October 15, 2001	Monday	Rajab 27, 1422

DESPITE the fact that Pakistan is overwhelmingly an agrarian economy, it is unable to produce edible oil sufficient for domestic requirements and substantial amount of foreign exchange is spent on the import of soya bean and palm oil.

According to the State Bank of Pakistan Annual Report 1999-00, the outflow on this account during the last 5 years was as follows in million dollars:

1996 856

1997 611.7

1998 767.9

1999 824.1

2000 413.4

The country’s major source of edible oil is cottonseed. Other sources are rapeseed, sunflower and canola. Oil content in cottonseed is 10 to 12 per cent while it is 32 per cent in rapeseed. Oil content is as high as 37 per cent in sunflower. As such in spite of the fact that the size of the cotton crop in the country has shown substantial increase over the last 50 years, the availability of cottonseed oil remains far below the domestic requirement of the growing population. The requirement for the next five years is worked out as per table 1.

Thus against the total requirement of edible oil which is estimated at 1.55 million tons, the domestic production of various types of edible oil is around 620,000 tons annually and, therefore, the shortfall of about 930,000 tons is met through imports of palm oil and soya bean oil. Per capital consumption of edible oil is 11 kgs.

Self-sufficiency: In order to save an average outflow of foreign exchange of about $700 million on account of import of edible oil, there is a strong need to accelerate efforts in the agriculture sector to steadily increase the local production of oil seeds. Keeping in mind the oil content in seeds and other factors, a tentative projection of oil seed crops which may make the country self-sufficient in oil production is shown in Table II.

Oil content is higher in sunflower seed which indicates an immense potential for a substantial growth. In 1998-99, sunflower was planted on 172,800 hectares, which was reduced to 117,360 hectares in 1999-00. This may be due to lack of timely review of support prices for sunflower. As a result, the farmers have apparently lost interest in increasing the hectares due to continuous rise in the cost of agriculture inputs. Area and production of oil seed crops for the last 2 years is shown in Table III.

Comparative yield of seed cotton: According to the SBP Annual Report 1999-2000, comparative yields of seed cotton in Pakistan, India, Iran and developing countries in 1999 were as follows:

Comparison: A comparative analysis of the components of average selling prices and cost components of vegetable ghee / cooking oil industry in Pakistan and Bangladesh is tabulated below.

Factory cost: Following figures show the production (factory) cost by element before depreciation in Pakistan as compared to Bangladesh.

As can be seen from Table V, the raw and packing material constitute the bulk (above 95 per cent) of the production cost of vegetable oil in Pakistan and Bangladesh.

It should be noted that cost of raw and packing material is almost 32 per cent more expensive in Pakistan than in Bangladesh. Some obvious reasons for the difference are as follows:

Freight: Although Pakistan imports 60 per cent of its raw material as compared to Bangladesh which imports 69 per cent. Bangladesh has geographical advantage for Chittagong is much nearer than Karachi from the Indonesian and Malaysian ports from where both these countries import RBD palm oil.

Customs duties on palm and soybean oils respectively are apparently included in the cost of materials since they are not separately identifiable from the respective financial statements. Similarly sales tax on packing is also not separately identifiable hence the assumption of its inclusion in the reported cost of finished goods. Regulatory duty on imported raw material in Pakistan is yet another contributing factor.

Comparative cost: It is quite obvious from the financial reporting of oil companies that they are running at loss not only on the main products but even on the by-products. (see profit and loss accounts). In order to save the industry from closure due to losses, duty and other taxes need to be reduced and effective measures taken to increase the availability of alternative base material locally.