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Pakistan being predominantly an agrarian economy was once self-sufficient in production of edible oil and vegetable ghee, but that glory is long gone as depicted in Graph 1 given in the Appendix. This graph reveals that the wedge between escalating edible oil demand and local production started to appear in 1969-1970 and since then, domestic production has been unable to match its pace of growth with that of demand. One basic reason for this steep rise in edible oil consumption is a consistently high population growth rate (2.5% in 2005-06) which boosts edible oil demand at an even greater rate due to the demand multiplier effect1. Monthly average per capita consumption of edible oil was between 1.3 to 1.5kg in 20062, which is likely to have increased four years down the lane in 2010. Edible oil being a necessity as opposed to being a luxury has inelastic demand and in 2004-05 the domestic production of edible oil was recorded at 620,000 tonnes which was only 36.5% of total consumption and hence the remaining 1,080,000 tonnes (63.5% of total consumption) had to be imported3. In 2007-08, local production was recorded at 833,000 tonnes representing a share of 27.2% of total demand which was 3,062,500 tonnes. This represents a decline in domestic production (as a proportion of total demand) of 9.3% over the 4 year period. As total demand in 2009 was 2,846,000 tonnes, the difference between total demand and domestic production had to be compensated by importing 2,229,500 tonnes of edible oil (72.8% of total demand). The import bill of Pakistan increased from the yearly total of Rs.33 billion in 2004-05 to Rs.84 billion for the 9 month period between July 2008 and March 2009. During last two decades, Edible oil imports have shown a 14.5% annual increment and their share of Pakistan s total imports has risen from 3.1% in 2000-01 to 4.2% in 2007-084. Apart from rising consumption of edible oil subjected to high population growth rate, lack of awareness amongst farmers, ignorance of policy makers regarding oilseed crops, technological deficiency in oilseed production and smuggling of edible oil to neighbouring countries (notably Afghanistan) serve as major deterrents to significant growth in domestic production of edible oil and vegetable ghee. Climatically, environment of Pakistan is believed to be conducive to cultivation of cottonseeds, sunflower seeds, canola seed and other edible seeds crops. Pakistan, instead of incurring a sizable import expense every year for import of palm oil seeds and other oilseeds which it is deficient in producing must rather consider a more viable and cost effective policy of relying on its indigenous varieties of oilseeds ranging from cottonseed crop (constitutes up to 50-60% of total domestic production) to others such as sunflower, olive, rapeseed etc. Also canola cultivation can be done successfully in Pakistan and it can further strengthen the growth of domestic oilseed production. Comparative
Demand multiplier effect: a unit increase in population will increase edible oil demand by greater than a unit as average consumption per person of oil is greater than one unit of edible oil 2,3 Planning Commission of Pakistan Pre Feasibility study for Farming of edible oil seeds, Production of edible oils, Processing and Marketing 4 The Financial Daily Arifeen, M. (2008) Needs and Prospects Edible Oil
2. etc. currently.3. of the then total of 89 vegetable ghee and cooking oil units working in the organised sector.3 million tonnes annually. Soaring raw material costs have to some extent eaten away profit margins of edible oil producers.1.. 35% pulled down their shutters due to unbearable taxation structure imposed by the government.1.1. II.890. I. Pakistan . the unorganised sector. then this sector can offer considerable profits to prospective edible oil producers. (2008) "Edible Oil Deficit and its Impact on Food Expenditure in Pakistan" 2 . The threat of the entry of new competitors Just like every other sector. there are 155 units involved in solvent extraction and processing of edible oil and vegetable ghee with an installed capacity of 3.069. Thailand . which constitute the organised sector fighting for the market share and on the other hand. Iran .869.978.297. Indonesia . the prospects are not entirely bleak for this sector as if the indigenous cultivation of oilseeds shows an improvement and the government rethinks its policy to give some breathing space to this sector. Asia Pacific . Season s Canola. Sultan Banaspati.461. Still a bit hitch can be caused for new entrants by strong cartelization in this sector which can be repulsive for them. However.867.69054. The intensity of competitive rivalry In Pakistan.H. 50 units are involved in solvent extraction and the remaining 105 units are involved in processing of edible oil and vegetable ghee. Kashmir Banaspati. and Arifullah S. Vietnam 1. In 2003. This increase in raw material prices can be dually attributed to a decline in domestic production of oilseeds and other crops used as raw material by this industry and an increase in import duties and tariffs on imports of the same. Edible oil and Vegetable ghee manufacturers have also been impacted by the ongoing economic meltdown and power crisis. Developed countries . and Rest of the world . Memom M.1. The edible oil and vegetable ghee industry is highly saturated with different brands like Uniliver s Dalda and Planta. The main impact has been on their cost side and their sales have remained pretty much unaffected due to inelastic nature of edible oil demand.2. which comprises of numerous producers and sellers of oil/ghee sold as 5 Ali M. Laos .yields of cottonseed in kg/hectare for some major cottonseed growing countries are: China 3.364.1. Out of these 155 units.000.
