Edible Oils in Pakistan

ISTITUTO AGRONOMICO PER LOLTREMARE 9
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GIACOMO MORELLI
EDIBLE OILS IN PAKISTAN
AN OVERVIEW WITH A FOCUS ON OLIVE OIL
QUADERNI DI ECONOMIA PER LA COOPERAZIONE ALLO SVILUPPO AGRICOLO TROPICALE - 9
GIACOMO MORELLI EDIBLE OILS IN PAKISTAN
Te work presented is the fnal delivery of a mission of the author in Pakistan within the
project Promotion of the production and marketing of olive oil. Te project has been fnanced
by the Italian Ministry of Foreign Afairs and implemented by IAO (Istituto Agronomico per
lOltremare, Italy) in close collaboration with the PODB-MINFAL (Pakistan Oilseeds
Development Board - Ministry of Food, Agriculture and Livestock). Te justifcation of the
project is the extreme burden of the bill for edible oils importation in the Pakistani balance of
payments, the second absolute largest one afer petroleum and its derivates and the single
largest one for food items. Te work is divided into two main sections: the frst one is a brief
overview of the edible oils in Pakistan whereas the second one focuses on olive oil market and
attempt to describe future scenarios of olive oil production and market in Pakistan. It is the
frst work done about this specifc sector of edible oil and hence it is intended to be an initial
tool useful for foreseeing what can happen in the olive oil market in the coming years.
Giacomo Morelli is an independent agri-business consultant, MSc graduated in Tropical and
Sub-Tropical Agricultural Science at the Universit degli Studi di Firenze (University of Florence,
Italy) in 2002. He worked for the private sector, NGOs and public bodies. He experienced working
in Italy, Latin America, Africa and fnally Asia. He has been in charge of diferent tasks as
reorganizing agricultural production processes, ideating and managing agricultural projects and
carrying on feasibility studies, business plans and agricultural market researches and studies.
Currently he is still practising as independent agri-business consultant and at the same time
attending a program of studies in agricultural economics at the CeDep (Centre for Development,
Envorinment & Policy), SOAS (School of Oriental and African Studies), University of London,
United Kingdom.
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ISTITUTO AGRONOMICO PER LOLTREMARE
FLORENCE - ITALY
http://www.iao.florence.it
ISBN 978-88-89507-07-0
Front cover:
Works in progress at the newly established oil mill in Tarnab (NWFP) - R. Del Cima, 2008
9 - QUADERNI DI ECONOMIA PER LA COOPERAZIONE ALLO SVILUPPO AGRICOLO TROPICALE
Istituto Agronomico per lOltremare
GIACOMO MORELLI
EDIBLE OILS IN PAKISTAN
Florence 2008
Ministero degli Afari Esteri
Istituto Agronomico per lOltremare
Via Antonio Cocchi, 4 - 50131 Florence (Italy)
Tel: ++39 055 5061.1
Fax: ++39 055 5061333
www.iao.forence.it
iao @iao.forence.it
First edition december 2008
No part of this book may be reproduced or utilized in any form or by any means, electronic or mechanical,
imcluding photocopying, recording or any information storage and retrieval system, without permission
from the Istituto Agronomico per lOltremare.
Graphics:
Laura Bonaiuti, IAO
Printed in Italy
NOVA ARTI GRAFICHE
Signa, Florence
Index
Acknowledgements 7
Introduction 9
Chapter 1 Justification of the Work 11
Chapter 2 Analysis of Edible Oils Market in Pakistan
(Research Questions 1 and 2) 17
Imports, Production and Consumption/Demand 17
Imports Costs, Production Costs and Selling Prices 20
Chapter 3 Analysis of Olive Oil Market in Pakistan
(Research Questions 3 and 4) 23
World Market Overview 23
World Production 24
World Consumption 25
World Trade Export 28
World Trade - Import 30
Current Cultivation of Olive Trees in Pakistan 32
Current Olive Oil Market in Pakistan 34
Local Production and Market Future Perspectives 40
Demand Growth: an Assumption 40
Production and Production Costs: an Assumption 42
Industrial Plantation of Olive Trees 42
Conversion of Wild Olive Trees into Bearing Species 43
Final Considerations and Recommendations about Local
Production and Market future perspectives 68
List of Abbreviation 81
Main Sources of Information 83
5
6
7
Acknowledgement
Te project Promotion of the production and marketing of olive oil
was funded by the Italian Directorate General for Development
Cooperation-Ministry of Foreign Afairs (MAE-DGCS), as part of
the agreements between Pakistan and Italy.
Te technical supervisor for DGCS is Dr. Santa Mol.
Te IAO coordination managers in Italy are Dr. Luciano Conticini
and Dr. Stefano Del Debbio, the local activities coordinator is Dr.
Rafaele Del Cima.
Te author wishes to thank all the people that have helped with the
work preparation of this report. Special thanks to all the PODB
ofcers, their precious help has been indispensable. Gratitude to Mr
Ifikhar Ahmed, Deputy director at the PODB ofces in Islamabad
who has done a fantastic job trying to fnd all the economic and
statistic data used in this paper. A very special thank you to Mr
Hashim Laghari, in-depth connoisseur and lover of his country.
Discussions with him were very helpful in furthering the consultants
knowledge of Pakistan. He and Mr Ahmed also helped fnd out the
current prices of agricultural inputs and mechanic means in Pakistan
in order to make cost estimations. Tank to Mr Naimait Khan, driver
at the Cooperazione Italiana ofce, who professionally drove the
consultant all over Islamabad, Lahore and Peshawar and who helped
when translations from Pakistani to English were needed.
Finally, thanks to all the Pakistani people met during the mission,
even outside of the working environment, for their friendly attitude
and hospitality.
This report provides answers to specific questions set by the Istituto
Agronomico per lOltremare IAO in relation to the project
Promozione della produzione e commercializzazione dellolio di oliva
in Pakistan (Promotion of the production and marketing of olive oil)
financed by the Italian Ministry of Foreign Affairs, General Direction
Development Cooperation - GDCS and executed by IAO.
The report will give answer to four research questions mentioned in
the consultants terms of reference (ToR):
1. to carry out the analysis of the edible oils currently used in
Pakistan, setting out the most consumed and in which amount;
2. to determine the production and purchasing price of the
various categories of oils and set out the level of production
and importation;
3. to determine the collocation of olive oil in the Pakistani market
and which part of the population has access to its purchase;
from such analysis arises also the amount of product that can
be absorbed by the national market;
4. to determine, on the basis of the current production and
purchasing price, the market segment olive oil could occupy in
the Pakistani market.
The work is the outcome of a study of the Pakistani edible oils market
with a major focus on olive oil carried out by the consultant in
December 2007 during a three-week mission in the country. Given
time constraints and the impossibility to go, for security reasons, to
the olive trees cultivations area, the study took place mainly in
Islamabad with short visits to Peshawar and Lahore. Consequently
farmers have not been interviewed at all. However, a close
collaboration with the projects officers of the counterpart PODB
9
Introduction
1
A project on olive oil is currently managed even by provincial authority in Balochistan.
Introduction
EDIBLE OILS IN PAKISTAN - An overview with a focus on olive oil
10
fulfilled this lack of first hand information regarding the current olive
trees cultivation in Pakistan.
The methodological approach to the study followed the research
questions logical order of the consultants ToR. The four questions
are strongly interrelated; the first two are the framework and the
starting point for the olive oil market analysis (questions 3 and 4). The
structure of the report follows the same logical order.
In addition the report ends attempting to describe future scenarios
for the olive oil production and market in Pakistan: this has been a
decision taken by the project manager Mr Raffaele Del Cima and the
consultant.
Consultants work was developed interviewing three major
stakeholders involved in the edible oils business- an olive oil importer,
a producer of ghee and a producer and importer of sunflower and
canola oil.
Other sources of information were:
1. available national statistic reports which were a valid and
reliable source of information;
2. PODB staff who represent the most informed national
institution concerning the edible oils business and therefore
were quite involved in the work;
3. visit to the Islamabad markets to collect data about olive oil
prices.
Moreover PODB know first hand the olive tree cultivation system in
Pakistan since all the projects regarding olive trees cultivation are
under its direct responsibility and management
1
11
Chapter 1
Justification of the Work
This report is also an outcome of one of the activities foreseen in the
project Promotion of the production and marketing of olive oil. The
project acknowledges the extreme burden of the bill for edible oils
importation in the Pakistani balance of payments: the second absolute
largest one after petroleum and its derivates and the single largest
one for food items (table 1).
Table 1 - Imported food items in Pakistan. Source: Pakistan Economic Survey 2006-07
Edible oils imports in the last 5 years from 2002-03
2
to 2006-07 are
2
National statistics always refers to the Pakistan fiscal year from July to June of the
following year. Therefore year 2006-07 refers to the period from July 2006 to June 2007.
2005-06 2006-07
Items (USD millions) (USD millions)
Milk & milk food 47.8 65.5
Wheat Unmilled 131.4 41.5
Dry fruits 45.4 56.5
Tea 187.7 184.2
Spices 44.0 44.9
Edible Oil (Soybean and Palm Oil) 615.6 763.3
Sugar 378.0 256.0
Pulses 135.7 217.9
Food Imports 1,585.6 1,629.8
0
10,000
20,000
30,000
40,000
50,000
60,000
2002-03 2003-04 2004-05 2005-06 2006-07
Rs (Millions)
Objectives:
Induction of private sector in oil palm development and promotion;
Carrying out the basic research on seedling development in nurseries;
Expansion of Oil Palm acreage to support activities of the Oil Palm processing
mill;
Establishment of village based oil palm mill with crushing capacity of 20
tonnes per day to process the fresh fruit bunches from the oil palm plantations
established under the ceased Oil Palm Development Pilot Project
and the plantations under the Oil Palm Development Project;
Establishment of model oil palm farms to attract private investment and Oil
Palm area expansion.
Provinces Sponsor Executor
Budget
(Rs millions)
Implementing
Years
Sindh and
Balochistan
MINFAL PODB 113,08
From 2005 to
2010
represented in figure 1.
Figure 1 - Value of edible oils import. Source: PODB
Aware of this weakness in the agricultural sector, the Pakistan
government have been developing many edible oils based projects in
the last few years (tables 2, 3, 4, 5 and 6).
Table 2 - Oil Palm Development Project. Source: PODB
Chapter 1 Justification of the Work
12
Table 3 - Production of High Quality Canola Seeds for Enhancing Productivity. Source:
PODB
Table 4 - Sunflower Cultivation in D.I. Khan District. Source: PODB
Balochistan Province began two oilseeds based projects (table 7
and 8).
The efforts of the Pakistani central and provincial institutions are
focused in attempting to promote a national edible oil sector, a
productive sector that now is almost completely absent.
Currently there are only small quantities of canola and sunflower oil
produced in 2006/07 in the country although the demand for these
products is high.
Objectives:
To produce, process and market 1,200 tonnes of certified canola seeds;
To focus on multiplication of certified seeds of improved commercial varieties
of canola (Bulbul-98) and other promising varieties available in the country;
To motivate the private sector in seed business particularly in local seed
production;
To establish a network for sustainable seed production in the long run.
Budget
(Rs millions)
Implementing
Years
NWFP
and Punjab
MINFAL PODB 35.97
From 2005 to
2010
Objectives:
Sunflower cultivation on 0.1 million acres in D.I. Khan District during the
project.
Budget
(Rs millions)
Implementing
Years
NWFP MINFAL PODB 38.7
From 2005 to
2009
13

