April 9, 2003	Wednesday	Safar 6, 1424

KARACHI, April 8: The 16-kg ghee tin, a symbol of the informal sector in cooking oil industry, has pushed 2.5 and five litre tin packs, identified with formal sector, to the sidelines in the local market.

The informal sector is estimated to have captured market share of 70-80 per cent as compared to 20-30 per cent share being enjoyed by the organized sector producing small packs and branded ghee in 2.5 to five litre tin packs.

The annual production of ghee and cooking oil in Pakistan ranges between 1.9 and 2.0 million tons in which the production share of 16 kg ghee and cooking oil, being heavily consumed by hoteliers, caterers, restaurants, bakers, confectioners and general public, is 70 to 80 per cent.

A senior member of the Pakistan Vanaspati Manufacturers Association (PVMA) told Dawn the ghee and cooking oil production of Lever Brothers ranged between 60,000 and 70,000 tons per year followed by 60,000 to 68,000 tons of Habib Oil Mills, 15,000-20,000 tons of Zulfiqar Industries, etc.

Around 1.2 to 1.4 million tons of 16 kg ghee and cooking oil is being produced every year while the rest of the production is shared by the branded ghee and cooking oil makers.

A senior executive in the Habib Oil Mills Limited told Dawn the consumption of ghee and cooking oil had not shown any upward trend in the recent years viz-a-viz the rising population graph.

“Frequent price hike can be viewed as the main hurdle in the expansion of ghee and cooking oil market in Pakistan,” he said, adding that five years back the consumption of ghee and cooking oil was 1.7 million tons as compared to 1.9-2.0 million tons currently. “This cannot be termed as a positive growth in view of rising population,” he said.

He observed that ghee and cooking oil prices have risen sharply as compared to prices of staple foods. Some two years back, ghee and cooking oil, produced by multinationals, in five litre tin was priced at Rs305 as compared to prevailing price of Rs385-395.

In the meantime, a sizable number of population, perturbed with galloping inflation, have switched over to loose ghee packs to meet their requirement as they could no more afford to buy the branded products which are priced around Rs80-90 per kg as compared to Rs40-45 per kg for loose ghee.

The official said the main problem of the industry was higher taxes and duties. The ghee and cooking oil units are currently paying Rs20,000 per ton or Rs20 per kg in the form of custom duty, sales tax and withholding tax at import stage on edible oils. In addition, these units are required to pay 15 per cent general sales tax.

In the past, it has been a practice that whenever the prices of imported edible oils rise substantially in global markets, the custom duty was immediately reduced to avoid further burden on the general public. However, this time, the government is reluctant to do the same in spite of the fact that the price of edible oil had gone from $235 per ton in July 2001 to $490 in December 2002.

The government has started taking feedback from the PVMA for the incoming 2003-2004 budget. The association has suggested that custom duty on imported edible oils may be reduced in proportion to the rise in prices in global markets. Sales tax on imported edible oils should be reduced to 15 per cent from 20 per cent, which was unnecessarily raised to 20 per cent in 2002-03 budget. GST levied at the manufacturing stage on the vegetable ghee/cooking oil may be withdrawn as the same has been done away in case of various essential commodities/products such as pharmaceutical industry and poultry feed.

A PVMA member said the units were also paying 20 per cent sales tax on the imported edible oils besides 15 per cent GST. However, solvent extractors units producing edible oil from imported commercial oilseeds are exempted from the payment of sales tax and GST. As a result, many of solvent extraction units taking advantage of this exemption sell their oil as washed oil without payment of sales tax and GST. Moreover, this oil is generally sold by the solvent extraction plants to the unregistered units which sell the same without paying sales tax and GST.

The PVMA official claims this situation is not only depriving the government of huge revenue of Rs1.930 billion annually on the basis of the edible oil produced from imported commercial oil seeds, but also has badly affected the competitive position of the vegetable ghee and cooking oil units challenging their survival.

The PVMA, he said, had suggested the government to levy 20 per cent sales tax on edible oils produced from imported commercial oilseeds so as to provide a level-playing field to all the stakeholders.

The official said the freight rate had increased by four to five dollars per ton following levy of war risk surcharge and other charges by major shipping lines. However, ghee and cooking oil industry have not witnessed any negative impact of the US attack on Iraq as stock position at terminal, industries and markets remained normal.

He said the market had 15-20 days of stock while the industries also maintained stocks of seven to 15 days, and at the terminals stock ranged between 90,000-100,000 tons of edible oil which are sufficient for one month consumption.