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Towards food trade surplus

PAKISTAN’S food trade balance is in surplus during this fiscal year as exports of sugar and wheat are up, increased production of pulses has reduced imports and development of country’s edible oils industry and spices output in recent years have started yielding economic dividends.

Export of food items at $3.953 billion has outweighed imports of $3.632 billion in the first 10 months of FY13 and the trend looks set to continue. Sugar export is soaring, wheat shipments continue to increase, decline in rice exports is not as rapid as it was a few months ago and foreign sales of fish are rising after withdrawal of the EU ban while exports of meat and spices are on the rise.

“So, food export earnings by end June should be around $5 billion,” anticipates a senior official of the Trade Development Authority of Pakistan adding that if rice exports perform better than expected, the exports may even exceed this mark. “In comparison, food imports bill shouldn’t be larger than $4.5 billion leaving a surplus of half a billion dollars or so,” he projected.

Officials base their optimism on factors like a stable outlook for palm oil prices in coming months, subdued demand for tea in summer, a bumper crop of gram and other lentils and robust activity in local milk processing industry that continues to weigh down on imports of powdered milk. In 10 months of FY13, Pakistan imported just 42,000 tonnes of powdered milk against 51,800 tonnes in the year-ago period and this has reduced the import spending in the area to $112 million from $134 million.

Pakistan has seen food trade deficits year after year and powdered milk is the third largest import item after edible oil and tea which continued pushing up food imports bill up till FY06. Later on, ‘the white revolution’ and subsequent investment and expansion in domestic milk processing industry gradually restricted growth in import volumes.

Though imports of palm oil have increased 9.5 per cent to around 1.85 million tonnes in 10 months of FY13 to serve as the baseline for higher local edible oil output, import bill is down two per cent to $1.7 billion. Now, as palm oil prices are projected to remain stable or even soft in coming months, import spending on this count may be lower than last year, supporting the current trend of food trade surplus.

“But going forward, gradual reduction in import bill for palm oil is possible only if local oilseeds output keeps expanding, which it is, and solvent extraction industry continues to perform well,” says owner of a famous brand of edible oil manufacturing company. “Oilseeds production this year is reported to be closer to 650,000 tonnes. That should help in lowering import bill of edible oil. We may still see palm oil imports volume expanding as that constitutes the base oil in many cases but bigger oilseeds crop reduces the need for importing oilseeds and secondary edible oils like soybean which is used chiefly for blending with palm oil,” he added.

As for tea imports, the volumes this year don’t show any big increase (107,000 tonnes in July-April FY13 against 104,000 tonnes in July-April FY12) but due to higher pricing, imports bill went up to $323 million from $302 million. Market reports suggest, however, that international tea prices have softened this month and may not rise again in this region before the beginning of the winter in November. Here again, on a longer-term basis the price factor would decide import spending and no importing country can easily influence that.

Pakistan has been running a pilot project of tea cultivation in KP and if the PML (N) government shows seriousness in pursuing its declared objective of self-reliance, then one can see commercial scale cultivation of local tea varieties as well and that can reduce imports in the long- run.

On exports side, rice performance will decide the size of the food trade surplus, not only this fiscal year but in future as well. Lower production, and therefore higher domestic prices of Basmati, continues to affect exports during this fiscal year. Besides, factors like Indian lifting ban on exports of coarse rice last fiscal and removing a minimum export price cap on its Basmati have also hit Pakistani exports.

Over the past few years, exports of fruits, vegetables, spices, corn, oilseeds, nuts and kernel and fish and meat have seen increase in their share of total exports of food items. Besides, prospects of wheat and sugarcane crops are becoming brighter year after year. Optimist say that even if rice exports’ growth is slower than targeted, or declines nominally in coming years it would be compensated by exports of other items. (Currently rice exports account for slightly more than 40 per cent of the total food exports earnings).

However, the opening up of huge Chinese market for Pakistani rice, increase in cultivation of hybrid rice, introduction of some higher-yield rice varieties and recent entry of large food companies including Engro in rice exports market may give it a shot in the arm in near future. And in that case, maintaining food trade balance would become easier. Rice exports to China skyrocketed to $269 million in 2012 from a tiny $4.3 million in 2011.

Similarly, if the proposed rice-for-electricity barter deal with Iran gets through, and Pakistan is able to sell one million tonnes of wheat to Iran, it would not only have an immediate positive impact on food trade balance but would also open up opportunities for sustaining it by exporting more food items to Tehran.

For instance, a previously proposed rice-for-fertiliser barter agreement had hit a snag because of quality issues in local wheat but now Pakistan has agreed to supply wheat to Tehran out of this year’s fresh stocks. So, chances are that the new deal would be through. — Mohiuddin Aazim