Objectives:
To enhance oilseed production and productivity through development of
improved varieties, area specific technologies, crop promotional activities,
introducing appropriate farm machinery, bringing new areas under olive
cultivation, involving private sector in promotional campaigns, providing
support to solvent extraction industry by involving it in oilseed sector
production programs, organizing farmers groups for facilitating input supply
and marketing, training of farmers, technicians and scientists;
To establish mother plant olive grove in NWFP of about 0.4 million oil bearing
trees under forest control for future use as source of multiplication;
To convert the existing wild olive trees into oil-bearing olives to the extent of
140 millions of wild olives by top working;
To motivate the private sector in the top working;
To utilize the oil cake of olive in feed or manure through Effective Microbes
Technology;
To supplement indigenous edible oil production through olive promotional
endeavours;
To set basis for large scale commercialization of olive plantation through
experimentation under this project;
To develop technology packages for olive plantation and conversion of wild
types into fruit bearing plant through top working;
To generate technical literature and extension/training material for olive
promotion;
To establish an olive network in private sector for sustainable growth of olives.
Budget
(Rs millions)
Implementing
Years
Punjab and
Balochistan
MINFAL PODB 186.379
From 2001 to
2008
Table 5 - Rapid Conversion of Wild Olive into Oil Bearing Species. Source: PODB
14
Objectives:
Maintenance of 364 acres olive orchards established by PODB;
Establishment of 3 olive orchards, 10 acres each in NWFP, Potohar and
Balochistan;
Production of 0.300 million olive saplings;
Training of 1,000 growers/farmers;
Import of 25,000 olive saplings of different varieties from abroad.
Budget
(Rs millions)
Implementing
Years
NWFP,
Punjab and
Balochistan
MINFAL PODB 39.185
From 2005 to
2009

Objectives:
Oil Palm cultivation on 12,000 acres in
Lasbella District.
District

Budget
(Rs millions)
Implementing
Years
Lasbella

466.251
From 2005 to
2009

Objectives:
To standardize the olive processing and
oil extraction unit on sustainable basis.
Districts

Budget
(Rs millions)
Implementing
Years
Quetta, Khuzdar, Loralai, Pishin,
Mastung, Zhob, Kalat, Kharan,
Barkhan, Musakhail, Killaah,
Saifullah, Noshki

190
From 2007-08
to 2009-2010
Table 6 - New Plantations of Olive in NWFP, Potohar and Balochistan and
Maintenance of Orchards Established by PODB. Source: PODB
Table 7 - Oil Palm Cultivation in Coastal Areas of Balochistan. Source: PODB
Table 8 - Development of Olive Production and Processing in Balochistan (Source: PODB)
15
3
Results of a blind test conducted in Lahore by Mr. Raffaele Del Cima while consulting
for FAO showed that ghee can be substituted by olive oil in traditional recipes without
changing their organoleptic qualities.
Chapter 2
Analysis of Edible Oils Market in Pakistan
(Research Questions 1 and 2)
The main edible oils consumed by Pakistani people are:
- Palm oil;
- Cotton seeds oil;
- Rapeseed and Mustard oil;
- Soybean oil;
- Sunflower seeds oil;
- Canola oil.
The Pakistani people mainly consume sunflower, canola and soybean
oil whilst the others are utilised mainly as ghee, an hydrogenated solid
vegetable oil.
Nowadays in Pakistani cuisine ghee is utilised for frying and cooking
whereas sunflower, canola and soybean oils are usually used for
cooking and seasoning. Traditional cuisine varies in Pakistan: in
NWFP people prefer ghee or animal fats whereas in Sindh traditional
habits include a bigger consumption of vegetable oils
3
.
The supply of edible oils is constituted by imports, local production
from imported oilseeds and from oilseeds produced in Pakistan.
Here the amount of edible oils imports is represented for the year
2006/07 (table 9):
Imports, Production and Consumption/Demand
17
Table 9 - Imports of edible oils. Source: FBS/PODB
Table 10 - Edible oils from imported oilseeds. Source: FBS/PODB
Table 11 - Edible oils from locally produced oilseeds. Source: FBS/PODB

2006-07
Qt - Tonnes Value - Millions of Rs
Palm 1,698,276 55,222
Sunflower 103 7
Soybean 48,492 2,468
Olive 1,463 196
Others for edible purposes 6,88 447
Others for non-edible purposes 9,466 470
Total 1,764,680 58,809
2006-07

Qt Imported seeds
Tonnes
Value
Millions of Rupees
Qt oil
Tonnes
Sunflower 318,098 6,474 143,602
Canola 838,114 17,889 300,066
Total 1,156,212 24,363 443,668

2006-07
Seeds Produced Tonnes Qt oil Tonnes
Cotton 3,890,000 478,000
Rapeseed 204,000 63,000
Sunflower 556,000 251,000
Canola 180,000 65,000
Total 4,830,000 857,000

Chapter 2 Analysis of Edible Oils Market in Pakistan (Research Questions 1 and 2)
18
Edible oils production in Pakistan derived from imported and locally
sourced oilseeds (table 10 and 11).
A portion of edible oils are utilized for industrial purposes. This
amount is represented by about 10% of the whole availability of edible
oils in the Pakistani market. It is totally constituted by palm oil and
corresponds to 305,589 tonnes.
Statistically no exports of edible oils are registered
4
, hence the total
amount of the estimated aggregated consumption/demand is
represented by the difference between the sum of the amount of
imported oils and locally produced oils and the amount of edible oils
used for non edible purposes.
This is shown in table 12:
Table 12 - Edible oils consumption for eating purposes in Pakistan. Source: FBS/PODB

2006-07
Edible Oil Tonnes
Palm 1,392,688
Sunflower 394,705
Canola 365,066
Rapeseed 63,003
Cotton 478,000
Soybean 48,492
Olive 1,463
Others 6,880
Total 2,750,297

19
4
All the people interviewed during the consultants mission in Pakistan did not have
any information about edible oils exportation. National statistics do not report any
edible oil exportation from Pakistan.
In table 13 import cost of each main edible oil imported to Pakistan
is reported.
Table 13 - Cost of edible oils imports. (Source: PODB)
In Pakistan during 2006-07 year just two oils were produced in
considerable amount for edible purposes: sunflower and canola oil
5
.
Sunflower and canola oils were both produced from nationally
sourced and imported seeds.
In table 14 the average cost per hectare of cultivating sunflower and
canola is reported.
In table 15 the equivalent cost
6
, the conversion cost and the
production cost are reported.
In table 16 the average import cost of sunflower and canola seeds is
reported.

2006-07
Edile Oil Rs/Ton Rs/Kg
Palm 32,516 32.52
Sunflower 65,280 65.28
Rapeseed 80,392 80.39
Soybean 50,886 50.89
Olive 133,773 133.77
20
Imports Costs, Production Costs and Selling Prices
5
Oil palm has never been cultivated in Pakistan. There are just two ongoing pilot projects
as reported in chapter 2. Soybean is not reported to have been produced in 2006-07 and
cotton and rapeseed have been cultivated and destined mainly for ghee production.
Production systems range from big commercial plantations to small farms. Small farms
can be joined to a cooperative or be independent and either have their own mill or not.
6
The equivalent cost stands for the cost to produce the necessary quantity of seeds to
obtain 1 ton of oil.

2006-07

Qt Imported Seeds
Tonnes
Value
Millions of Rs
Qt oil
Tonnes
Import Cost
Rs/ton
Sunflower 318,098 6.474 143,602 20.352
Canola 838,114 17.889 300,066 21.344

2006-07

Equivalent Cost
Rs/ton
Conversion Cost
Rs/ton oil
Production Cost
Rs/ton
Sunflower 39,420 56,000 95,420
Canola 46,820 56,000 102,820

2006-07

Cultivated - Ha Seed - Tonnes Cost - Rs/ha
Sunflower 382 556 16,720
Canola 145 180 13,480

21
Table 14 - Cost of cultivating sunflower and canola. Source: PODB, elaborated by the author
Table 15 - Production cost of oil from nationally cultivated oilseeds. Source: PODB,
elaborated by the author
Table 16 - Import cost of sunflower and canola seeds. Source: PODB, elaborated by the author
In table 17 the production cost of oil derived by imported seed is
reported.
In table 18 the cost of production of sunflower and canola oil can be
estimated as a weighted mean of the oil derived from nationally
sourced and imported oilseeds.

