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ISLAMABAD: The edible oil and ghee market of Pakistan is highly dependent on imported palm oil, which is 100 percent imported and the local sources have a share of only 14 percent in the total edible oil consumption.

A Competition Commission of Pakistan (CCP’s) new report on the ghee and cooking oil industry released on Tuesday revealed that the rise in international prices of edible oil and oilseeds and exchange rate fluctuations have a key impact on the domestic prices. It is also a market norm the producers pass on any increase in cost of purchase to the end consumers.

The Federal and provincial governments have launched oilseed promotion initiative, where the growers of oilseed receive a subsidy of PKR 5,000 per acre to plant canola and sunflower up to 20 acres. Some planting increase has resulted from the subsidy; however, the expected increase did not occur due to competition from other crops such as wheat and sugarcane, receiving guaranteed support price.

The soybean production remained low due to climatic conditions (harsh summers) and lack of seed varieties. Cottonseed that accounts for almost 84% of local oilseeds has decreased by 6% in 2022 compared to 2021 due to lack of availability of quality seeds. Further the pricing dynamics in favour of sugarcane over cotton growing has resulted in more area used for sugarcane production.

Market distortions: CCP brings out study on 10 essential items

Further where the oilseeds are Rabi crops, wheat production is preferred over oilseeds due to support price offered by the government. This year (current sowing season 2022) the wheat support price increased from PKR 1,950 to PKR 2,200 per 40 kg; this support price offsets any incentives to plant oilseeds, CCP said.

The data shows that palm oil has the largest share in consumption (75%) followed by soybean, rapeseed, cottonseed and sunflower oil.

During FY 2020-21 Indonesia remained the leading exporter of palm oil with the share of 92% followed by Malaysia with 8% share42.

According to estimates the informal sector (such as desi ghee and mustard oil etc.) constitutes 70-80% of the market share, while the formal sector constitutes 20-30%.37. In 2021, the country only met 11% of its total demand through the domestic sources, remaining 89% was imported.

The CCP disclosed that the landed price plus tariffs play an important role in determining the consumer price. The duty structure on the oil seeds and on crude oil is kept in such a way to shift the value addition to the local industry; however, the country still remains one of the major importers of refined palm oil.

Regarding break-up of the duty structure on imported oilseeds and edible oil, during FY (Jul-Mar) 2022, it was 14% and 86%, respectively. 2.754 MMT of edible oil (including oil seeds for crushing) was imported, valuing $3.681 billion during the same period. The local production of edible oil during FY 2021-22 (July-Mar) is estimated at 0.460 million tons. The edible oil available from all sources, i.e., imported and locally produced is provisionally estimated at 3.214 million tons.

Comparing the area under cultivation, production of oilseeds and oil of 2020-21 with 2021-22 shows an increase in the area and an increase in production. The seeds total production increased by 20% and the oil production increased by 23% in 2021-22.

The report said that Pakistan is the 8th largest consumer of edible oil and the 4th largest importer of palm oil globally with a per capita annual edible oil consumption of 22kg. Palm oil is 100% imported, compared to palm oil only 14% of soybean oil is imported.

Copyright Business Recorder, 2022

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