LOWER oil and commodity prices are sure to cut the food import bill. But this does not obviate the need for import-substitution for food products, without which food self-sufficiency and sustainable trade surplus cannot be achieved.

The average growth in per-acre yield of some food crops, e.g. wheat, is not fast enough to keep pace with population growth and rising per-capita consumption. And where the crop output is large enough, though it mostly varies from year to year, productivity per acre and export surpluses need to be improved.

Meanwhile, imports of value-added and branded food products continue to rise in the absence of development of the food industry. Despite efforts, production of minor pulses, on balance, remains erratic and every year the country has to import a few varieties of them. In past few years, larger production of chick peas and black gram have resulted in larger availability of gram pulse.

But the output of other pulses still remain more or less static. Rising output of staple food crops and pulses and containing imports of edible oil and oilseeds have pushed food import bill to about $5bn a year.

If the conflicts of interests are not reconciled well in time, the entire chain of food supply is affected negatively

Though an integrated food imports substitution policy is still missing, some efforts have been made to boost oilseed production; plantation of olive has been promoted in recent years; milk processing companies have increased production of packaged milk and a pilot project of tea plantation in KP has got renewed government support.

Other measures include launching of new crop seeds, increase in support prices and larger farm loans for growers, to facilitate faster growth in per-acre yield of food crops to avoid or cut imports of such items like wheat and sugar. But a sizable chunk of food imports come in the form of value-added, branded food products.

For example, in spite of growth in spices, pickles and juice manufacturing, the domestic markets is flooded with scores of Indian spices, pickles, jam and jelly and juices of US and European brands.

In order to promote import-substitution, facilitating business start-ups in the food processing industry is necessary for a more competitive environment.

Half a dozen milk processing companies are currently doing well locally, and two of them are also engaged in exports. But these firms are mainly part of large business groups. For any import-substitution plan to work, smaller, stand-alone companies must be encouraged to come up with newer brands of packaged dried milk.

A key issue is resolution of conflicts of interest between stakeholders. This is a must to obtain increased output of crops and smooth functioning of local and foreign food processing companies.

Support price of food crops, timely cane-crushing, wheat procurement by provinces and subsidies to major food crops are all fraught with conflicts of interests between various stakeholders. If these conflicts of interests are not reconciled well in time, the entire chain of food supply is affected negatively.

Building linkages between farms and food factories — farm-to-market roads and eliminating the middleman — is also a must to cut transportation cost and to boost production of food products at competitive prices.

Foreign investment in food sector has seen a modest growth in the recent past — but it needs to be examined whether this has been accompanied by increase in imported raw materials. If that is the case, appropriate measures should be taken to reduce reliance on foreign dependence. Import of poultry meat by some leading brands of fast food companies is an example of how foreign investment in food sector also leads to imports.

And smuggling is yet another problem which needs to be tackles. Traders say tea and powdered milk are often smuggled to neighbouring Afghanistan owing to the loopholes in Afghan transit trade system.

That is why we see a huge tea import bill even when its local demand is not so big. Similarly, imports of powdered milk and infant milk formula keep growing despite increase in their local production, industry sources say.

Encouraging import-substitution through tariff controls has become difficult due to WTO rules. So, it is important to pursue import-substitution policies in those areas where the potential of domestic advantages are obvious and huge.

Agricultural growth in the past few years and some local and foreign investment in food processing and packaging should have reduced imports of processed food items. That has happened in case of packaging materials. But imports of food items continue to rise which is, perhaps, attributable to increased local demand from affluent middle class.

That again raises the question of what has been done to promote local manufacturing base for final or tertiary food products.

Published in Dawn, Economic & Business, December 29th, 2014