2006-07

Import Cost
Rs/ton
Processing Cost
Rs/ton
Production Cost
Rs/ton
Sunflower 20,352 56,000 76,352
Canola 21,344 56,000 77,344

2006-07
Production Cost - Rs/ton
Sunflower 84.595
Canola 79.124

2006-07

Raw Material Cost
Rs/ton
Processing Cost
Rs/ton
Production Cost
Rs/ton
Ghee 39,431 4,367 43,798

2006-07
Price - Rs/kg
Ghee 98
Sunflower and canola oil 117

22
Table 17 - Production cost of oil derived by imported sunflower and canola seeds. Source:
PODB, elaborated by the author
Table 18 - Production cost of sunflower and canola oil . Source: PODB, elaborated by the
author
Other oils, as previously mentioned are usually utilized to produce
ghee. Its production cost is reported in table 19:
Table 19 - Production cost of ghee. Source: PODB and a ghee producer interviewed during the
author's mission
In table 20 the mean selling prices of ghee and canola and sunflower
oils are reported.
Table 20 - Selling price of ghee, canola and sunflower oil. Source: FBS
23
Chapter 3
Analysis of Olive Oil Market in Pakistan
(Research Questions 3 and 4)
World Market - Overview
The edible oils market in Pakistan is changing. A shift to oils rich in
unsaturated fats is the main trend that the major edible oils sector
stakeholders are appreciating. This shift is led by the wealthier and
most educated part of the population that can afford this change in
their consumption behaviours. The shift requires time because it
involves two main aspects: change in eating habits (that are linked to
health awareness but also to traditional behaviours) and competition
with foreigners edible oils markets.
Olive oil production may represent a way of contributing to the
reduction of edible oils importation. This chapter therefore deals with
the economic and marketing aspects related to the olive oil sector
expansion in Pakistan. It intends to be a first tool to outline the
possible scenarios of the sector in the hands of policy makers who are
currently taking the first action in this still very young business.
Jointly with other activities of the project Olive Oil Production and
Commercialization Promotion in Pakistan and other projects
financed by the MINFAL, this work is part of the wider vision that
attempts to find solutions for this agricultural strategic sector.
A brief description of the olive oil world market is important because
the Pakistani market is still very young and little data is available. A
look at the world market and at its development can provide some
interpretational tools to better foresee possible future scenarios for
the olive oil market in Pakistan.
The olive oil world market is very complex. Production is spread over
developed and developing countries and entails many different
production systems
7
even within a single country. Olive oil is
produced regionally, mainly in Mediterranean countries but traded
globally. Mill activities are dispersed, while bottling has become more
and more concentrated with a strong presence of multinational
corporations.
Olive oil consumption is growing, but consumption patterns vary
widely, both in quantity and quality. Market segmentation is the
norm; in some countries and for some consumers (the wealthier and
more health conscious) quality product attributes have assumed an
increasingly important role in consumption decisions. The largest
producer and consumer of olive oil, the European Union, tenaciously
protects its domestic market, despite the preferential access it grants
to a number of Mediterranean countries. Some large exporters are
large importers as well (Italy), and there are also exporters (Great
Britain) that produce no olive oil at all.
Table 21 shows the percentage shares of the global production for
major producing countries.
World production of olive oil has been increasing over time. In 04/05
it exceeded 2.5 million tons, a 42% increase from 90/91 (table 22).
Most of the expansion occurred in the largest producing countries,
24
Chapter 3 Analysis of Olive Oil Market in Pakistan (Research Questions 3 and 4)
7
Production systems range from big commercial plantations to small farms. Small farms
can be joined to a cooperative or be independent and either have their own mill or not.
World Production
Table 21 - Main olive oil producing countries 2004-05. Source: FAOSTAT
although changes in production were not homogeneous across them.
If we compare the 90-93 and 02-05 four-year averages, the largest
production increases took place in Syria, where production more than
doubled (+ 127%), in Turkey (+ 97%) and Spain (+ 64%). Lower
increases occurred in Italy, Morocco and Greece while, at the same
time, production in Tunisia declined by 18%. Among the other
Mediterranean countries, the largest production increases between
90-93 and 02-05 occurred in Israel (where production increased by
almost 19 times, from 230 to 4,530 tons), Cyprus, Croatia, France,
Jordan and Slovenia. A large increase (+ 128%) occurred in Australia,
where olive oil production however remained below 200 t.
Italy is the country with the highest consumption of olive oil (30% of
overall world consumption in 2003, the most recent year for which
information on consumption is available), followed by Spain (19%)
25

WORLDS
PRODUCTION
Spain 32.1%
Italy 28.4%
Greece 13.5%
Syria 6.6%
Tunisia 5.2%
Turkey 4.8%
Morocco 3.3%
Others Mediterranean 5.5%
Rest of the World 0.6%
World Consumption
Table 22 - World olive oil production. Source: FAOSTAT
26

1990-93 2002-05

Thousands
Tonnes
Thousands
Tonnes
Variation
Spain 601.1 984.3 63.7%
Italy 487.4 660.3 35.5%
Greece 313.5 392.2 25.1%
Syria 72.0 163.7 127.2%
Tunisia 190.0 155.4 -18.2%
Turkey 61.5 121.3 97.2%
Morocco 52.0 75.1 44.4%
Other Mediterranean Countries 90.6 115.7 27.7%
Algeria 25.9 26.7 3.1%
Jordan 9.6 20. 3 111.8%
Palestine 19.9 16.0 -19.5%
Libya 7.8 8.5 8.7%
Lebanon 5.1 6.0 17.8%
Israel 0.2 4.5 1,869.6%
Portugal 34.7 39.2 13.1%
France 2.0 3.8 87.2%
Cyprus 1.6 3.2 96.3%
Croatia 1.0 2.1 106.0%
Albania 2.6 1.1 -57.0%
Slovenia 0.0 0.2 ###
Serbia and Montenegro 0.1 0.1 18.2%
Rest of the World 27.3 26.0 -5.0%
Argentina 11.7 11.0 -6.0%
Chile 1.0 1.4 36.5%
USA 0.6 0.9 44.3%
Iran 1.3 0.8 -39.2%
El Salvador 0.5 0.5 1.9%
Mexico 0.4 0.2 -50.0%
Australia 0.1 0.2 128.6%
WORLD 1,895.5 2,693.9 42.1%

Figure 2 - Olive oil world consumption. Source: FAOSTAT
and the United States (8% of world consumption); the other main
consumers of olive oil are Greece (7%), Syria (5%), France (4%) and
Morocco (3%).
The non-Mediterranean European countries, all together, account for
9 per cent of world consumption (figure 2).
In Asia olive oil consumption is not yet as noticeable as in other parts
of the world
8
.
In the neighbouring countries of Pakistan the demand for this oil is
approximately following the same trend (fig 3 and 5).
The increasing levels of health consciousness amongst the richest part
of the population in these countries is now underlining the sector
expansion. Although there is not yet any consolidated statistical data,
major edible oil stakeholders in China and India think there are many
chances for the olive oil consumption to increase in the near future.
Currently there is not yet a noticeable local production in China, India
and Pakistan.
27
8
Excluding Middle East countries.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Figure 3 - Imports of olive oil to China. Source: China International Exhibition of Olive Oil &
Edible Oils, Beijing 2006
Spain and Italy are the main world producers of olive oil and the
largest exporters; the third largest exporter is Tunisia, which is the
fifth world largest producer.
These three countries alone accounted in 2004 for 89% of olive oil
exports in value.
Olive oil exports increased in value between 90/93 and 01/04 by
84%.Exports by Spain and Italy both increased in value more than
world exports (by 99 and 167% respectively), which means they both
increased their market shares (and, in the case of Italy, by a large
amount).
Among the other main exporters, olive oil exports declined in Greece
(-29%) and France (-70), while in Tunisia they did not change
significantly; large increases between 90/93 and 01/04 occurred in
Syria, Turkey, Portugal, Jordan, and Israel; finally, significant export
increases occurred as well in countries which do not produce olive
oil, such as Egypt, UK, Germany, Canada and Saudi Arabia.
28
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Tonnes
Yr
World Trade - Export
Table 23 - World olive oil export. Source: FAOSTAT
29

1990-93 2002-05

Thousands
Tonnes
Thousands
Tonnes
Variation
Spain 670.1 1,332.5 98.9%
Italy 375.9 1,004.8 167.3%
Tunisia 186.2 209.1 12.3%
Greece 284.4 202.8 -28.7%
Turkey 14.2 117.7 728.9%
Portugal 28.2 61.7 118.8%
Morocco 13.3 14.6 9.8%
Other Mediterranean Countries 62.9 48.4 -23.0%
Syria 0.0 23.5 ###
Jordan 1.0 3.1 210.0%
Lebanon 1.4 2.8 100.0%
Palestine 5.6 1.2 -78.6%
Egypt 0.1 1.2 1,100.0%
Israel 0.0 0.4 ###
Algeria 0.1 0.0 -100.0%
Libya 0.7 0.0 -100.0%
France 54.0 16.2 -70.0%
Other European Countries 8.7 36.9 324.1%
United Kingdom 1.8 16.0 788.9%
Belgium 2.9 7.2 148.3%
Germany 1.5 5.2 246.7%
Rest of the World 20.4 33.3 63.2%
Argentina 13.3 17.0 27.8%
USA 4.2 7.4 76.2%
Canada 0.3 1.1 266.7%
Australia 0.2 1.1 450.0%
Saudi Arabia 0.1 1.0 900.0%
WORLD 1,664.3 3,061.7 84.0%

In 2005, four exporters accounted for more than 90 per cent of the
world market in value; EU-25 as a whole, ignoring intra-EU trade,
remains the largest exporter of olive oil, with 65% of the market,
followed by Tunisia (14%), Turkey (10%) and Syria (4%). 48% of EU-
25 exports in value are directed towards the USA, 10% to Japan and
6-7% each to Australia, South Korea, Canada and Brazil. More than
90% of what Tunisia and Syria export are destined to the EU; 6% of
Tunisia exports are shipped to the US. Turkeys exports are more
differentiated by country of destination, with 59% of exports going to
the EU-25, and 24 and 6% to the US and Canada, respectively.
Italy, the second largest exporter of olive oil, is at the same time the
largest importer, with 40% of world imports in value in 2004; the
other main importing countries are the US (15%), France (6%), Spain
(6%), UK (4%), Germany (4%), Portugal (4%), Japan (3%) and
Australia (2%).
Olive oil imports increased in value between 90/93 and 01/04 by 91 %.
Among the main importers, in the countries where olive oil was not
traditionally consumed (such as the US, Germany, the UK, Japan and
Australia) increases in imports are larger in percentage terms than
those in countries where it is part of the traditional diet (such as Italy,
France and Spain). In the United States, the third largest consumer of
olive oil, imports more than doubled between 90/93 and 01/04.
In the future, the world olive oil market will probably be more and
more segmented on the basis of product quality differentiation, with
price playing a relatively less important role than in the past. This is
already evident in the relatively richer countries where olive oil is part
of the traditional diet and it can be seen (and it is strategically
managed) as a mature food.
30
World Trade - Import
Table 24 - World olive oil import. Source: FAOSTAT
31

