With ghee a staple of Pakistani diet, its main ingredient palm oil is a staple of the import bill. While the country neither has the soil, climatic conditions, nor the infrastructure in place to extract oil for extensive palm tree plantations, it can grow edible oil seeds.
An alternate to ghee is cooking oil which can be extracted through different oil seeds. Abdul Jan Rasheed Muhammad, Chairman of PEORA (Pakistan Edible Oil Refiners Association) and director of Dalda foods, explained in a recent interview that cooking oil is generally made of canola, sunflower, and Soya bean oil. These oils are at least $100-$150 per ton more expensive than palm oil and also have higher duties levied on them.
While there is a culinary preference for ghee in the subcontinent, the higher price also presents a hurdle for the masses to increase their cooking oil consumption. If these oil seeds were cultivated at home, cooking oil would be within reach of the common man. And the import bill would come down in the long term.
Among edible oil seeds that are cultivated in Pakistan are rapeseed/mustard, canola, and sunflower seeds. In the last two years, Punjab has made an effort to increase area under canola (a superior strain of rapeseed/mustard seed) and sunflower cultivation. For this purpose, the Punjab government offers Rs5,000 per acre subsidy for a maximum of 10 acre cultivation.
While the effort may be laudable, it has not yielded significant results. Area under sunflower cultivation has remained stagnant while area under canola has not increased significantly as compared to the past.
Pakistan Economic Survey figures indicate there are about 800,000 acres under rapeseed, canola, and sun flower cultivation. To double that amount would require nearly Rs4 billion in subsidies that would have to be financed from current revenues. Given that only 28,000 acres of cultivation under canola increased from FY17 to FY18, it appears that the subsidy has not been very successful.
Shakil Ashfaq, Chairman of APSEA (All Pakistan Solvent Extractors’ Association) indicated that the subsidy will not yield desirable results because it is too low compared to the support price of wheat. Since wheat is a competing crop that is sown around the same time as edible oil seeds, its support price impacts farmer’s decision to opt for sunflower or canola instead.
A suggestion floated by APSEA is to tax imports to support indigenous cultivation. A nominal tariff of Re1 per kg can be imposed on edible oil and oil seed imports and the proceeds used to offer a support price twice that of wheat. The support price of edible oil seeds has to be high enough to lure farmers into switching from wheat to oil seeds cultivation.
Taking support price of wheat as Rs1,300 per maund (40 kg), canola and sunflower seeds will have to have a support price of Rs2,600 per maund. The current market value of these oil seeds is about Rs2,200 per maund (as per APSEA), thus they would require Rs400 per maund of subsidy.
Current oil seed production of canola, sunflower and rapeseed is 160,000 tons, as per Pakistan Economic Survey. If the suggestion is implemented, the tax would yield Rs3 billion on imports of palm oil and Soya bean oil (calculations based on FY18 PBS data). Therefore a subsidy of Rs400 per maund would theoretically increase production of rapeseed, canola and sunflower by 300,000 tons, double the current amount.
Regardless of the approach used by the government to coax farmers to switch to oil seed cultivation, the bottom line is that the farmer has to be confident that he will receive the subsidy.
If he is assured of government support, only then land under oil seed cultivation will increase and it will decrease the perennial deficit of domestic oil production.
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