Karachi March 17 2022: Pakistan's per capita consumption is higher than India and Sri Lanka, which have comparable dietary preferences and have relatively higher GDP per capita. Since approximately 96 percent of the edible oil consumed in the country is used for food purposes, this difference in per capita consumption implies consumer preference for higher use of oil in food at household and commercial level, revealed in a special report published by SBP.
There has also been growth in per capita consumption of edible oil in Pakistan over the years, growing in tandem with rising GDP per capita since vegetable oils are highly responsive to income growth and one of the cheapest source of fat and protein.
Pakistan’s reliance on imports for edible oil and oilseed meals to meet domestic demand consumption has been increasing over the past two decades: 86 percent of domestic edible oil consumption in 2020 came from imports up from 77 percent in 2000; in case of oilseed meal, imports contributed 58 percent in 2000 compared to 20 percent in 2000. Within the edible oil and oilseeds category, palm and soybean imports form 90 percent of the total category imports in value terms, and 87 percent in quantity terms.
Pakistan’s palm and soybean-related imports stood at US$ 4 billion in FY21, rising by 47 percent year-on-year, compared to compound average growth of 12.3 percent in the last 20 years. While in part this increase stems from rising international commodity prices, the rise in palm and soybean imports is not a new phenomenon. The combined imports of palm and soybean have been growing noticeably over the last twenty years, rising to 7.1 percent of total imports in FY21 from 3.2 percent in FY01.
However, policy focus on both these agriculture commodities has been lacking. SBP report sheds light on the drivers of rising palm and soybean imports where growing demand pressures from inter alia increasing population, rising per capita consumption and gradual modernization of poultry industry has outpaced the domestic supply which has been eroding mainly on account of weak policy focus on oilseed crops. With respect to production, palm oil does not have much potential in Pakistan in the short to medium term, whereas soybean can be produced at large scale in the medium term if policy support is provided.
Several factors are behind low production of oilseeds in Pakistan, the fundamental reason of which is the absence of a consistently implemented oilseed policy. This manifests itself in several ways, such as limited research (including on seed and soil) too thinly spread over a large number of institutes; deficiencies in agriculture extension; marketing and procurement challenges leading to weak linkages in value chain; and inefficient oil extraction in villages and small towns. For instance, the absence of support prices and efficient crop marketing and value chain in the case of oilseeds impacts in two ways. At the end, farmers are not incentivized to grow oilseeds, and at the other end middleman have been found to exploit oilseed farmers, such as sunflower, to paying low price for their produce, making discretionary deductions and delaying payments.
In addition, low farmer profitability amid absence of consistent support price policy for oilseeds and falling prices of palm oil imports have also contributed to falling oilseed production. Lack of policy focus also manifests as limited seed availability, both in terms of varieties suitable to local environment, and the quality seeds available at affordable prices to meet sowing requirements for optimal productivity.
In addition, there are other constraints to best farming practices, such as critical shortage of oilseed-specific planting, harvesting and threshing machinery, and non-adoption of other recommended production technology.
Key measures planned under the five-year NOEP are: productivity enhancement of wheat, rice and sugarcane to vacate up to 3.25 million hectare of land for the cultivation of canola, sunflower and sesame; increasing the yield and area under acreage of cotton to produce 15 million bales, which will increase the supply of cottonseed oil; and increasing the yield of sunflower and canola. By achieving the target of 15 million bales in next five years, 0.459 million tons of cottonseed oil will be produced. Similarly, other cultivation related measures under the NOEP are expected to yield another 2.8 million tons of edible oil. This is expected to reduce import bill of edible oil by US$ 584 million.
Focus on canola and sunflower is an important solution for the short to medium term, considering the fact that sunflower and rapeseed/canola already have roots in the country. As discussed earlier, palm offers no potential in the short to medium term, whereas the ability to reap soybean’s potential over the medium term hinges on a variety of factors, including availability of seed, farmer awareness and adequate procurement policy that prioritizes farmer profitability.
In addition to focusing on sunflower and rapeseed/canola production in the short to medium term, the government may also consider gradual implementation of import and demand management measures. These include customs duty on imported seed and oil, and taxes on ghee aimed at encouraging sourcing of domestic sunflower and rapeseed for edible oil production, albeit price prescriptions are understandably complex, especially when domestic production is unable to meet local demand. Efforts to increase nutritional awareness may also help in reducing overall edible oil consumption in cooking.