1990-93 2002-05

Thousands
Tonnes
Thousands
Tonnes
Variation
Italy 823.1 1,242.8 0.5
USA 234.6 532.3 1.3
France 135.5 240.5 0.8
Germany 39.0 123.7 2.2
United Kingdom 33.7 120.2 2.6
Portugal 48.3 116.6 1.4
Japan 16.0 111.5 6.0
Spain 85.0 102.5 0.2
Australia 30.8 78.8 1.6
Other Mediterranean Countries 81.3 46.0 -0.4
Greece 39.3 12.7 -0.7
Libya 17.6 11.8 -0.3
Morocco 1.3 10.6 7.2
Israel 1.8 6.9 2.8
Turkey 0.8 1.4 0.8
Tunisia 0.0 0.9 #####
Algeria 0.6 0.7 0.2
Egypt 2.0 0.7 -0.7
Palestine 0.3 0.2 -0.3
Lebanon 6.4 0.1 -1.0
Jordan 11.2 0.0 -1.0
Other European Countries 41.5 168.0 3.0
Belgium 13.3 42.2 2.2
Switzerland 10.4 38.3 2.7
Netherlands 5.7 31.0 4.4
Sweden 3.3 18.1 4.5
Austria 3.5 16.0 3.6
Norway 2.1 12.2 4.8
Denmark 3.2 10.2 2.2
Rest of the World 119.3 346.9 1.9
Canada 25.7 68.7 1.7
Brazil 36.7 65.4 0.8
Mexico 4.2 27.7 5.6
China 1.5 23.8 14.9
South Korea 0.3 21.6 71.0
Saudi Arabia 9.2 19.7 1.1
New Zealand 1.3 11.4 7.8
WORLD 1,720.5 3,287.8 0.9

In these countries increases in consumption are driven by
differentiated patterns, with an increasing share of consumers moving
from bulk purchases directly from producers to purchases of bottled
and branded olive oil from large retailers; from conventional to
organic olive oil; from olive oils whose origin is not specified to oils
with a certified geographical indication, as is the case for protected
denomination olive oils in the EU. In non-traditional markets,
consumer demand for quality attributes and services is today
definitely more limited and, possibly, less sophisticated. However, in
non-traditional markets characterized by higher per capita incomes,
a clear trend can be observed towards patterns which occurred only a
few years ago in traditional markets.
Currently orchards of olive trees and cultivation of wild olive trees
converted in oil bearing species occurs in Pakistan, but any intensive
industrial cultivation of olive trees does not exist. Here is a brief
overview of the olive trees cultivation in Pakistan (table 25 and 26).
No noticeable production of olives has been obtained from the two
different cultivation systems currently present in Pakistan. In both
cases trees are still young and there is no information about the
varieties utilised in the cultivation.
32
Current Coltivation of Olive Trees in Pakistan
Table 25 - Olive trees orchards in Pakistan. Source: PODB
33
Place Ha n. of Trees Orchards managed by
Sangbhatti 61 8,000 PODB (2000-05)
Pirsabak 49 4,700 PODB (2000-05)
Toro khas 20 950 PODB (2000-05)
Khawoo 10 698 PODB (2000-05)
Tarnab 8 1,127 PODB (2000-05)
SUB-TOTAL 148 15,475 PODB (2000-05)

Unknown Unknown 78,173
Growers, NGOs, Government
Departments
SUB-TOTAL Unknown 78,173
Growers, NGOs, Government
Departments

Unknown 47 12,400 PODB (2004-06)
SUB-TOTAL 47 12,400 PODB (2004-06)

TOTAL
More than
195
106,048

As shown, updated information for many orchards is lacking.
Table 26 - Rapid conversion of wild olive in oil bearing species. Source: PODB
In the year 2007 the only production of olive oil in Pakistan occurred
in Sangbhatti and it was 600 kg as referred by project officers (PODB)
to the consultant: an extremely negligible part in relation to the whole
size of the edible oils market, and also to the olive oil specific one, as
noted in the olive oil imports data (table 27). In addition, it must be
stressed that this production was not commercial.
Currently the olive oils market in Pakistan has the following
characteristics:
- There is no olive trees cultivation, except some public pilot
projects, which are not yet in production. Hence there is no
industrial functioning mill. The entire supply chain is therefore
represented by importers, distributors and retailers
9
.
34
9
A few small farmers cultivating olive trees are present in Balochistan. Recently
they have bought small Oliomio extraction machines to crush their olives.

Year
n. of Trees
in NWFP
n. of Trees
in Balochistan
n. of Trees
in Punjab
Total
2002-03 87,000 73,000 41,000 201,000
2003-04 430,000 153,000 170,000 753,000
2004-05 338,000 200,000 201,000 739,000
2005-06 712,000 304,000 246,000 1,262,000
2006-07 900,000 416,000 267,000 1,583,000
TOTAL 2,467,000 1,146,000 925,000 4,538,000
Current Olive Oil Market in Pakistan
Table 27 - Olive oil imports in Pakistan. Source PODB
Table 28 - Countries exporting olive oil to Pakistan. Source: PODB
- Olive oil is currently imported already bottled (glass bottles and
tin cans) and comes mainly from Spain, Italy and Turkey (table
28).
- The product is utilized for cooking and seasoning purposes but
also as a product for beauty and health purposes. Some
35

Year Qt tonnes Value - Millions of Rs Rupees/ton
1997-98 146 15,931 108,424
1998-99 80 11,080 137,713
1999-00 179 24,770 138,176
2000-01 202 28,475 140,908
2001-02 253 36,462 143,952
2002-03 276 37,267 134,767
2003-04 195 26,815 136,897
2004-05 480 61,054 127,022
2005-06 836 111,060 132,752
2006-07 1,463 195,741 133,773

Country
Spain 59.73%
Italy 21.64%
Turkey 15.51%
United Arab Emirates 1.01%
Tunisia 0.71%
China 0.71%
Others 0.69%
consumers think that it has beneficial effects for human health
if used for body massages. Men utilise it for beard care. The
brand Borges has a packaging with the label Olive Oil for
Massages.
- From interviews with important commercial stakeholders it
emerged that 5% of the richest part of the Pakistani population
can be considered for the moment the market segment to whom
the olive oil supply
10
is addressed. The segment is not yet
saturated; big chances of growth are represented by and within
this segment.
- On the shelves currently many kinds of olive oils are on sale.
Olive oil products include pomace oil, olive oil and extra virgin
olive oil. Pakistani consumers are presumably unaware of the
difference between them. The table 29 reports current average
prices
11
(December 2007) of main oil oils collected in a survey in
some shops in Islamabad conducted by the consultant.
- Pakistani consumers do not yet understand the difference
between extra virgin and olive oil. For some brands the olive oil
price can even be higher than the price of extra virgin oil. At the
shop Best Price
12
in Islamabad olive oil Fragata (0.5 Kg bottle)
is sold at 650 Rs/kg whereas extra virgin olive oil Fragata (1 kg
bottle) is sold at 575 Rs/kg.
- Retailers are allowed to pay olive oil on a credit base. Other
edible oils have the same supply chain but retailers pay for those
kinds of oils immediately at shop delivery. Olive oil is still
considered a product that does not guarantee a fast return and
that can remain on the shelves for long.
36
10
National available statistics generally divide the population into income quintiles.
Each quintile represents 20% of the Pakistani population. The fifth quintile includes
the richest part of the Pakistani population. Therefore 5% of the richest part of
Pakistani population is equal to 1% of the whole Pakistani population.
11
Prices are calculated as mean of the price/kg without considering the relative weigh
of the packaging.
12
Surveyed by the consultant during the mission in December 2007.
Table 29 - Current prices of olive oils in Pakistan. Source: Author's survey
Figure 4 - Import variations (quantity and import price) of olive oil. Source: Elaborated by
the author; original data from PODB
- As illustrated in figure 4, the amount of imports is not
influenced by import price: in the last ten years the variation of
imports in terms of quantity underwent three drops (years
2000-01, 2003-04 and 2005-06) and two peaks (1999-00 and
2004-05). These are not related to any significant import price
variation: price fluctuated between 108,000 and 143,000
rupees/ton.
Such drops were most probably due to an unsold stock accumulation
from the previous year and consequently rises originated in response
to a lack of stock in the following year. This observation also explains
37

Rs/kg
Extra Virgin Oil 599.36
Olive Oil 562.74
Pomace Oil 314.88
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Qt Var
Price
Var
Figure 5 - Imported olive oil to Pakistan. Source: POBD
the behaviour of the retailers who do not want to pay for olive oil at
product delivery and prefer to buy it on a credit base.
Price has no significant impact on the demand of olive oil which has
a trend that can not be yet defined as linear, although since 2003-2004
it has been recording a similar growth rate (figure 5).
Olive oil consumers in Pakistan are not yet used to this commodity
and its demand is still unpredictable although major stakeholders in
the edible oils business agree that a substantial growth in short and
medium term can be foreseen.
Historically, the demand for edible oils has gone through different
stages which are mainly marked by consumers research of healthy
properties of the oils. Pakistani has shifted in their diet habits from
animal saturated fats (butter) to healthier products like vegetable
saturated fats (ghee) and finally to even healthier products such as
vegetable unsaturated fats (canola, sunflower oils). Nowadays a
further substitution of ghee and vegetable oils with olive oil can be
envisaged. In rural areas and amongst the poorest parts of Pakistan the
38
0
200
400
600
800
1,000
1,200
1,400
1,600
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Tonnes
Yr
Figure 6 - Import variations (quantity and import price) of palm oil. Source: Elaborated
by the author; original data from PODB
consumption of ghee is relatively higher than in urban areas,
indicating that the people who are shifting to healthier oils are mainly
living in urban areas and have a higher level of education and income.
Figure 6 shows the variation in imports of palm oil (main component
raw material to produced ghee, the traditional oil source in Pakistani
cuisine). It is clear how palm oil is much more related to its import
price than olive oil.
Figure 7 shows the trend of palm oil imports. The growing rate is not
as variable as the growing rate for olive oil. In fact ghee has a market
which is traditionally consolidated in Pakistan society and it is still
considered a basis of the Pakistani cuisine. Its consumption is strictly
linked to its price and therefore to the price of the imported palm oil,
which constitutes the main raw material utilised in ghee production.
39
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 Qt Var
Price Var
Figure 7 - Imported palm oil to Pakistan. Source: PODB
Due to a lack of reliable data on the still very young olive oil business
in Pakistan two main assumptions must be taken into consideration
to outline possible future perspectives:
- Estimation of demand growth.
- Estimation of production and production costs.
Quantification of the olive oil demand growth is not easy. Few facts
are known, major stakeholders interviewed during the consultants
mission believe that the 5% of the richest part of the Pakistan
population can be considered the market segment for olive oil. This
segment (1.56 millions people) is not yet saturated and the chances for
a substantial growth are quite high.
40
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07
Tonnes (Millions)
Yr
Local Production and Future Market Perspectives
Demand Growth Trade: an Assumption
Currently the average per capita consumption of olive oil within the
segment is estimated equal to 0.94 kg/year
13
. In table 30 the edible oils
per capita yearly consumption is summarized by income quintiles in
urban areas where the richest part of population live.
Table 30 - Edible oils per capita yearly consumption income quintiles. Source: PSLM
Household Integrated Economic Survey (HIES) 2004-05
In this report an assumption about the demand growth must be set:
its assumed that by 2025 the demand for olive oil will saturate the
market segment, i.e. all the consumers within the segment will shift
from edible oils to olive oil. This means that they will consume not
just 0.94 kg of olive oil per year, but 6.24 kg with an overall increase
of 5.30 kg (about 570% in percentage terms). It is foreseen that 9,735
tonnes of olive oil can represent the aggregated demand with the
current retail prices for olive oil.
The demand increase must be matched by increased imports and/or
local production. The assumption of a local demand increase is based
on the internal market evolution in Pakistan and on the world trend:
- Pakistan people, when they can afford it, are shifting to healthier
edible oils, and among them the high income class is shifting to
olive oil.
- In Asia a similar trend can be observed in the market of
emerging countries, such as India and China.
41
13
Being total consumption equal to the imports and 5% of the richest part of Pak-
istan population equal to 1% of the whole population. Whole population =156.17
million. Source: PSLM (Pakistan Social and Living Standards Measurements) House-
hold Integrated Economic Survey (HIES) 2004-05.

