functional, in that they
had confidence that their contracts and property rights would be upheld in a business dispute
in fact a further 13 percent strongly agreed with this statement. Almost 51 percent of
respondents disagreed with the statement that people from other baradaris or ethnic groups
were likely to cheat them. Most of these responses reflect a degree of faith in the legal
system, and in formal business processes (like contracts).
52. Late payment disputes appear to be the most common governance issue faced by
storage owners, with 53 percent of storage owners reporting that they had faced this issue in
the last year, but 86 percent of these cases were resolved through negotiation.
Storage

Figure 12: What is your sense of the market trend?
Demand for commercial storage
increasing
Trend towards creating own storage
space
What is your sense of the market trend
0
10
20
30
40
50
60
P
e
r
c
e
n
t


Section 4
Key Issues in the Storage Sector

53. The domestic commerce survey is probably the first attempt to track the nature of the
storage business in Pakistan. The key issues apparent for the sector based on this small scale
survey are as follows.

4.1 Business Volumes

54. The small scale of the commercial storage sector is linked with the preponderance of
small, single owner retail businesses in the country. Small businesses tend to prefer to keep
their inventories under their own control, and do not require sophisticated logistics systems
for the most part. The one area where there is considerable scope for expansion of the
business is the cold storage business, where more scientific systems of data logging and the
development of cold chain infrastructure could do much to boost the export of fruits and
vegetables. However, none of the storage owners questioned knew anything about the
governments professed policy of instituting credit lines for the establishment of cold
storages, and even officials of the Ministry of Commerce could not provide more information
on this initiative.

4.2 Governance Issues

55. In a business atmosphere where dealings are based largely on personal contacts and
word of mouth, with little reliance of insurance services or legal contracts, the development
of logistics services is clearly difficult. The institution of contracts is essential for third party
management of inventory.

4.3 Conclusions and Policy Recommendations

56. Based on the key issues identified in the survey, the following recommendations may
serve to enhance growth and development in the sector.
57. Medium Term: The storage and warehousing industry will grow when business
volumes in individual businesses are large enough to support such an industry. For the
medium term, the government needs to focus on the development of agricultural and cold
storage the development of the latter facilities in particular can have implications for value
addition in the export of fruits and vegetables.
The Ministry should review food security policies in conjunction with provincial
governments to assess how private sector entry into grain storage can be facilitated;
Storage

The government role in procurement, storage, distribution, export and import, and price
maintenance has to be clearly stated and then the government has to stick to the role. The
important issue is predictability;
Government storage facilities need to be run on corporatized and business oriented basis,
with strong performance and outcome based incentives;
The government has already devised a set of incentives for development of cold storages.
However, there has been no action on the implementation of these initiatives, and the
private sector did not respond to the incentive. The Ministry may have to underwrite the
initial investments in the creation of cold storage chains, in conjunction with private
sector parties

58. Long Term: The long term role of the government should focus more on the
development of insurance and other support services for the logistics sector. It is important to
understand how entrepreneurs in the sector manage risk.
The Ministry should work with the Securities and Exchange Commission (SECP) to
facilitate extension of insurance to the storage sector;
As in the case of earlier recommendations for competitiveness and wholesale and retail
trade, the storage sector would benefit particularly from strengthening of systems of
contract enforcement.

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