Pakistan managed to squeeze its food trade deficit to about $1.4 billion in the last fiscal year from $2.4bn a year ago. A big saving of $1bn is good news at a time when our foreign exchange reserves are insufficient to cover even two months of total imports.

The food trade deficit went down as food exports grew 29 per cent year-on-year, thanks largely to additional $400 million earnings through rice exports that hit the $2bn mark in 2017-18 after a gap of two years. Delayed paddy sowing this summer due to water shortages can take a toll on milled rice production and, thus, affect rice exports during the current fiscal year.

This raises a question about the sustainability of growth in food exports to bring the food trade deficit further down in 2018-19. Besides, uncertainty about maintaining the momentum in wheat and sugar exports also adds to the worries regarding the food trade deficit. In 2017-18, our total food exports of $4.8bn, up from $3.7bn in 2016-17, included $700m from the exports of wheat and sugar.

But can we produce enough pulses during this year to continue to reduce the import bill for pulses that had a role in containing the total food import bill in 2017-18?

Low palm oil prices in the international market contributed to lower growth in the food import bill in 2017-18

In 2017-18, the food import bill totalled just $6.4bn, a little higher than $6.1bn a year earlier. A reduced import bill for pulses and single-digit growth in the import of edible oil were two important factors that kept the import bill from expanding.

Given the post-July 25 uncertainties, one cannot hope for wheat and sugar exports to continue at the same pace in 2018-19. The two major crops are sensitive to political changes, the political setup at the centre and the quality of the relationship between the federal and provincial governments.

So we may or may not be able to earn $700m through wheat and sugar exports during this fiscal year. It depends on a lot of factors, including the output of these crops obviously.

Officials of the Ministry of National Food Security and Research (MNFSR) say rice exports during this fiscal year will continue to grow despite a feared delay in the harvesting of the new paddy crop due to late sowing particularly in Sindh caused by water shortages.

“Based on reports received from provinces, our assessment is that exporters and traders are sitting over sizable inventories right now. Delayed arrival of the new paddy crop in Sindh can hardly affect rice supplies for exports,” one of the officials maintains. “If this assessment is right and if our exporters can maintain last year’s aggressive marketing drive during this year too, rice exports in 2018-19 can grow up to $2.4bn, or 20pc higher than 2017-18,” opines a senior official of the Trade Development Authority of Pakistan (TDAP).

The import bill of pulses may or may not decline further during this year. Apart from the local output of pulses, other factors like the efficacy of the recently announced import-curbing measures and the demand pattern following an uptick in inflation will also play an important role.

Low palm oil prices in the international market had contributed to lower growth in our food import bill in the last fiscal year. Whether this cushion will be available in this fiscal year is another point to ponder. “Crude palm oil prices had shown some spike in the first quarter of 2017-18, but they kept sliding in the following three quarters. Prices are now bottoming out at around $550 per tonne during the first month of 2018-19. We can expect some spike as the year progresses,” says a Karachi-based importer of edible oil.

“I think this year the prices after peaking at any time won’t fall as steeply as in the last year due to an increase in their cost of production in Indonesia and Malaysia.” This means our import bill during 2018-19 might rise past the 2017-18 level of $2bn, even import volumes change little from the last year’s 2.84m tonnes. Sources in the edible oil manufacturing industry say local and export-led demand is strong now. So expecting a substantial cut in import volumes of palm oil during this fiscal year seems out of the question at least for now.

To keep the food trade deficit at a sustainable level, a couple of things are important. First, greater emphasis should now be placed on developing the export of value-added food products. Second, export marketing should be more aggressive and target-oriented. Third, import substitution should be prioritised. Fourth, imports of finished food products should be minimised.

After hitting the $2bn mark in the last fiscal year, rice exporters can be expected to move towards exporting value-added rice by-products, like rice glucose, roasted puffed rice and rice noodles etc. Bangladesh has already developed export markets for its puffed rice and Thailand and Indonesia are exporting rice glucose and rice noodles quite successfully.

Our exporters of rice, fish and seafood have lately explored new export markets in China, Far East and the African region. There is a need for continuing to serve these markets with more enthusiasm and keep exploring more markets. Exporters of meat and meat preparations should follow suit and expand their markets. Currently, our meat exports are heavily concentrated in the Gulf region.

Sadly, not much has so far been done for import substitution. Much-trumpeted claims of nurturing olive orchards at home were unfulfilled and efforts to promote oil seed crops remain challenged after some initial success. “This has to change now if we really want to bring the food trade deficit down to negligible levels and eventually get rid of it in a few years,” insists a senior official of TDAP.

In six of the last eight years, Pakistan witnessed a food trade deficit — the smallest ($470m) in 2014-15 and the largest ($2.4bn) in 2016-17. In 2012-13 and 2013-14, it posted a surplus but that could not be sustained.

With the imposition of higher duties on imports of 100-plus food items a few months ago and with the tightening of rules for interbank financing of all import items, one can hope that imports of finished food items will decline. But that is subject to local demand. “If demand does not show the import price concern and if we continue to consume Indian, Chinese, Far Eastern, American and European finished food products, then this avenue of reducing food import bills may remain blocked.”

Published in Dawn, The Business and Finance Weekly, July 30th, 2018