Quintiles First Second Third Fourth Fifth
Ghee Kg 5.52 7.08 7.80 7.44 6.60
Edible Oils Kg 0.60 1.08 1.56 2.88 6.24
- All over the world the consumption of olive oil is increasing. In
the richest countries these eating habits are changing amongst a
bigger part of the population whereas in developing countries
eating habits are more related to the income, olive oil being very
expensive on the global market.
In Pakistan the cultivation of olive trees and, as consequence, olive oil
production is not yet well developed: there are only a few projects in
their early stages.
Levels of production and production costs are therefore estimated on
the basis of the project coordinator Mr Raffaele Del Cimas experience
in the olive oil business and his technical suggestions. Two kinds of
agricultural production systems have been taken into consideration:
the industrial plantation and the conversion of wild olive trees into
bearing species. The latter is intended to be a way to generate a
supplementary source of income for farmers in remote rural areas.
Both estimations are based on a pessimistic scenario: low productivity
(tonnes of olives/ha) and a low conversion rate (14%) from olives to
oil. Every cost is estimated on current prices.
It is assumed that trees are cultivated in a suitable environment (soil
and weather conditions) and agronomic care is properly provided.
From the study Selection of Suitable Areas for Olive Growing in
Pakistan by Raffaele Del Cima and Ferdinando Urbano carried out in
2008 as another activity of the project which includes this report too
it arises the more than 800,000 ha of land are potentially suitable for
olive trees growing. Technically if just the ten per cent of such lands
were cultivated an amount of 70.000 ton of olive oil would be
42
Production and Production Costs: an Assumption
Industrial plantation of olive trees
produced. Therefore finding a suitable environment for the olive trees
cultivation does not represent a problem for the implementation of
olive oil business in Pakistan.
Brief description of the plantation:
- Plantation area 40 ha.
- High level of mechanization (only pruning is hand-made).
- Drip irrigation system and fertirrigation.
- Mechanical weeding control.
- Ownership of all the main mechanical means.
- Labour is 225 hours/year/ha (internationally it is 180, but it is
assumed that Pakistani workers do not have the necessary
experience to work with the average labour productivity of
international parameters in the first years of production).
- Productive life of the plantation is 20 years. Renovation is
needed afterwards.
- Trees/ha 416, spacing 4 x 6 meters.
Table 31 - Estimated production of olive oil. Source: Elaborated by the author
43
Estimated production
Olives - kg/tree Olives - Ton/ha Oil -Ton/ha
Year 0 0.0 0.000 0.000
Year 1 0.0 0.000 0.000
Year 2 0.0 0.000 0.000
Year 3 0.0 0.000 0.000
Year 4 4.5 1.872 0.262
Year 5 6.5 2.704 0.379
Year 6 8.0 3.328 0.466
Year 7 11.0 4.576 0.641
Year 8 12.0 4.992 0.699
Year 9 13.0 5.408 0.757
From Year 10 15.0 6.240 0.874
Installation cost:
Table 32 - Installation costs. Source: Elaborated by the author
Mechanical means purchase cost:
Table 33 - Mechanical means purchase cost. Source: Elaborated by the author
44

Installation (Year 0) Rs/ha 258,980.00

Unit Unit Cost - Rs Total
Trees (purchase) 416 30 12,480
Bamboo Posts 416 100 41,600
Metal Wire 1,600 120 192,000
Initial Soil Fertilization 875 12 10,500
Land Preparation 1 2,400 2,400
Olive Trees Cultivation Cost

Purchase (Year 0) Unit Cost Rs/ha
Irrigation System 4,000,000 100,000
Rotative Tiller 50,000 1,250
Trolley 100,000 2,500
Tractor 459,000 11,475
Power Spray 125,000 3,125
Tree Shaker 1,350,000 33,750
Inputs cost
14
:
Table 34 - Input cost - year 1. Source: Elaborated by the author
45
14
The cost to extract water from wells or superficial water bodies is not estimated
because it varies a lot, depending on the geographic conditions. Running cost of ir-
rigation is also not estimated as the climate conditions are unknown.

Year 1 Rs/ha 1,991.08

Unit

Unit Cost Cost/ha
Fertilization

366.08
Urea 33.28 kg/ha 11.00 366.08
Treatment 725.00
Copper Sulphate 1.50 kg/ha 350.00 525.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 300.00
Pesticide 0.40 kg/ha 500.00 200.00
Diesel 2,50 lt/ha 40.00 100.00
Weeding 600.00

Diesel 15.00 lt/ha 40.00 600.00

Year 2 Rs/ha 2,557.16
Unit Unit Cost Cost/ha
Fertilization 732.16
Urea 66.56 kg/ha 11.00 732.16
Treatment 900.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 325.00
Pesticide 0.45 kg/ha 500.00 225.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Production begins from year 4, hence the harvest cost is to be added.
46

Year 3 Rs/ha 3,123.24

Fertilization 1,098.24
Urea 99.84 kg/ha 11.00 1,098.24
Treatment 1,075.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 350.00
Pesticide 0.50 kg/ha 500.00 250.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00

Year 4 Rs/ha 8,457.96

Urea 122.09 kg/ha 11.00 1,342.96
Super Triple Phosphate 390.00 kg/ha 12.00 4,680.00
Treatment 1,250.00
Copper Sulphate 3.00 kg/ha 350.00 1,050.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 385.00
Pesticide 0.57 kg/ha 500.00 285.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00

Diesel 5.00 lt/ha 40.00 200.00
47

Year 5 Rs/ha 11,499.83
Urea 176.35 kg/ha 11.00 1,939.83
Treatment 1,600.00
Diesel 5.00 lt/ha 40,00 200.00
Treatment 400.00
Pesticide 0.60 kg/ha 500.00 300.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00

Year 6 Rs/ha 13,882.48
Urea 217.04 kg/ha 11.00 2,387.48
Treatment 1,950.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 425.00
Pesticide 0.65 kg/ha 500.00 325.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00
48

Year 7 Rs/ha 18,412.78
Urea 298.43 kg/ha 11.00 3,282.78
Treatment 2,440.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 450.00
Pesticide 0.70 kg/ha 500.00 350.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00
Year 8 Rs/ha 20,186.22
Unit
Unit
Cost
Cost/ha
Urea 325.57 kg/ha 11.00 3,581.22

Super Triple
Phosphate
1,040.00 kg/ha 12.00 12,480.00
Treatment 2,825.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 500.00
Pesticide 0.80 kg/ha 500.00 400.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00
Table 43 - Input cost - from year 10. Source: Elaborated by the author
49

Year 9 Rs/ha 22,099.65
Unit
Unit
Cost
Cost/ha
Urea 352.70 kg/ha 11.00 3,879.65

Super Triple
Phosphate
1,126.67 kg/ha 12.00 13,520.00
Treatment 3,350.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 550.00
Pesticide 0.90 kg/ha 500.00 450.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00

From Year 10 Rs/ha 25,176.52
Unit
Unit
Cost
Cost/ha
Urea 406.96 kg/ha 11.00 4,476.52

Super Triple
Phosphate
1,300.00 kg/ha 12.00 15,600.00
Treatment 3,700.00
Diesel 5.00 lt/ha 40.00 200.00
Treatment 600.00
Pesticide 1.00 kg/ha 500.00 500.00
Diesel 2.50 lt/ha 40.00 100.00
Weeding 600.00
Diesel 15.00 lt/ha 40.00 600.00
Harvest 200.00
Diesel 5.00 lt/ha 40.00 200.00
Labour Costs
Each year labour costs are 7,875 rupees/ha, 225 hours/year/ha at 35
rupees/hour.
The manager of the plantation will earn 12,000 USD/year, which
means, at the current exchange rate
15
, 736,200 rupees/year, e.g. 18,405
rupees/year/ha.
Mechanical means depreciation
16
and maintenance cost
Table 44 - Mechanical means depreciation and maintenance cost - from year 1 to year 3.
Source: Elaborated by the author
50
15
1 USD = 61.35 Rs; December 2007.
16
Depreciation is calculated as follows: tractors productive life equal to 12 years,
trolleys to 40; rotative tillers to 10, irrigation systems to 10, power sprays to 8 and
tree shaker to 20 years.

