Last week, this column discussed the need for promoting oil seed production in Pakistan as a form of import substitution to bring down the food bill (read “Overlooking the obvious – oil seeds”, published on July 13, 2018). In the past, the government has implemented various policies that have promoted reliance on imports rather than increase in domestic production.
The FTA with Malaysia and PTA with Indonesia are examples of government policy promoting edible oil imports. Since edible oil is essential for Pakistan, bringing down palm oil tariffs to curtail short term costs makes sense but in the longer term import supportive policies reduce incentives for local oilseed production.
Tariffs on soybean seeds and meal have been skewed towards imports. SBP’s quarterly report states that tariff on soybean seeds was reduced to 3 percent while tariff levied on soymeal was 10 percent. Since soybean seeds are used to make meal for poultry feed, the lower comparative tariff resulted in higher imports. Lower sales tax on soybean (6 percent) as compared to canola or sunflower (16 percent) for solvent extractors has also raised demand for soybean seed imports manifold, from 50,000 tons in FY15 to 640,000 tons in FY17.
The budget for FY19 does take some measures to curtail Soya bean oil imports by increasing duty by about 30 percent. Since Soya bean oil comprises about 6 percent of total edible imports, the measure will likely have limited effect on domestic oil seed production (read “Soya bean oil duty hike”, published on May 22, 2018).
Currently, there is a glut in international markets for wheat and sugar causing prices to dip down. Cultivation of these crops in Pakistan is propped up through government support. If that support is directed towards oilseed crops instead, farmers can be incentivized to increase acreage.
Policy actions suggested by the SBP include development of oilseeds through a holistic policy that takes on board all stakeholders. Currently, the Punjab government has announced a cash payment of Rs5,000 per acre for up to two acres of canola and sunflower crops which have helped increase cultivated area. Pricing or subsidy mechanisms similar to wheat are required to incentivize farmers to shift to oilseeds. However, these plans for import substitution will only be successful if edible oil and oilseeds are controlled through quotas and/or tariff rationalization.
As yet, oilseed production has remained stagnant over the last decade. Holistic and focused measures are required to shift part of the agrarian base towards oilseeds and promote their production for import substitution.