The threat of substitute products or services Malaysian palm oil and imported canola oil have established themselves only until recently as potent threats to the cottonseed oil and vegetable ghee dominated sector.23 per kg.loose which is unbranded and also under this classification comes the share of animal fat used for cooking purposes. the capacity utilisation of the edible oil sector is about 55% and a basic reason for this under utilisation is the existence of unregistered ghee and cooking oil-processing units in the country65.460 per 5kg to Rs.550 as a result of an increase in Government tax to Rs. III. 2008 3 . This change has been also echoed in the middle-end and low-end segments of the market. again the Government has shown no compassion towards protecting the domestic industry as it has allowed direct import of refined palm oil products despite the fact that the local industry has sufficient capacity of producing them. in 2009. ghee and oil sold as loose is now losing out to relatively inexpensive branded oil and ghee and trans-fat free vanaspati and cooking oil have started to take lead in the middle-end segment. which is a discouraging move for the refinery growth. price of vegetable ghee rose from Rs. Increasing awareness in the society regarding adoption of a healthy lifestyle and cutting back consumption of fat diet have given strong signals of changing customer preferences and it has to a noticeable extent altered the demand pattern of the high-end market. Another factor hurting domestic competition and adding to discrimination between the organised and unorganised sectors is non-imposition of the General Sales Tax in FATA and PATA as well as duty free import of edible oil for industries located in this region. On the whole. When it comes to foreign competition. To cite an example. the share of unorganised sector is recognised to be significantly larger than that of the organised sector primarily due to relative cost differential between these high-end and low-end qualities. Presently. In the low-end segment. 6 Daily Times January 6. Government Policies such as lavish imposition of taxes and excessive import duties and tariffs on import of raw material used by edible oil producers is reported to be harming the interest of the organised sector as it increases their cost of production substantially.
then it is knocking it competition in the relatively inferior middle-end segments. Presence of cartelization in this industry is also one major factor for suppliers to assert themselves on customers and hence earn handsome profits. I. restaurants and hotels for frying and baking needs. During 2006-07. however on totality one market segment might be potentially offsetting effect of the other leading to a negligible net effect.3 per kg. (2008) Edible oil: Prices have come down but not for consumers 4 .000 a tonne. edible oil consumption for eating purpose in Pakistan was 2. The retail prices of ghee reached Rs.32. food processors. Therefore it can be concluded that for different product lines there might be a danger of inter-market substitution. Due to this. so the net effect is in-deterministic to say the least. Edible oil and vegetable ghee as mentioned before are consumer products which fall in the category of necessities and hence their demand is inelastic and the customers are left with a little bargaining power.5 per kg but reduced it only by Rs.000 per tonne in March 2008.120 to Rs.175 per kg in mid of 2008.3 7 Business & Finance Review Sabir. in the end of November 2008. It was hence expected that prices would further decrease from Rs. Retail prices of edible oil and ghee ranged from Rs.750 million tonnes. as for the sake of an example.This however does not represent a paradigm shift in the overall buying preferences. IV. if one product is losing its market share in the high-end segment. as against about $1. The bargaining power of customers In Pakistan. The Ministry of Industries and Pakistan Vanaspati Manufacturers Association (PVMA) decided to reduce the prices of ghee and edible oil by Rs. most of the edible oil and ghee is purchased by household. Palm oil import prices in the international market declined by about 60% but the manufacturers reduced prices from Rs. A 2008 news report76 reflected upon this matter in great detail.100 because the palm oil prices in the international market came down to $400 per tonne from $1. 500 per tonne of their produce. The prices of palm oil in the international market decreased to $400 per tonne. which later declined to Rs.145 per kg when the prices of palm oil in international market declined to $700 per tonne.155 per kg depending on brands of the product.155 to Rs. the government has imposed relatively heavy taxes on this industry and it earns Rs. According to it.95 to Rs.10 to Rs.