From year 1
to year 3
Rs/ha 2,979.13

Tractor 1,644.75
Maintenance 27,540.00 688.50
Depreciation 38,250.00 956.25
Trolley 187.50
Maintenance 5,000.00 125.00
Rotative Tiller 162.50
Irrigation System 500.00
Maintenance 10,000.00 250.00
Power Spray 484.38
Table 45 - Mechanical means depreciation and maintenance cost. Source: Elaborated by the
author
Total cultivation cost
Table 46 - Total cultivation cost per year. Source: Elaborated by the author
51
From year 1
to year 3
Rs/ha 2,979.13

Tractor 1,644.75
Maintenance 27,540.00 688.50
Trolley 187.50
Rotative Tiller 162.50
Irrigation System 500.00
Maintenance 10,000.00 250.00
Power Spray 484.38

Rs/ha
Year 0 437,360
Year 1 57,148
Year 2 57,714
Year 3 58,280
Year 4 67,665
Year 5 70,707
Year 6 73,090
Year 7 77,620
Year 8 79,393
Year 9 81,307
Year 10 84,384
Due to the lack of an olive oil industry in Pakistan it is not currently
possible to estimate any sort of processing cost
17
.
Some considerations are necessary to have a basis upon which future
scenarios are envisaged.
In table 47 the import prices for different categories of olive oil
defined by PODB are represented.
Table 47 - Import prices for different categories of olive oil defined by PODB. Source:
PODB
These prices are well below the average price paid on the international
market, which at the current exchange rate is 303.88 Rs/kg.
To better understand the destiny of the olive oil production in
Pakistan, five scenarios are outlined and analysed.
52
17
Processing cost is considered equal to crushing cost + bottling cost + mark-up of the
miller.
Processing Cost

2006-07
Qt
tonnes
Value
Millions of Rs
Rupees/kg
Olive oil virgin 273,141 37,472 137.18
Olive oil & its fraction 1,112,099 147,683 132.79
Oil solely from olive its blend 77,988 10,586 135.73
53
Scenario n. 1

Price at the farm gate of olive oil = 303.88 Rs/kg (average price on the international market)
Processing cost = 56.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller
for the milling service. In both cases it is assumed that the processing cost is equal to the processing cost
of sunflower and canola seeds oil
18
in 2006/07.

Cash flow:

Yr0 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr25
Pay-off 0 0 0 0 79,640 115,036 141,583 194,676 212,374 230,072 265,467 265,467
Cost 437,360 57,148 57,714 58,280 82,342 91,906 99,181 113,496 118,531 123,705 133,305 133,305
Income -437,360 -57,148 -57,714 -58,280 -2,701 23,130 42,402 81,180 93,843 106,366 132,162 132,162

BREAK EVEN ANALYSIS Scenario n. 1
-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
Yr0 Yr1 Yr2 Yr3 Yr4 Yr5 Yr6 Yr7 Yr8 Yr9 Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 Yr16 Yr17 Yr18 Yr19 Yr20
Rs

*NPV
19
IRR
20

276,687 10.36%
* The discount rate is considered to be 7%
21

Break even point occurs between year 11 and 12, cumulative cost equates to cumulative income.
Afterwards cumulative incomes are positive and the investment is completely recovered. Throughout the
years these are the interest rates of the whole investment:

Return on Capital
Year 10 -9.77%
Year 12 7.94%
Year 20 43.88%
Year 25 54.80%
Year 40 71.31%

18
The processing cost of sunflower and canola seeds oil is taken as a benchmark in order to outline possible scenarios since sunflower
and canola oils are the most important edible oils produced in Pakistan. The extraction techniques are different, but the business
sector remains the same and no other benchmarks are possible.
19
The Net Present Value (NPV) is the value of the discounted flow of annual incomes. A positive NPV indicates that the investment
should be accepted. It is calculated for the first 25 years of the investment. A negative value means that the investment is not
financially viable.
20
The Internal Rate of Return (IRR) is the maximum interest rate that a project could pay for the resources used if it is to recover all
costs and still break even. The project should be accepted if the IRR is greater than the opportunity cost of capital. It is calculated
for the first 25 years of the investment.
21
The discount rate equal to 7% is the opportunity cost of capital in Pakistan. Source: Economist, Pocket World in Figures, 2007
Edition.

54
Scenario n. 2

for the milling service. In both case it is assumed that the processing cost is equal to half the processing
cost of sunflower and canola seeds oil in 2006/07.

Cash flow:

Pay-off 0 0 0 0 79,640 115,036 141,583 194,676 212,374 230,072 265,467 265,467
Cost 437,360 57,148 57,714 58,280 75,003 81,307 86,135 95,558 98,962 102,506 108,844 108,844
Income -437,360 -57,148 -57,714 -58,280 4,637 33,729 55,447 99,118 113,412 127,566 156,623 156,623


-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Rs

*NPV IRR
446,433 12.08%


Return on
Year 10 -1.59%
Year 11 9.99%
Year 20 65.87%
Year 25 80.56%
Year 40 103.42%

55
Scenario n. 3

for the milling service. In both case it is assumed that the processing cost is equal to one and half the
processing cost of sunflower and canola seeds oil in 2006/07.

Cash flow:

Pay-off 0 0 0 0 79,640 115,036 141,583 194,676 212,374 230,072 265,467 265,467
Cost 437,360 57,148 57,714 58,280 89,680 102,506 112,227 131,434 138,099 144,905 157,766 157,766
Income -437,360 -57,148 -57,714 -58,280 -10,040 12,530 29,356 63,242 74,275 85,167 107,701 107,701

-800,000
-600,000
-400,000
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
Rs

*NPV IRR
106,941 8.40%


Return on
Year 10 -16.69%
Year 13 3.82%
Year 20 27.04%
Year 25 35.48%
Year 40 47.95%

56
Scenario n. 4

It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller for the
milling service. In both case it is assumed that the processing cost doubles the processing cost of sunflower
and canola seeds oil in 2006/07.

Cash flow:

Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 25
Pay-off 0 0 0 0 79,640 115,036 141,583 194,676 212,374 230,072 265,467 265,467
Cost 437,360 57,148 57,714 58,280 97,018 113,106 125,273 149,372 157,668 166,104 182,227 182,227
Income -437,360 -57,148 -57,714 -58,280 -17,378 1,930 16,310 45,305 54,706 63,968 83,241 83,241


*NPV IRR
-62,804 6.10%

Break even point occurs between year 13 and 14, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the year these are
the interest rates of the whole investment:

Return on
Year 10 -22.63%
Year 14 2.14%
Year 20 13.73%
Year 25 20.44%
Year 40 30.20%

Investment under this scenario should not be undertaken because the NPV is negative and the IRR is lower
than the opportunity cost of capital.

57
Scenario n. 5

Price at the farm gate of olive oil = 133.78 Rs/kg (average current import price)
for the milling service. In both case it is assumed that the processing is equal to half the processing cost of
sunflower and canola seeds oil in 2006/07.

Cash flow:

Pay-off 0 0 0 0 35,061 50,644 62,331 85,705 93,496 101,288 116,870 116,870
Cost 437,360 57,148 57,714 58,280 75,003 81,307 86,135 95,558 98,962 102,506 108,844 108,844
Income -437,360 -57,148 57,714 -58,280 -39,942 -30,663 -23,805 -9,853 -5,466 -1,219 8,026 8,026


-800,000
-700,000
-600,000
-500,000
-400,000
-300,000
-200,000
-100,000
0
Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Yr 6 Yr 7 Yr 8 Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
Rs

The break even point for the industrial production of olive oil is between year 99 and 100 after the
plantation installation. Investment under this scenario is therefore unwise.

Estimation on the potential production of the converted trees is made
on the basis of three main assumptions:
- Potentially good areas are selected.
- Wild olive trees are grafted with clones adaptable to the local
environmental conditions.
- Management is minimal but imperative.
- Attention must be addressed not exclusively to the economical
facts but also to other aspects that can improve the life conditions
of the people involved in such cultivation. In remote rural areas
cultivation entails a tighter control of the land by local
communities and it can represent an integration to the local
income.
Estimations of production and cost have been based upon the
following facts:
- 250 converted tree/ha.
- Low amount of input.
- Rain-fed cultivation, no irrigation is needed.
- Only manual work.
- Labour 90 hours/year/ha (management is very reduced).
- Productive life is estimated upon an unlimited in time.
- No depreciation is calculated because of the lack of machinery.
58
Conversion of wild olive trees into bearing species
Table 48 - Estimated production of olive oil (wild converted trees). Source: Elaborated by
the author
Table 49 - Installation costs (wild converted trees). Source: Elaborated by the author
59
Estimated production

Olives - kg/tree Olives - Ton/ha Oil - kg/ha
Year 0 0.000 0.000 0.000
Year 1 0.000 0.000 0.000
Year 2 0.000 0.000 0.000
Year 3 0.000 0.000 0.000
Year 4 0.250 0.063 0.009
Year 5 0.700 0.175 0.025
Year 6 1.300 0.325 0.046
Year 7 2.800 0.700 0.098
Year 8 4.000 1.000 0.140
Year 9 5.750 1.438 0.201
From Year 10 8.000 2.000 0.280
Estimated costs

Year 0 Rs/tree
Labour 6.0
Plastic 2.5
Bud wood 6.0
Equipment 1.0
Total 15.5
Table 50 - Input cost - year 1 (wild converted trees). Source: Elaborated by the author
60

Year 1 446.70
Unit Unit Cost
Urea 1.00 kg/ha 11.00 11.00
Cupper Sulphate 0.90 kg/ha 350.00 315.50
Pesticide 0.24 kg/ha 500.00 120.19

Year 2 569.09
Unit Unit Cost
Urea 1.20 kg/ha 11.00 13.20
Pesticide 0.27 kg/ha 500.00 135.22
Year 3 692.58
Unit Unit Cost
Urea 1.50 kg/ha 11.00 16.50
Pesticide 0.30 kg/ha 500.00 150.24

Year 4 993.53
Unit Unit Cost
Urea 3.75 kg/ha 11.00 41.25
Super Triple Phosphate 12.50 kg/ha 12.00 150.00
Pesticide 0.34 kg/ha 500.00 171.27

Year 5 1,557.13
Unit Unit Cost
Urea 10.50 kg/ha 11.00 115.50
Pesticide 0.36 kg/ha 500.00 180.29
Table 59 - Input cost - from year 10 (wild converted trees). Source: Elaborated by the author
61

Year 6 2,241.50
Unit Unit Cost
Urea 19.50 kg/ha 11.00 214.50
Cupper Sulphate 3.00 kg/ha 350.00 1,051.68
Pesticide 0.39 kg/ha 500.00 195.31

Year 7 3,698.49
Unit Unit Cost
Urea 42.00 kg/ha 11.00 462.00
Pesticide 0.42 kg/ha 500.00 210.34

Year 8 4,877.91
Unit Unit Cost
Urea 60.00 kg/ha 11.00 660.00
Pesticide 0.48 kg/ha 500.00 240.38

Year 9 6,562.21
Unit Unit Cost
Urea 86.25 kg/ha 11.00 948.75
Pesticide 0.54 kg/ha 500.00 270.43
Year 10 8,523.85
Unit Unit Cost
Urea 120.00 kg/ha 11.00 1,320.00
Pesticide 0.60 kg/ha 500.00 300.48

Labour is equal to 3150 rs/year.
As done for the industrial plantations five scenarios are outlined and
analysed.
Scenarios analysed show the full potential of this kind of cultivation
system, the achievement of that level of production can be challenged
by some adverse conditions such as drought, growers sudden decrease
of disposable money to invest and improper management.
62
63
Scenario n. 1

Price at the farm gate of olive oil = 303.88 Rs/kg (average price on international market)
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost is equal to the processing cost of sunflower and canola seeds oil in
2006/07.

