An interview with Dr Muhammad Arshad, CEO Hi-Tech Group of Companies

Dr Muhammad Arshad is the Director and the Chief Executive Officer at Hi-Tech Group since 1988. He has over 40 years of professional experience in providing fiscal, strategic, and operations leadership in both public and private sector, with emphasis on operations management of poultry and cattle feeds, edible oils, grain mills, poultry breeders farms, hatcheries and pharmaceutical business.

Hi-Tech Group of Companies is one of the top five poultry sector organisations in Pakistan. The group has six operational companies in its fold with vast distribution and sales network across the country. BR Research recently had a candid conversation with Dr. Arshad regarding oilseeds and poultry. Edited excerpts are produced below:

BR Research: Walk us through your business structure?

Dr. Muhammad Arshad: Hi-Tech Group of Companies comprises of 6 business segments. Hi-Tech Feeds business produces both poultry and cattle feed. Then we have Hi-Tech Poultry Breeders and Hi-Tech Farms where we breed around 6-8 million one-day old broiler chicks in a month; quality day old chicks (DOC) are produced by adopting strict standard operating procedures starting from collection of fertilised eggs, proper storage, ideal transportation, optimal incubation conditions, grading and above all, delivery of DOC in good health.

Hi-Tech Edible Oil Mills is another business segment where we import soybean seeds from US, Brazil etc. which are converted into two categories of products. We get around 18 percent salable edible oil, which we sell to the edible oil companies in Pakistan in semi-refined form. This semi refined form is achieved by processing the soybean through mechanical extraction and chemical extraction, and what’s left behind is soybean meal, which goes as a protein supplement to the feed mill industry. This is the second product that comes out of our facilities. Crushing of soybean seed started only four years ago in Pakistan and its import became viable when the government imposed 25 percent duty on soybean meal that was previously being imported from India.

Hi-Tech Grain Mills (Pvt) Ltd was established in 2016 with the sole purpose to tap in to the growing demand for premium ‘Basmati Rice’ worldwide. We have a capacity of producing 250 tons of premium quality long grain Basmati rice per day.

We also have a pharmaceutical wing called the Hi-Tech Pharmaceuticals which manufactures quality poultry vaccines and medicines for livestock and companion animals. The Group’s total turnover for fiscal year 2018 stood at Rs22.362 billion.

BRR: What is the exact nature of problems going on between soybean and the palm oil sector?

MA: First of all, keep in mind that palm oil is not a replacement for soybean oil. The palm oil sector has reservations over the duty they pay on the import of soybean oil, which is somewhere between 25-30 percent. This is compared to 16 percent taxes and duties we pay on the import of the soybean seed.

BRR: Where do you procure your seeds from?

MA: Hi-Tech Group is the largest customer of Cargill in Pakistan – an American privately held global corporation for food, agricultural, financial and industrial products. We only buy seeds from Cargill.

BRR: Total import bill of oilseed and oils in the country is around $2.5-3 billion; and the government these days is very keen on import substitution. Do you think there will be any progress in this regard?

MA: The ideal situation is when we produce the raw material ourselves i.e. soybean in this case, especially when we have the right climate and soil. However, the problem with these non-conventional crops is that they need guaranteed marketing to attract growers. And in case of loss even during one period, farmers begin to avoid these unconventional crops altogether.

Back in 2008-09 when I was the Chairman of All Pakistan Solvent Extractor’s Association (APSEA), we had the highest ever oilseed crop consisting of sunflower and canola with a total quantum of 1.2-1.3 million tons. When the two products from these crops – oil and meal – entered the local market, prices crashed, resulting in heavy losses to the growers.

Another barrier I believe for growing soybean in Pakistan is our existing crop pattern. Also, the issue is about creating demand. Last year, around 2.3 million tons of soybean was imported, and we had to sell the local soybean meal at $80 discount in comparison to the imported meal. If you want to grow soybean in Pakistan, you first need to develop the international market for the local soybean meal to avoid supplying surplus as the domestic market is quite small.

This has two barriers: one, we cannot export without Duty & Tax Remission for Exporters (DTRE) on soybean meal; we cannot export at the cost we are currently incurring on the import of the oilseed. Second, Department of Plant Protection has not officially legalised and regularised the import and crushing of GMO seed for unlimited time period; they have just granted permission to import for an interim period of which is 6 or 8 months.

