Izaz Illahi Malik is the CEO of Punjab Oil Mills and is also the Chairman of the Pakistan Vanaspati Manufacturers’ Association (PVMA). BR Research had an opportunity to sit with him for a chat on the state of the edible oil industry in Pakistan, and its growth prospects over the next decade. Below are edited transcripts of the interaction.
Business Recorder Research: Tell us about the structure of the edible oil industry; how many manufacturers are formal?
Izaz Ilahi Malik: Within the Pakistan Vanaspati Manufacturers’ Association (PVMA), we are about 120-125 members and then there are another 40-50 units that are not members. If there was an estimate of informality, about 40 could be considered informal even though they are manufacturing.
We import a lot of refined, bleached, deodorised (RBD) palm oil from Malaysia and Indonesia, but by the time it is transferred from Malaysian ports or Indonesian ports to Karachi ports and put into tankers, it becomes a little contaminated. This then needs to be refined to a certain extent, which we do.
Many of these unregistered firms that are not part of the association basically do the job of filling the RBD palm oil and palmolien directly into the filling machines. They have these sets of filling units in Karachi and Lahore and it’s very hard to catch them. The quality is not there; certain ingredients used may be harmful to health. No standards are maintained.
From a brand perspective, some brands in Pakistan are more popular than others. Some have bigger shelf lives; some have better refining or blending. I would say about 20 firms are leading the industry.
BRR: What is the share of local production and imports in market demand?
IIM: We import nearly 85-90 percent of raw material from abroad – the rest is grown in Pakistan. Oils such as olive oil are coming from abroad. The import of finished goods is likely only 1-2 percent. We have about 4 million tonnes of vegetable ghee and cooking oil in Pakistan. We have imported about 2.6 million tonnes of palm oil and palmolien from Indonesia and Malaysia recently.
Palmolien is also blended to make vegetable ghee and it’s also used as soft or non-hydrogenated oil, but it has a higher melting point. Only cottonseed oil is produced in Pakistan. All the other raw material is being imported. The total refining capacity in Pakistan is over 4 million tonnes, which covers all the demand. The demand is not more than 3.5 million tonnes, so the refining capacity is much more than that.
You must remember that we buy these oils from the solvent extractors. Soybean seed is imported by the solvent extractors and then we buy from them. Canola oil is a rapeseed oil, but since it was first produced in Canada, it is known as Canadian oil. The oil extracted from soya seed, cottonseed, and rapeseed is then picked up by the vegetable ghee industry—refined, packed, and sold. The meal which is left is then sold by these extractors and is used in poultry feed and cattle feed industry.
Sixty percent of the total 3.5 million tonne demand is that of vegetable ghee and 40 percent now has become cooking oil because people are moving toward soft oils now.
BRR: What is the market share of the top three or four oils?
IIM: Palm oils constitute about 65-70 percent of the total market. The rest is followed by soybean oil, then canola and sunflower oil. Soybean oil has a market share of about 20 percent and the rest of the market is shared by the remaining two oils.
BRR: There was a time when it was not economical for extractors to produce soybean oil since it didn’t have a strong demand in the market. Has that changed? What’s the situation of the local plantation of soybeans?
IIM: The problem with soybean oil is that farmers are not willing to grow the seeds because they are not getting cash for it. The only area they have been successful in is the sunflower seed because it gets ready in three months. You must realise that canola, soybean, and to some extent, sunflower competes with wheat. They have the same pattern of growth as wheat. So why should the farmer who has been growing wheat for hundreds of years change that when he earns good money on the production of wheat? They weren’t able to convince the farmers, which resulted in failure. The only seed grown in Pakistan is sunflower and it is increasing.
Sunflower can be planted in semi-arid regions as well. But soybeans require fertile land and our climate doesn’t suit the production. They were tried in the region of Swat, but the climates of Punjab and Sindh are not suitable.
About 7-8 years ago, they tried to grow palm oil and spent about $5 million in doing this experiment. Malaysia also sent some of its plants. That plant would have been good if that plant produced 100 kg of fruit, but it only produced 10 kg, which wasn’t viable.
BRR: Do you see a transition from imported oil and meals to oilseeds?
IIM: Oilseeds are already being imported. Soybean oil is produced from soybean seeds; 16-18 percent oil is extracted from the soybean seed and the rest is all meals. It’s basically a meal product, not an oil-bearing seed. Canola seed has 40 percent oil extract.
BRR: What has been the growth trend over the years in cooking oil and vegetable ghee?
IIM: About two decades ago, cooking oil used to be 25 percent and vegetable ghee used to be 75 percent share. Now, cooking oil’s demand has increased and people are switching from vegetable ghee to cooking oil. This is due to urbanisation; people are moving from rural areas to urban areas. Media is also educating people that cooking oil is better. The lower class of our population consume vegetable ghee because they think that the vegetable ghee provides more energy. On the other hand, vegetable ghee costs about Rs130-140 per kg whereas the cooking oil costs about Rs160kg so there is also a price point advantage.
BRR: Have the trade deals with Indonesia and Malaysia led to cheaper inputs?
IIM: No. Malaysia and Indonesia are cheapest for palm oil or palmolien, but the problem is that we import $1.2 billion of palmolien or more from these two countries, and what do we export? Nothing. Logic dictates that they should be buying rice from us, which they are buying from Thailand.
This is unfair to Pakistan. Soybean oil’s customs duty was reduced even further to give them a special incentive. It was thought that it’s a two-way traffic but it, unfortunately, was not. Now we are so used to getting this cheap oil. If the government raises the duty, it will have more revenue. But then the common man suffers because of any increase in the duty.
There hasn’t been any harmful effect to the end product due to the increases in the customs duty. The end product won’t suffer because it’s the customer that pays.
BRR: On what basis does the local brand then compete with each other?
IIM: The better brand always attracts more consumers and each brand has its own value. A brand grabs a bigger customer base by producing a better product. I have a brand, Canolive, which is a mixture of canola oil, 10 percent may be sunflower oil, and then we use special technology from Spain that extracts the goodness of olive oil. My oil is better because it is more refined and is sent to Germany every 3-4 years for testing. For the first time in Pakistan, this Canolive is exported to Dubai also. It comes down to quality.
BRR: Where do you see the edible oil industry in the next 5-10 years?
IIM: I see it growing. Depending on the population growth, the eating habits have changed over the years. When your economy gets better, people start spending on better food.
BRR: Have the quality control regulations improved over the years?
IIM: A lot. They have conducted a lot of meetings and decided that these quality standards should be in place. The industry in the last 10 years has become quality conscious. The regulators not so much but definitely the consumers who want better quality, and even better packaging now.
A lot more work needs to be done. Monitoring of factory units and systematic processes need to be improved, for instance.
BRR: What is the biggest problem you see with regulation in the edible oil industry?
IIM: One big problem in Punjab is price notifications. You can sell your ghee at whatever price you want in Sindh and KPK, but in Punjab that would be against the law. They have fixed prices for different brands so if the strong brands are at Rs10, the less strong ones will be at Rs8 and the weaker ones will be at Rs5 or Rs4. Even though all the companies are facing the same costs of production, prices are still fixed. This is discriminatory.
They should fix the product’s price at the same level for all the brands, like it happened when the industry was nationalised and the ghee prices were fixed.
In terms of quality, PVMA believes that if a manufacturer is not making good products and is not compliant, the regulators should be strict. But before that, specifications should be laid out so we can do our homework too and hold companies accountable from our end as well. Since provinces have gained powers, the policy environment has changed. There isn’t a defined policy.
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