Cash flow:

Pay-off 0 0 0 0 2,659 7,445 13,826 29,780 42,543 61,155 85,086 85,086
Cost 3,875 3,597 3,719 3,843 4,634 6,079 7,939 12,336 15,868 20,982 27,354 27,354
Income -3,875 -3,597 -3,719 -3,843 -1,975 1,366 5,887 17,444 26,675 40,173 57,732 57,732

BREAK EVEN ANALYSIS Scenario n. 1 Converted Wild Olive Trees
-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
Rs

*NOV IRR
312,761 44.32%

cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:

Return on Capital Invested
Year 7 17%
Year 10 120%
Year 20 185%
Year 25 192%
Year 40 200%

64
Scenario n. 2

is assumed that the processing cost is equal to half the processing cost of sunflower and canola seeds oil
in 2006/07.

Cash flow:

Pay-off 0 0 0 0 2,659 7,445 13,826 29,780 42,543 61,155 85,086 85,086
Cost 3,875 3,597 3,719 3,843 4,369 5,393 6,665 9,592 11,948 15,347 19,514 19,514
Income -3,875 -3,597 -3,719 -3,843 -1,710 2,052 7,161 20,188 30,595 45,808 65,572 65,572


-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
Rs

*NPV IRR
358,443 46.87%


Return on Capital
Year 7 31%
Year 10 176%
Year 20 286%
Year 25 299%
Year 40 315%

65
Scenario n. 3

is assumed that the processing cost is equal to one and a half the processing cost of sunflower and canola
seeds oil in 2006/07.

Cash flow:

Pay-off 0 0 0 0 2,659 7,445 13,826 29,780 42,543 61,155 85,086 85,086
Cost 3,875 3,597 3,719 3,843 4,859 6,765 9,213 15,080 19,788 26,617 35,194 35,194
Income -3,875 -3,597 -3,719 -3,843 -2,200 680 4,613 14,700 22,755 34,538 49,892 49,892


-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000
Rs

*NVP IRR
267,107 41.52%


Return on Capital
Year 7 5%
Year 10 83%
Year 20 126%
Year 25 130%
Year 40 135%
66
Scenario n. 4

is assumed that the processing cost doubles the processing cost of sunflower and canola seeds oil in
2006/07.

Cash flow:

Pay-off 0 0 0 0 2,659 7,445 13,826 29,780 42,543 61,155 85,086 85,086
Cost 3,875 3,597 3,719 3,843 5,104 7,451 10,487 17,824 23,708 32,252 43,034 43,034
Income -3,875 -3,597 -3,719 -3,843 -2,445 -6 3,339 11,956 18,835 28,903 42,052 42,052

-100,000
0
100,000
200,000
300,000
400,000
500,000
600,000
Rs

*NVP IRR
221,439 38.35%


Return on Capital
Year 8 21%
Year 10 57%
Year 20 87%
Year 25 90%
Year 40 93%

67
Scenario n. 5

Price at the farm gate of olive oil = 133.78 Rs/kg
is assumed that the processing cost is equal to half the processing cost of sunflower and canola seeds oil
in 2006/07.

Cash flow:

Pay-off 0 0 0 0 1,171 3,278 6,087 13,110 18,729 26,923 37,458 37,458
Cost 3,875 3,597 3,719 3,843 4,369 5,393 6,665 9,592 11,948 15,347 19,514 19,514
Income -3,875 -3,597 -3,719 -3,843 -3,199 -2,116 -579 3,518 6,781 11,576 17,945 17,945


-50,000
0
50,000
100,000
150,000
200,000
250,000
Rs

*NPV IRR
81,013 24.57%

Break even point occurs between year 8 and 9, cumulative cost equates cumulative income. Afterwards

Return on Capital
Year 9 6%
Year 10 22%
Year 20 70%
Year 25 76%
Year 40 83%

The demand for olive oil is expected to grow. However, if local
Pakistani farmers sold olive oil to distributors at the current import
price, which is well below the average world price, local olive oil
industrial production would not be financially viable
22
(scenario 5 for
industrial plantation). On the other hand, converted olive trees would
be financially viable, but it must be kept in mind that due to the low
initial investment, the absolute profit would be low. Hence converted
wild olive trees must be considered as livelihood able to generate a
supplementary income rather than the main one, since uncertainty
of production is a major factor.
The analysis of the olive oil current sector and the possible future
supply chain can provide the elements needed in order to make a
judgement on the olive oil future in Pakistan.
Currently Pakistan is importing and consuming three kinds of olive
oil:
- Extra virgin olive oil
- Olive oil
- Pomace oil
It is paying for approximately the same import price for them, even
though classification of olive oils in Pakistan is not very clear (table
47) and the average import price is 133.78 Rs/kg.
Pakistan consumers are buying olive oil at the prices shown in table
29.
Currently importers, distributors and retailers are sharing 77% of the
added value generated in the whole supply chain, while the rest (23%)
is the share corresponding to the supply chain stakeholders outside
Pakistan.
68
22
Considering a processing cost equal or higher than 28 Rs/kg.
Final Considerations and Recommendations about Local
Production and Future Market Perspectives
Whereas added value generated within the supply chain of sunflower
seeds oil is inverted, the growers share is within 60 and 70% and in
the supply chain intermediaries (between growers and millers)
intervene.
Countries that traditionally consume olive oil pay a higher price to
import it (source: ComTrade). This is due to consumers willingness
to pay more for a cultural product like olive oil and to higher
transaction costs (i.e. transport, fuel costs, customs controls,
bureaucracy, etc)
- Italy price 4.18 USD/kg
- Spain price 3.86 USD/kg
- Greece price 4.62 USD/kg
Rich countries that are consuming olive oil pay an even higher price
(source: ComTrade):
- USA price 4.38 USD/kg
- United Kingdom price 5.11 USD/kg
- Australia price 4.68 USD/kg
- Japan price 5.99 USD/kg
69
Imported Olive Oil - Supply Chain in Pakistan
Locally Sourced Sunflower seeds oil - Supply Chain in Pakistan
Emerging countries pay a lower price (source: ComTrade):
- China 2.56 USD/kg
- India 3.62 USD/kg
- Azerbaijan 1.50 USD/kg
- Kazakhstan 2.02 USD/kg
- Kyrgyzstan 2.15 USD/kg
These differences amongst countries depend on the varying concerns
about quality that consumers in each country have. Olive oil imported
to Pakistan and other developing countries could be of an inferior
quality. The Pakistan market must compete against richer countries
whose consumers are more exigent regarding quality issues. To be
competitive in the future Pakistan olive oil producers have to aim
towards a high quality of production
23
.
Scenarios 1, 2 and 3 can assure a sustainable financial growth of the
olive oil production in Pakistan. Investments under scenarios 4 and 5
should be rejected because the NPV is negative.
Therefore conditions under the three favourable scenarios can be
described assuming that:
- Future olive oil demand in Pakistan in 2025 will be 9,735 tonnes;
- Half the demand will be satisfied by imports;
- Half the demand will be satisfied by local production (75% from
industrial production and 25% from converted trees
production);
- Local production will be contemporary, e.g. all the productive
units will start the cultivation in the same year 2010;
- Distributors will be willing to buy olive oil from growers at a
price equal to world average import price.
70
23
This report does not consider the hypothesis of pomace oil commercialization that
could constitute another source of income making the production economically
viable even considering the current importing prices.
In 2025, the situation in Pakistan will be:
- 4,179 ha of land under industrial plantations will be producing
- 3,650 tonnes of extra virgin olive oil,
- 4,346 ha of land with converted wild olive trees, will be
producing 1,217 tonnes of extra virgin olive oil.
Return on invested capital after 40 years = 71%.
IRR= 10.36% so that in comparison with an alternative investment
(7% of opportunity cost of capital).
It is more financially profitable.
It is a livelihood able to generate a small income in remote rural areas
where alternatives are scarce.
In 2025 the total investment (industrial plus converted trees
production, about 9.6 billions of rupees) will be generating a return
on invested capital equal to 42% for the growers.
Moreover from 2020 (when the plantations is mature) each year, the
millers will get 56 Rs/kg (272 millions of rupees) and the rest of the
supply chain (distributors and retailers) will get 295.48 Rs/kg (1,438
millions of rupees). Therefore the added value shares within the
supply chain will be:
- Growers 41.36%
- Millers 9.34%
- Distributors and Retailers 49.30%
71
Under Scenario n. 1
Investment in industrial olive oil production:
Investment in wild converted olive trees:
Table 60 - Sensitivity Analysis - Scenario 1. Source: Elaborated by the author
If the olive oil price at which the growers sell the olive oil to
distributors decreased by 16% the investment made by the growers
on olive oil production would no longer be financially viable.
If the olive trees cultivation cost increased by 23% the investment on
olive oil production would no longer be financially viable, too.
72
Scenario n. 1 - Sensitivity Analysis (Industrial Plantation)

NVP IRR NVP IRR
PRICE* DECREASE BEFORE DECREASE AFTER DECREASE
16% 276,687 10.36% -18,067 6.75%
CULTIVATION COST
INCREASE
BEFORE INCREASE AFTER INCREASE
23% 276,687 10.36% -5,300 6.94%
*At which the growers sell olive oil to the distributors

Under Scenario n. 2
- Growers 46.03%
- Millers 4.67%
distributors decreased by 25% the investment made by the growers
on olive oil production would no longer be financially viable.
73
Under Scenario n.3
Scenario n. 2 - Sensitivity Analysis

