Palm oil import substitution

A lot has been said regarding promoting exports and decreasing imports, be they imports of petroleum products or imports of machinery. Palm oil imports, a constant in our import bill have largely been ignored. In the latest figures released by PBS, palm oil imports witnessed a 32 percent year on year increase in August, rising to $183 million.

The volatility of Pakistan’s import bill has to do more with fluctuating prices of palm oil and less to do with Pakistan’s consumption. Weather patterns, crude oil prices, ringgit exchange rate and price of competing oils all influence the price of palm oil.

Pakistan is among the top palm oil importing countries in the world. Used mostly in cooking, frying, for pastries and other bakery goods, palm oil costs of processing for its downstream uses is much lower when compared to other edible oil such as soya, sun, cotton seed or canola oil. Every good quality banaspati ghee has palm oil in it.

Pakistan’s edible food consumption is around 3.9 million tonnes per annum and its per capita consumption is 16kgs. The local production of edible oils, which includes cottonseed, rapeseed, sunflower seed and canola, is around 0.5 million tonnes per annum. The gap is met from imports of edible oil or from import of oilseeds that are processed for edible oils. Hence, it is unlikely that the food loving nation of Pakistan will decrease its edible oil imports soon. However, Pakistan can work towards reducing its palm oil import bill by increasing production domestically.

Talking to a Pakistan Vanaspati Manufactures Association, BR Research learned that it is more cost effective to import RBD palm oil (oil that is refined and ready for use) rather than import and refine crude oil or even import and use oil seeds. He proposed that government support domestic production of edible oils such as sunflower oil and rape seed oil. In the past there have been several attempts by various governments to support the edible oil production sector in Pakistan. However they have not been successful as preference is given to other crops.

For example, sunflower sowing season overlaps with the sowing season of wheat which gets better support prices and has a stronger marketing system available. Similarly, in cotton zones, farmers are reluctant to grow sunflower because its maturity period overlaps with the sowing season of cotton and thus causes delay in its sowing. Furthermore, sunflower crops tend to deplete the soil of its nutrient which affects the cotton crop which is sowed after it.

The non-availability of technology acts as an impediment to increase area under edible oil seeds as well. Cultivation practices are not standardized and varieties for different climatic zones are not evolved.

In the short run, little can be done to decrease the import bill of edible oil. But investing in growing of edible oil crops now can decrease the palm oil import burden in the future. Acting now to ensure domestic substitution of Pakistan’s edible oil imports is the kind of strategic planning that is required to pull Pakistan out of the cycle of increasingly high trade deficits.