Mian Shakil Ashfaq has been involved in the edible oil business since 2000 when he co-founded ShujabadAgro Industries (Pvt) Limited. At the time, the company’s oilseed crushing unit was the first of its kind in Karachi. In 2006, it entered the edible oil manufacturing and marketing business with the launch of flagship brand called Eva. In addition, the company’s Maan cooking oil brand caters to lower socioeconomic categories.

ShujabadAgro Industries has two profit centers: oilseed crushing business which crushes imported soybean and canola seeds, used in preparation of poultry and livestock feed;and, the cookingoil and vegetable ghee/vanaspati manufacturing and marketing segment. The company has a network of 300 distributors across the country, along with warehouses in five regions.

Ashfaqcompleted his education from Wichita State University, Kansas (USA) in 1994, following which he joined the family business. In addition to his position as the CEO of the business, Ashfaq is a member of AllPakistan Solvent Extractors' Association (APSEA), the representative trade body industry for which he had also served as President between 2018-19. He has also served as the President of Bin Qasim Association of Trade and Industry (BQATI), and an Executive Committee member of Pakistan Vanaspati Manufacturers' Association (PVMA).

BR Research recently sat down with Ashfaq in Karachi for a wide ranging discussion, focusing on the market dynamics of edible oil industry. Below are the edited excerpts:

BRR: A recent report by SBP highlighted that the per capita edible oil consumption in Pakistan is higher than other South Asian nations such as India, Sri Lanka, and Bangladesh. Is that correct and what explains this difference?

Mian Shakil Ashfaq (MSA): World average per capita edible oil consumption (per annum) is 20 kilo grams. Per capita consumption in Pakistan also stands at the same level, although it is somewhat higher than the regional average. This may be party explained by thevegetarian-based diet prevalent in other countries of the region, especially in India. In addition, dietary behavior may also skew this pattern: consumption of dairy-based fat may be more common in other countries than plant-based oils.

BRR:What is the market share of various plant-based edible oil sources such as palm, canola, cottonseed, corn, sunflower, mustardet cetra?

MSA: Pakistan’s total market size is around 4.3 million metric tons (MMT), of which around 3 MMT is palm oil (last 5-year average). In addition, soybean and canola contribute around 0.8MMT, which is obtained through crushing of imported oilseeds. Local production of cottonseeds contributes about 0.3MMT, and 0.2MMT is extracted from other indigenous crops such as sunflower and rapeseed.

BRR: It is generally believed that soybean is a protein source for poultry and livestock, with only secondary use for edible oil extraction. Why then has it become the second largestcontributor to domestic plant-based oil production?

MSA: It is correct that soybean is primarily used as protein source for poultry feed. However, the sheer volume of soybean imported allows us to extract substantial volume of edible oil as well. Last year, Pakistan imported around 2.6MMT of soybeans. At average oil yield of 18 percent, this contributed almost half a million metric tons of edible oil.Even as a by-product, it is a substantial source for domestic edible oil production. This is in addition to nearly 0.15MMT of soybean oil imported every year, on average.

BRR: Are canola and soybean interchangeable as sources of edible oil?

MSA: Not exactly. Demand for canola-based cooking oil is inelastic, whereas demand for soybean meal (used as poultry meal) is highly price elastic. Also, canola’s use as poultry meal input is very limited. In comparison its oil yield averages at 42 percent, with annual extraction of close to 0.8MMT canola oil.

BRR: Is canola, rapeseed, and mustard basically the same seed from different geographies?

MSA: Basic original variety is mustard. The hybrid developed in Europe is called rapeseed. When the same seed was genetically modified and commercialized in North America, it came to be known as canola.

BRR: Mustard is a traditional crop central to subcontinent. Why then has it failed to take off as source of plant-based oil in Pakistan?

MSA: Importedsoybeans and canola oilseeds are both genetically modified seeds, and thus are very high yielding compared to traditional mustard that is indigenous to subcontinent. Local mustard competes with wheat crop during the rabi season for arable land. In fact, nearly all local edible oilseeds are winter crops and compete with wheat.

The farm economics becomes very unattractive due to two reasons: low yield of indigenous mustard, and high level of protection afforded to wheat as a cereal crop.In order for farmers to switch to mustard, the per acre price must be twice that of wheat as yield is less than half in comparison. That’s never been the case.