NVP IRR NVP IRR
25% 446,433 12.08% -14,120 6.80%
CULTIVATION COST
INCREASE
37% 446,433 12.08% -7,199 6.93%

- Growers 36.69%
- Millers 14.01%
74
Scenario n. 3 - Sensitivity Analysis

NVP IRR NVP IRR
6% 106,941 8.40% -3,591 6.95%
CULTIVATION COST
INCREASE
9% 106,941 8.40% -3,401 6.96%

distributors decreased by 6% the investment made by the growers on
olive oil production would no longer be financially viable.
In the described scenarios there are aspects to be discussed:
- Distributors, retailers and millers added value share in the
supply chain of locally produced olive oil is smaller than the
share currently obtained by importers, distributors and retailers
along the supply chain of imported olive oil. Anyway, it is still
larger than the share that the same stakeholders have within the
locally produced sunflower seeds oil supply chain
24
.
- The larger are the industrial plantations, the smaller are the unit
costs. This is due to economies of scale.
- Mills have to be in the proximities of the plantations and/or the
wild converted tree areas, because olives have to be crushed
within 1 day from harvest.
- Availability of suitable land for the olive trees cultivation should
be checked. It should not be difficult in a country the size of
Pakistan. The cultivation of olive trees need water sources
nearby and a good transport infrastructure.
- Policies have to be addressed to keep the processing cost within
the limits of 28 and 84 Rs/kg.
- Processing cost can be higher than 84 Rs/kg but this increase
should not reduce the growers income but the distributors and
retailers margins, e.g. with the current price on the shelf of olive
oil growers must keep their added value share between 36 and
46%. Growers are the stakeholders within the supply chain that
must contribute the biggest investment.
75
24
It is important to note that olive trees cultivation foresees an initial investments
much bigger than sunflower cultivation.
- Communication between growers and millers should occur
without intermediaries in order to avoid useless transaction
costs along the supply chain. Growers must be able to deal
directly with the millers and afterwards with distributors. The
supply chain should be organised as follows:
If an entrepreneur decides to be a grower, miller and distributor
at the same time he can be sheltered from the variation of the
processing cost, assuming the price on the shelf of the olive oil
will be constant for the next 20 years at least, because demand of
olive oil is increasing globally. In fact, people in developed
countries and the wealthier population of developing countries
are realizing that olive oil consumption can benefit their every
day diet.
- Quality is important. Producing quality extra virgin olive oil is
vital. Competition with richer markets could force Pakistan to
import low quality olive oil. Focusing on quality can be
appreciated by the consumers, that are shifting to this kind of
oil for quality and health related reasons. Once good quality
standards are reached, promotion campaigns to inform
consumers about the Pakistani olive oil quality should be
implemented. High quality olive oil may therefore be
appreciated by consumers more than imported low-medium
quality.
Industrial olive oil production can be organized in two different
ways:
76
1. Production units, where all the production process is
completed, from the cultivation to the bottling.
2. Olive trees cultivations and mills can be physically separated,
and mills can serve more than one grower. A mill in a
determined area can be owned by all the growers of the area,
grouped in a cooperative
25
.
Both examples are interesting because organizing the production in
such a way can allow the growers to keep down the costs, utilising
economies of scales.
Finally, two aspects are to be considered in order to launch a profitable
and sustainable production of olive oil in Pakistan: support from
Pakistan authorities and a marketing plan to increase the local
demand for the product.
Support from the Pakistan authorities is needed mainly because of
the lack of technical knowledge in this sector. The edible oil
stakeholders interviewed during the consultants mission in Pakistan
agreed in saying that currently no one in Pakistan knows exactly what
is needed to start a productive activity related to olive trees cultivation
and olive oil production. Companies are already present in the
country but they are just importing the product. They know the local
market but they still need more information to further the business
as producers.
Possible government interventions to sustain olive oil production in
start-up phases of this new business are:
- Offering subsided agricultural inputs for olive tree cultivation
like fertilizers and chemical plant protection products.
- Offering subsided mechanical instruments.
- Subsidizing mill installations.
77
25
Actually cooperatives are not present in considerable number in the Pakistani
agricultural sector. In other markets, such as the Italians and the Australians they
are an important means to keep down the production cost and to plan marketing
strategies. In Australia big producers and small growers grouped in cooperatives
coexist: both systems in fact allow to lower the costs and penetrate the market.
- Subsidizing technical assistance for farmers organization that
set up new cooperatives to manage the installed olive mills.
- Protecting this infant industry from foreign competition
through the use of appropriate tariffs within the limits set under
WTO negotiations.
These tariffs should be set in order to maintain the product price
between the import parity price and domestic production price. The
objective of the tariff would not be offering much of a subsidized
price, but a stable price in order to facilitate decisions about new
investments. However, all the economic stakeholders must be clearly
aware of the temporary characteristics of government border
protection. The threat of withdrawal government protection must be
credible and its period clearly stated from the beginning otherwise
this would create new interests and lobbies, that once established are
politically very difficult to dismantle with all the consequent side
effects for the governments budget.
Figure 8 - Pakistan Olive Oil Sector S.W.O.T. Analysis. Source: Elaborated by the author
The first step of a possible marketing strategy should be a promotional
campaign - the main goal being to educate the market segment.
Potential consumers should know the beneficial effects of olive oil on
78
STRENGTHS: WEAKNESS:
Governmental support to the Pakistan edible oil sector.
Little reliable, local data on varietal performance, key production and
processing issues.
Imported olive oil is presumably not of high quality or competitive
against imported oil.
Lack of reliable, comprehensive statistics industry participant
numbers, production.
Lack of understanding of oil quality among consumers.
Industry cohesion is too low. Growers are not used to working within
the frame of agricultural cooperatives.
OPPORTUNITIES: THREATS:
Market segment for olive oil is not yet saturated. Chances of growth. European exporter market dominance
Development of a new industry in Pakistan Fall-off in domestic consumption of olive products
human health (the Australian experience is an example of this).
Organoleptic qualities have to be stressed explaining that olive oil can
fit into Pakistani cuisine.
Afterwards, all the stakeholders, mainly producers, should join a
Pakistani olive oil association in order to begin a lobby action at all
levels institutional and commercial to promote Pakistan olive oil. All
promotion activities must focus on the high quality of Pakistani olive
oil in order to tackle the competition of imported olive oil.
Historically, decisions on product characteristics, pricing strategies,
relationships with distribution chains and communication policies
have been increasingly crucial factors for success in non-traditional
olive oil markets. It is worth emphasising that the importance
assigned to pricing aspects has been relatively lower than that
allocated to those related to the other aspects. Branding, promotion
and advertising have played an essential role in this mode of
expansion achieved through differentiation and segmentation.
To market olive oil in Pakistan some strategies adopted in developed
countries such as the USA, the UK and Holland where the
consumption of olive oil is non traditional can provide good
suggestions to set up a marketing plan in Pakistan. In table 33 the 4Ps
(product, price, place and promotion) of the marketing mix is ranked
for the coming years to the degree of their relative importance by a
group of 42 sector international experts.
Table 63 shows that the most important aspects in designing a
marketing plan are: assurance quality strategies, the regularity of
supplies and information of dietary and nutritional benefits.
79
Table 63 - Ranked marketing mix in the USA, the UK and Holland for the coming year.
Source: Mili S., 2004
80

MARKETING MIX (4Ps)
Average
Importance
Rating*
Product
Quality Assurance 4.64
Oil type 4.43
Packaging 4.2
Labelling 4.15
Branding 4.05
After-sale warranty 3.82
Price
Price discrimination within the range of olive oils 3.87
Price discrimination with respect to substitute oils 3.62
Price discrimination with respect to domestic market 3.23
Place (distribution)
Regularity of supply 4.61
Permanence on the shelf 4.49
Delivery terms 4.3
Price stability 4.21
Terms of payment 3.59
Promotion
Media
Information at points of sale 4.42
Information in mass media 3.98
Presence at trade fairs and shows 3.95
Contents
Information on dietary and nutritional benefits 4.66
Information on differences from other oils 4.42
Information on culinary uses 4.36
Information on the natural and environmental value of oil 4.31
Information on the geographic origin of the oil 3.79
*Rating scale response options: 1 - unimportant, 2 - somewhat important, 3 important, 4 very
important, 5- extremely important.
81
ComTrade United Nations Commodity Trade Statistics Database
DGCS Direzione Generale Cooperazione allo Sviluppo (General
Direction for Development Cooperation)
FAO Food and Alimentation Organization of the United Nations
FAOSTAT Food and Alimentation Organization Statistical Database
FBS Pakistan Federal Bureau of Statistics
IAO Istituto Agronomico per l'Oltremare
MINFAL Ministry of Food, Agriculture and Livestock
NWFP North West Frontier Province
PODB Pakistan Oilseeds Development Board
Rs Pakistan Rupees
ToR Terms of Reference
USD United States Dollar
WTO World Trade Organization
List of Abbreviation
83
Agricultural Statistics of Pakistan 2005-2006, Government of Pakistan,
Ministry of Food, Agriculture and Livestock (Economic Wing),
Islamabad, November 2006.
Anania G., Pupo DAndrea M.R.. The Global Market for Olive Oil: Actors,
Trends, Policies, Prospects and Research needs , 103
rd
EAAE Seminar
on Adding Value to the Agro-Food Supply Chain in the Future
Euro-Mediterranean Space, Barcelona (Spain), 23-25 April 2007.
China international Exhibition of Olive Oil & Edible Oil, Beijing 2006
website: www.regalland.com/eoliveoil/Oil-China-2006-English-
exhibitors%20area-2.html
Comtrade website: www.comtrade.un.org
Del Cima R., Urbano F., 2008. Selection of Suitable Areas For Olive
Growing In Pakistan, IAO.
Faostat website: www.faostat.fao.org
Interviews with major edible oils stakeholders in Pakistan.
Laghari H., 2007. Report for the Promotion of Olive Cultivation in Potential
Areas through Public Private partnership for Economic Development
and Poverty Alleviation , Draft, FAO Food and Agriculture
Organization of the United Nations, Islamabad, November 2007.
Mili S., 2004. Prospects for Olive Oil Marketing in Non-Traditional Markets
, AIEA2 International Conference Sustainable Development and
Globalisation of Agri-Food Markets- Laval University, Qubec,
Canada, August , 23-24.
Pakistan Economic Survey 2006-07, Government of Pakistan, Finance
Division, Economic Advisers Wing, Islamabad, 2007.
Pakistan - Promozione della produzione e commercializzazione dellolio di
oliva - Piano Operativo di Progetto, Cooperazione Italiana - IAO,
Istituto Agronomico per lOltremare, September 2007.
Pakistan - Promozione della produzione e commercializzazione dellolio di
Main Sources of Information
oliva - Sintesi di Progetto, Cooperazione Italiana - IAO, Istituto
Agronomico per lOltremare, 2007.
PSLM (Pakistan Social and Living Standards Measurements) Household
Integrated Economic Survey (HIES) 2004-05, Government of
Pakistan, Statistics Division, Federal Bureau of Statistics, February
2006.
84
Main Sources of Information
Printed in Italy
NOVA ARTI GRAFICHE
Signa, Florence
2008

Edible Oils in Pakistan

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ISTITUTO AGRONOMICO PER LOLTREMARE 9

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