Soya bean oil duty hike

There has been a certain news report floating around pertaining to the increase in customs duty of imported edible oil that is expected to increase the cost of cooking oil. It is alleged that each household consuming Soya bean oil and palm oil will pay an additional Rs5 per kg. Though it is true that the budget for FY19 increased duty on Soya bean oil by about 30 percent (from Rs. 9,050/MT and 10,200/MT to Rs. 12,000/MT and Rs. 13,200/MT respectively), it is unlikely however to significantly impact consumers.

Palm oil is the biggest edible oil import of Pakistan. It is used to manufacture ghee and is also a major feedstock for the food industry. From the import of 2.7 million tons in 2015, Pakistan edible oil imports rose to 3.05 million tons in 2017 which was marked as the highest volume of edible oil imports to date. While Pakistan’s Soya bean oil imports have risen significantly, a 53 percent increase YoY for 9MFY18, they remain less than 7 percent of Pakistan’s total edible oil imports.

Soya bean oil caters to Pakistan’s soft oil market and competes with locally produced soft oils. Palm oil dominates the imported vegetable oil market and is commonly blended with other and sold as cooking oil. For health reasons, well-to-do consumers are gradually shifting from hydrogenated oils to soft oils, despite the significant price differences between soft and hard oil, but the bulk of the market belongs to palm oil.

The increase in duty on Soya bean oil is aimed to protect locally produced soft oils. Earlier, Pakistan Vanaspati Manufacturers Association, in a budget proposal had requested the government to increase the duty on the import of Soya bean since it enjoyed a relative lower duty and competed with locally manufactured oils such as canola and sunflower.

Pakistan’s edible oil seeds and oil production sector is very small even though edible oil is a staple of our import bill. There has been a 17 percent increase in local soft oil production YoY for 8MFY18. Increasing duty on Soya bean oil could give the sector a boost though it is unlikely to flourish any time soon. On the other hand, given the small share of imported Soya bean oil in the market, it is unlikely to have a major impact on prices of cooking oil on shelves.