Lacklustre investment

Pakistan’s edible oil import bill is about $2 billion a year. Though Pakistan does have a small crop of oil seeds, the bulk of country’s edible oil needs are fulfilled through palm oil and its products which are imported from either Malaysia or Indonesia.

Among edible oil products, palm based packed products have seen amongst the highest growth rates in this category. Over a period of five years, from 2013 to 2017, imports increased from about 100,000 tons to nearly 230,000 tons. This increase of nearly 130 percent came about through products such as cooking oil, shortening, and margarine, all of which have become an integral part of the country’s confectionary, fast food, and dairy industries.

While Pakistan does have climatic conditions required to grow palm trees along its coastal belt, in the short and medium term, little can be done about to promote import substitution as regards to crop cultivation. One could argue that Pakistan should import crude palm oil (CPO) and refine it, instead of continuing to buy refined, processed, and packed products. In that vein, Indonesia’s recent offer to set up joint ventures for the production and processing of palm oil to manufacture high-value products should be very welcome.

A little history lesson is in order to evaluate the proposed Indonesian investment. The birth of Pakistan’s palm oil refining industry began through similar joint-ventures with Malaysia in 2006. Since then, Pakistan has set up more than 10 palm oil refineries.

While Pakistan Edible Oil Refiners Association (PEORA) has estimated that these refineries can consume about 1.5 million tons of CPO, crude oil imports have declined, giving way to value-added imports. The reason lies in the export tax structure of the exporting countries.

In 2011, Indonesia made changes to its palm oil export duty which placed restrictions on CPO exports. The net result was that processed and packed oil that landed on Pakistan’s shores was cheaper compared to the locally refined oil made from imported CPO.

As the consumer lifestyle in Pakistan evolves, the scope for palm oil market increases as it is used in most fast food products, frozen food items, ice cream and chocolate. However, local manufacturers complain about a lack of playing field due to the skewed export tax structure. Since Pakistan has trade agreements with Malaysia and Indonesia in place, the packed and refined palm products enjoy easy access. In such a scenario, setting up of new refineries will yield limited advantage.