Palm oil and ghee

The key ingredient in making vegetable ghee is palm oil. Palm oil is also the preferred choice in the confectionary, baking and frying industries. The rise of the fast food culture and snack industry has increased consumption of palm oil and made it a staple of Pakistan’s import bill.

In the first four months of this fiscal year, palm oil imports have decreased 10 percent year-on-year in terms of value but increased by nearly 60,000 tons. PBS data indicates that price per ton has fallen by 15 percent ($112), which has led to a buying spree by importers in Pakistan.

Several factors impact palm oil prices, one of which is the price competitiveness of soyoil in the wake of US-China trade war. Since soyoil prices have come down due to excess supply, a key importer, India has decreased palm oil imports. This has led to excess supply of palm oil in a scenario where demand is already switching to competing edible oil, especially since there have been bumper crops of sunflower oil in Ukraine and Russia. Elsewhere in Europe, demand of palm oil for biofuel is decreasing as well.

As a result, palm oil prices have gone down and the quantity imported has risen. Stockpiles of palm oil take a few months to be converted into higher ghee production as the graph shows. This has two implications for domestic ghee consumption.

Firstly, the repeated rounds of devaluation will have little impact on ghee prices in the short term as appreciating dollar will be offset by lower international prices of palm oil. Since ghee is more commonly consumed by the lower economic strata, those most likely to be hit worst from economic tightening will not have to worry about at least one daily item of their food bill.

Secondly, the rise in imports and recent month’s trend of ghee production indicates that the ban that was to be implemented by the Punjab Food Authority in 2020 is not being entertained seriously by domestic manufacturers.

Different industry sources allege that the food authority was misguided in its belief that ghee is unhealthy due to presence of trans fat. The widely held opinion by members of PVMA (Pakistan Vanaspati Manufacturers Association and PEORA (Pakistan Edible Oil Refiners Association) is that the ban is impractical and will most likely not be imposed. Rising imports and production numbers appear to support this opinion.