KARACHI: With rising prices of wheat flour and chicken already hitting most household budgets, two more staples — ghee and cooking oil — are also going to be short in supply as well as costlier ahead of the holy month of Ramazan if corrective measures are not taken immediately, it emerged on Thursday.
Producers are fast running out of palm oil, soybean oil and sunflower following banks’ reluctance in opening the letters of credit (LCs) and retiring documents for clearance of goods despite the fact that these raw materials were listed as essential items by the State Bank on Dec 27, 2022.
Lifting of 358,000 tonnes of edible oil from the Customs Bonded Warehouses has been suspended as banks are turning down requests for opening of LCs and retirement of documents.
The State Bank has been informed that commercial banks have conveyed to importers-cum-manufacturers that edible oil has been excluded from its list of ‘Essential Items’ with immediate effect.
SBP intervention sought in opening of LCs, clearance of containers
As a result, the default in retirement of LCs in favour of foreign suppliers is attracting late payment surcharge and demurrage while the rupee continues to lose its value against the dollar, making imports costlier.
Commenting on the situation, Pakistan Vanaspati Manufacturers Association (PVMA) secretary general Umer Islam Khan pointed out that palm oil rate has already gone up to Rs14,000 per maund from Rs13,000. This, he added, has translated into a jump of Rs26 per kg/litre in prices of ghee and cooking oil.
While 358,000 tonnes of raw material are awaiting clearance, around 175,000 tonnes loaded in about 10 vessels are at the outer anchorage of Karachi and Bin Qasim ports, awaiting discharge.
Mr Khan said that in case the issue of LCs retirement lingers on, consumers would face another price hike of Rs15-20 per kg/litre in prices.
Arrival of palm oil, sunflower and soybean oil takes at least 60 days to reach Pakistan from foreign destinations.
He called upon the authorities concerned to resolve the issue immediately to avert a ghee and oil crisis in Ramazan, which may start in the third week of March. Demand for oil and ghee items soars by 20-25 per cent in the fasting month, Mr Umer said.
Letter to SBP
PVMA Chairman Sheikh Abdul Razzak in a letter to SBP Governor Jameel Ahmed said that 90pc of edible oil consumed in the country is imported to meet the national requirement of over 4.5 million tonnes per annum.
“Our existing stocks can only meet demand for three to four weeks. Therefore, un-hindered opening of LCs/retirement of
documents is inevitable and must be given priority as accorded by the central bank’s Dec 27, 2022, circular,” he emphasised.
He urged the SBP chief to direct the commercial banks to honour the industry’s request for LCs.
The industry is experiencing a unique and unprecedented challenge, he said. Despite sufficient stocks discharged in Karachi’s Custom Bonded Warehouses, the industry is unable to lift them due to refusal by banks to retire the documents, he added.
The phenomena, continuing for a couple of weeks now, has started creating negative market sentiments, the PVMA chief said.
In a related development, Karachi Chamber of Commerce and Industry (KCCI) president Mohammed Tariq Yousuf regretted that LCs are not being opened despite issuance of instructions from the State Bank.
In a statement, he noted that banks are not opening LCs for import of essential items such as raw materials, foodstuff, fruits, vegetables, pulses, medicines and household products.
“The import by commercial importers of raw materials for
industries, particularly the export-oriented industries, is critical so it should not be stopped at any cost,” he said.
The KCCI chief said that a large number of containers are lying at the port awaiting clearance which has exorbitantly raised demurrage charges to such an extent that in many cases demurrages have exceeded the value of the goods in the container. These containers are the property of shipping lines that need to be returned at the earliest but the delay in clearing these containers is tarnishing Pakistan’s image, he added.
Mr Yousuf urged the government to issue directives for immediate release of all the detained containers without demurrage charges.
Published in Dawn, january 6th, 2023