Food imports are down as lower economic growth, higher inflation and a weaker rupee have reduced net income levels of both corporate and consumer sectors.
Higher duties imposed on hundreds of imported food items during this fiscal year have also apparently decelerated reckless imports.
In July-April, the food import bill decreased 9.85 per cent to $4.7 billion from $5.2bn a year ago. So we saved $514 million in 10 months. Not bad. The amount is equal to 6.4pc of our central bank’s foreign exchange reserves, which were $8.06bn on May 17. Since the food import-pushing factors are no more at work and international palm oil prices are soft, one can hope to see more foreign exchange saving in the remaining two months of this fiscal year.
It’s time for the Pakistan Bureau of Statistics (PBS) to at least split the category of “all other items” into finished food products and raw food materials
Imports of palm oil that constitute one-third of our total food import bill declined in terms of both volume and value. So did the imports of soy bean oil, pulses, spices, dried fruits and nuts. Imports of milk powder, cream and milk food declined only 1pc in volume, but 10pc in value. It was because of a downward trend in international prices as well as better import sourcing, importers say. Sugar and wheat imports were negligible. For years, Pakistan has been exporting wheat and sugar more consistently. Hence, imports of these items normally remain nominal or nil. Imports of all other unspecified categories of items also remained lower than last year’s, although cumulative foreign exchange spending under this head made it the largest component (38pc) of the total food import bill.
Achieving a reduction of about 10pc in the food import bill in 10 months is good because it has come amidst a foreign exchange crunch. But higher import duties alone have not made this happen. Lower economic growth during the current fiscal year, officially being estimated at 3.28pc against last year’s revised growth of 5.22pc, is a big reason.
The output of domestic food production and processing companies that are part of large-scale manufacturing (LSM) is slumping. People whose incomes have declined because of the economic slowdown are consuming fewer imported food items. Growth in the food and beverages component of LSM was minus 0.3pc in July-March of 2017-18. But negative growth shot up to 2.93pc in July-March of the current fiscal year. This reflects a reduced intake of imported raw materials in our food and beverages companies.
It is true that when the rupee becomes weaker and import duties go up simultaneously imports bill shrink particularly if lower economic growth and higher inflation are reducing aggregate demand. But falling prices of imported commodities also help reduce the import bill. In the first 10 months of this fiscal year, our food import bill has remained lower partly because of this fact. In July-April, average global prices of crude palm oil fell 10.4pc to $588.45 per tonne. In May, the prices fell further.
The decline in the food import bill triggered by a volatile exchange rate, change in tariffs, lower domestic demand owing to slower economic growth and higher inflation is not bad. But what is really good is that it should also be rooted in import substitution and self-sufficiency.
It is sustainable as it indicates foreign exchange savings are not occurring because we are not spending — or cannot afford to spend. On that standard, we are far off the mark: we are not producing enough pulses to feed the nation; we have not developed local dairy industries to the level that we can substitute imports of milk cream and powder; and despite tall claims by successive governments, olive cultivation and tea plantation continue to remain research projects.
The oilseed sector has enough potential. In fact, oilseed production has been on the rise for some years, reducing our dependence on imported soy bean oil that is blended with palm oil for edible oil production. Indonesia has recently promised that it will establish a refinery in Pakistan for the production of food-grade oil from crude palm oil. We can benefit a lot from this Indonesian offer provided policymakers and the bureaucracy work hand in hand.
In the Thatta district of Sindh, palm oil plantation experiments with the help of Malaysia have succeeded. At least two palm oil gardens are producing mature fruits, media reports suggest. Experts believe that in addition to Thatta, there is potential for palm oil plantation in all cities along the Sindh coastal belt and even in parts of Umerkot and Tharparkar.
One area of attention in the food import bill is the foreign exchange spending on hundreds of finished food products that are imported under a broad category of “all other items”.
This category of imports conceals our consumerism. Under this category fall our imports of cheese and curds, cigarettes and tobacco, coffee, cookies, chocolates, formula food, honey, jams, fruit jellies and marmalades, non-alcoholic beverages, pickles, spices — and even bread and butter.
Isn’t it time for the Pakistan Bureau of Statistics (PBS) to at least bifurcate this category of “all other items” into finished food products and raw food materials or agricultural inputs? Every year we import hundreds of millions of dollars worth of seeds of different crops. If bifurcating the category of “all other items” is not possible for any reason, the PBS can at least start publishing import data for seeds in a separate category. That will help policymakers make more informed projections and prompt them to respond more wisely to the issues of local seed-manufacturing companies.—MA
Published in Dawn, The Business and Finance Weekly, June 3rd, 2019