When canola price rose last year globally, area under local mustard/rapeseed cultivation rose by 42 percent (during rabi 2021-22). Unfortunately, at 0.3 million hectares, the output is barely sufficient to make a dent in overall consumption patterns and market share.

BRR: Is there a business case for growing canola/hybrid rapeseed locally?

MSA: Most agri-scientists believe that the local weather pattern is not very suitable for commercialization of canola/hybrid rapeseed.

BRR: Is it the same case for soybean?

MSA: No. In fact, many have now come to believe that it may be economically feasible to commercialize soybean locally. Non-Bt. (non-genetically modified) soybean is fairly successful across the border, and experimental cultivation in local agricultural research centers show that similar results can be replicated here.

BRR: So why has soybean cultivation failed to take off locally?

MSA: Various factors such as absence of value chain; lack of demand-side pull; non-existent research for multiplication of seeds; small farm sizesetcall contribute to why soybean has failed to become commercially popular with domestic growers.

BRR: What is the market share of vanaspati/vegetable ghee and cooking oil in local consumption? According to PBS, per capita vegetable ghee consumption is more than two times that of cooking oil. What explains this?

MSA: Vanaspati/vegetable ghee is significantly cheaper than cooking oil which explains its commercial popularity. In rural areas, vanaspati is still preferred for its taste over cooking oil. Cooking oil has mostly taken over the share in urban areas, especially in metropolitan centers such as Karachi, Lahore and Islamabad.

BRR: Is it correct that vegetable ghee’s higher marketshare is partly due to its greater commercial use?

MSA: It is true that vanaspati’s market share in commercial use is significant. However, even for domestic/household use, vanaspati’s share stands at least at 65 percent.

BRR: How does the total plant based edible oils (both vanaspati and cooking oil) market looks like when fragmented across household, commercial, and industrial use?

MSA: Out of 4.3MMT total market size of plant based edible oils, almost 3.5MMT is for household/domestic use. The remainder 0.8MMT is contributed by commercial and industrial use – combined.Vegetable ghee has a higher share across all three consumption segments.

BRR: There exist serious concerns in the health & medical community regarding vanaspati’s safety. At some point, GovPunjab had also mulled over a ban on vanaspati use. What is your view?

MSA: Unfortunately, the development in Punjab was grossly miscommunicated. Originally, concerns regarding vanaspati stem from the high level of trans-fats in it, which is one of the leading causes of coronary disease. The idea was to reduce trans-fats level, which is what has happened across the world as well. PSQCA has proposed that trans-fats level in vanaspati be capped at 5 percent maximum, and the industry agrees. In developed countries, the “Virtually Trans Fats Free (VTF)” standard imposes maximum limit of two percent. However, it may take some time for local standards to get there. The key is to gradually keep moving towards the target.

BRR:What is the share of palm and soft oils consumption in other markets?

MSA: Household use of palm-based oils in developed countries has virtually been eliminated. Instead, palm-based oils are primarily used for commercial and industrial purposes. Palm oil is a highly saturated/stable oil, which makes its most suitable for frying and confectionary preparation. India and Bangladesh have some level of household use for vanaspati/vegetable ghee. Our estimates suggest that vanaspati’s share in households in India may be 45 percent maximum.However, vanaspati’s high share (compared to cooking oil) in household use is perhaps unique to Pakistan.

BRR: With respect to recent macroeconomic developments, how has the situation affected the edible oil industry?

MSA: Given that edible oil industry is primarily import-dependent, the double whammy of decade-high commodity prices and currency depreciation has shocked the value chain. Because edible oil is considered an essential good, thankfully it does not face any non-tariff barriers on import. Thus, there have been no restriction on LC/contracts issuance. However, significant challenges are being faced at the time of LC retirement. In the past, advance intimation was required on import documents of $0.5 million or more. Now, that bar has been lowered to import documents of just hundred thousand dollars. This has severely disrupted our cycle and exacerbates the uncertainty in the market.

Moreover, foreign suppliers have started to worry about future orders and contracts, as the foreign exchange situation becomes ever more precarious. Even as global commodity prices have doubled, working capital lines with the banks (in Pak Rupee) have not been enhanced in over a year, which has almost choked our business cycle. The industry – along with the country – is urgently in need of a breather.