Apart from a few European countries, GMO seed is being used everywhere; around 90 percent of the world is surviving on GMO crop.

And let me tell you this; the ongoing trade war between China and USA is an opportunity for our soybean meal to enter the Chinese market. This is the right time to enter a huge market.

BRR: What is the annual consumption of soybean locally? What is the local capacity?

MA: The consumption of poultry feed in the country is around 8 million tons annually, and at a conservative estimate of 25 percent, soybean meal accounts for 2 million tons annually, which means that around 2.4-2.5 million tons of soybean seed is required to cater to this demand to give the required amount of meal.

The capacity in Pakistan is more than 4 million tons, because the existing capacity for solvent extraction in the country is not just for soybean; it was originally designed for cottonseed, which is not being extracted anymore because of the elevated aflatoxin contamination. The soybean meal is superior to cottonseed meal not only because of its anti-aflatoxin levels, but also because of its superior amino acid profile. Hence, if the soybean seed is regularised, our existing excess capacity can be used to not only cater to domestic demand but also be part of the global value chain by exporting this superior seed’s products. And I can guarantee you that Pakistan can be a 10-million soybean market in 5 years’ time because of our cheap indigenous crushing technology that is compliant with global standards.

Our locally developed solvent engineering and industry is so efficient that we are still the only country producing canola seed meal with up to 80 percent KAOH solubility (digestibility), whereas the rest of the World does not produce above 60 percent maximum.

BRR: How much revenue can be guaranteed if the export landscape for the soybean seed is developed? Are you hopeful that the government will facilitate the regularisation and export prospects?

MA: The industry can earn $20-30 per ton on exports and we would be extremely happy with that. This is also globally acceptable. As we achieve economies of scale, we can not only generate trade surplus but also create jobs. What is required to bring about all this is trade prudence.

There is also another advantage of regularising GMO seed import; with no restriction on GMO imports, 75 percent of the revenue is automatically hedged as you import in dollar and sell in dollar (export); you only bear dollar risk on the oil component of soybean.

One advantage of growing all sorts of legumes is that they require very little water. If I’m not wrong, soybean requires half the water that wheat requires. Also, since soybean is grown in the same season as wheat and corn, one issue that is raised normally is that farmers will have to replace the crop or change the crop pattern. Today, this is not true as ‘Crop Rotation’ is something that not only helps farmers have both crops, but also helps increase the yield per acre of each crop.

We are very hopeful that the government will seriously look into the matter for an export friendly regime. Apart from China, Vietnam and Cambodia too offer huge potentials for our soybean meal.

BRR: Is there any quality difference in the seeds being imported?

MA: The quality of seed is very critical. I always say that we stick to three-four reliable and authentic sources for seed import and not let any fifth or sixth global company sell seeds to our farmers. This will ensure uniformity and guarantee quality crop and products.

Twenty years ago, corn production in the country was around 12 maund per acre; today it is 112 maund per acre and is the third important cereal after wheat and rice. The sole reason for this increase in yield is the quality of seed being imported from reliable sources. Today, corn production is close to 7 million tons annually, and it could go up to 10 million tons easily if GMO seed plantation is openly allowed. Not only that, we can then think of exporting corn; also, we can significantly decrease the cost of our poultry; and make poultry meat and eggs viable for exports. Corn is one crop that has not witnessed acreage shifting.

The best way to achieve quality crop and increased yield is to make sure that the best seed quality reaches the farmers in at least the first five years. Once the farmer is able to reach desirable production levels, I can guarantee you that he won’t buy lower quality seed to cut costs.

Local seed companies in Pakistan, on the other hand, do not have the ability or the morality to sell seeds to growers. In my opinion, we should not have any seed production in the country if we cannot guarantee quality.

BRR: You talked about exporting eggs. How is that achievable?

MA: We have been at borderline for eggs. The recent currency depreciation has now tilted us slightly towards export friendly market. Today, export of eggs has become viable. On the other hand, export of chicken meat is not viable as the industry isn’t developed. Price-wise, the rule of the thumb is that if demand of such sensitive commodities increases by 10 percent, prices goes up by 40 percent.

Similarly, if supply increases by 10 percent, prices fall by 40 percent. Prices of poultry in Pakistan have been stable in the last 4-5 weeks. And the production is likely to stay stable unless a huge dent upwards or downwards is witnessed in consumption.