Pakistan’s palm oil imports breached $3.5 billion during the last fiscal, making it the single-largest item on country’s import bill outside of petroleum group. This massive crater in the import bill was largely price driven, which had doubled from $650 per ton just two years ago to over $1400 per ton. However, even as prices have now stabilized, palm oil imports are expected to balloon in coming years, led by robust growth in domestic demand for edible oil.
Meanwhile, soybeans have also come to feature among top-10 commodities in Pakistan’s import bill. In FY22, soybean imports breached one billion dollars for second consecutive year, used primarily for preparation of livestock feed.
Together, these oilseeds power the multi-billion-dollar solvent extraction and edible oil industry, which is fed primarily by imported raw material. Palm oil is considered the most resource efficient source of edible oil for human consumption, thanks to its high calorie-to-cost ratio. Similarly, soybeans have gained popularity due to their high protein yield, and universal use as protein source for ruminants, poultry, and aquatic animals.
Over the years, policymakers have rolled out various half-hearted plans to encourage domestic oilseed production.Unfortunately, these have largely failed to achieve the desired objective. In fact, over the last decade and a half, local edible oil production has witnessed an annual decline of 1.2 percent per annum, even as demand per capita is estimated to rise at 2.3 percent per year. The difference, in turn, is the primary driver for ballooning imports.
Experts believe that local oilseeds production has failed to take off mainly due to absence of focus at policy level; limited research; poor profitability compared to competing major crops, lack of extension services, and a virtual absence of farm-to-factory value chain. Lack of policy focus has also made sure that seeds are unavailable for cultivation, which in turn feeds a vicious cycle. These weak linkages in turn ensure that whatever oilseeds are produced yield low oil extraction, which in turn are consumed near-farm.
Most importantly, however, failure to achieve optimal productivity levels in primary food grains such as wheat, rice and maize has resulted in a shortage of land available for oilseed cultivation. Thus, fertile land is rarely available for crops such as oilseeds or even pulses or lentils, which also inhibits economies of scale that could otherwise drive development of a marketing and value chain or bring investment into the area.
Various initiatives to raise oilseeds production have been dead on arrival, mainly due to institutional challenges. Even though Pakistan Oilseed Development Board (PODB) was formed in 1994, it has gone through a series of suspension, closure, reactivation, and changes in mandate, only for it to be born again last year. Overlapping jurisdiction between federal and provinces, along with friction over resources and authority, has also ensured no meaningful progress.
Over the years, several pilot projects conducted by national and provincial bodies to study the feasibility of domestic palm tree plantation have yielded poor results. Although the coastal belt of Sindh and Balochistan is often identified for its suitability, research indicates that such cultivation would require irrigated water, while canal water currently does not reach the coastal belt of the country. Even if this is achieved, good farm management techniques would be necessary to make any such pilot successful, as environmental changes may render the identified zones unsuitable in a decade or so.
To this end, public private partnership initiatives, or collaboration with development partners such as China can help provide the stewardship and institutional setup needed to monitor progress of the pilot studies. Federal and provincial governments should explore reclassification of these projects under the China Pakistan Economic Corridor (CPEC) which could offer the necessary impetus to push the project on priority basis. Government intervention and stewardship has been critical in successful growth and commercialization of palm oil plantation across the world, as examples from Indonesia, Malaysia and India suggest. Gestational period for any such effort could take as many as 7 years to yield desired results.
Local soybean cultivation has been marred with similar challenges as palm plantation. Although Pakistan now features among top-15 countries for soybean consumption (used for livestock feed preparation), policy focus for domestic cultivation has been basically non-existent. As a result, other than the solvent extraction industry that operates from the import to crushing stage, local value chain is virtually absent. Lack of seed research, cultivation, procurement, and marketing chain has made sure that farmer knowledge of the crop is very poor, despite possible climatic suitability in some areas across the country.
Pakistan’s high population growth rate – along with one of the world’s largest cattle populations – remain primary demand drivers for soybean. Most importantly, over the last three decades poultry industry has gained significant ground as a cheap source of protein for human diet. The industry almost completely depends on soybean meals as the protein source for the bird nutritional requirement, which means that demand will continue to rise at its current brisk pace.
In the medium term, demand growth rate may even pick up once per capita incomes recover from the macroeconomic shock of last five years. In the long term, rural to urban migration trends will also continue to drive sophistication in human consumption and dietary patterns. In effect, shifting the demand curve upwards.
This means policymakers only have two choices in the long run: either find the means to pay for imported edible palm oil and soybean oilseeds; or, develop a policy framework that supports domestic production. Over the years, the first option has already been exhausted, with mixed success, at best. Now, it may be worthwhile to explore the second.
The article is based on the findings published in the research report titled “Pakistan’s Rising Palm & Soybean Imports: Understanding the Drivers and Challenges to Domestic Oilseed Production”. The study was published as the Special Section in SBP’s State of the Economy report for 1QFY22.
Copyright Business Recorder, 2022
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