Oils crops have suffered from different kinds of disincentives. the country got some 500. And to top that. local production from imported oil seeds and from oilseeds produced in Pakistan.7% in 2007 and 2008 and share of Canola increased from 7.900 per 40kg in 2007.000 and 318.96% in 2008. Major losses are incurred after the completion of harvesting due to the improper market infrastructure. Sunflower accounted for 27.000 tonnes. This increase in the purchase price of sunflower seeds (which was equal to 33%) apparently seemed to have given an incentive to the farmers to bring more area under sunflower cultivation. High dependency on few crops leads to disastrous effects on overall oil production when for some reasons the yield of those crops declines. Cottonseed accounted for 57. The farmers do not get adequate support price for oilseed moreover farmer s access to the funds is also very limited and in some cases the access is completely restricted. V. 5 . Edible oil derived from locally-produced oilseeds during 2006-07 was 837. maize and cotton.4% in 2007 to 9. Safflower and Soya beans are also used for edible oil production but their contribution is so minute that they have a negligible impact on total oil production.7% and 31.000 tonnes edible oil from cottonseeds. Table 1 in the Appendix compares the production of oil seeds and extraction of edible oil from different oilseeds in 2006-07 and 2007-08. The bargaining power of suppliers Around 30% of the total oilseeds used as raw material for production of edible oil and ghee are home-grown whereas the remaining 70% is imported. Out of the domestic proportion of raw material of oilseeds. Cultivation of oilseeds is not popular among the farming community due to a number of reasons. There is no price support system for oil crops as a result oil seed growers faced low and uncertain market prices which pull back the incentive for private investment. the powerful group of oil producers further reduces the bargaining power of suppliers by dictating its terms. cottonseed accounts for around 75% of the total. The supply of edible oil is comprises imports. From both these types of seeds edible oil produced was 444.3% of total oil production in 2007 and 2008 respectively. which was a sheer joke with the consumers. 200 per 40kg as opposed to Rs. Canola and sunflower seeds imported in 2006-07 were 838. rice. which was 16. The private sector in 2008 announced to purchase sunflower seeds at Rs.000 tonnes respectively. Most of oil crops are low yielding so they were competed out by High Yielding Varieties (HYVs) of wheat. The prices in the international market decreased by 60% and a reduction of Rs. As a result cultivation area of oilseed crops fell consistently since 1960s. Ratio of edible oil extracted from cotton has declined and in 2008.per kg.000 tonnes.1.7% less than the previous year s volume.100 in the local market would translate to 33% only.5% and 51.
59 million tonnes of the demand. Pakistan imports mostly Malaysian palm oil and olein to meet domestic demand of 3 million tonnes. 2010 6 . when it comes to imported raw material and oilseeds. as locally produced cottonseed meets around 0. Edible oil import costs more than $1.3 billion87. oil producers are unable to assert themselves upon foreign suppliers and especially the Government of Pakistan which has levied 16% sales tax and withholding and excise duties of 2% on imported palm oil. At present.However. APPENDIX 8 Daily Times March 19.
. and Arifullah S. Memom M.H. (2008) "Edible Oil Deficit and its Impact on Food Expenditure in Pakistan" 7 .Graph 1 Staggering rise in demand for oil has not been matched by domestic production resulting in a hefty import 98 bill 9 Courtesy: Ali M.
. (2008) "Edible Oil Deficit and its Impact on Food Expenditure in Pakistan" 8 .Table 1 Domestic Production of major oil crops in Pakistan109 10 Courtesy: Ali M.H. Memom M. and Arifullah S.
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