Growth of oilseed crops: APSEA terms import tariff on edible oil sector impediment

FBR's inconsistent policies towards import tariff on edible oil sector are the biggest impediment towards growth of local oilseed crops. All Pakistan Solvent Extractors' Association (APSEA) is disappointed with the modest increase of 5 percent in the additional customs duty, from 2 percent to 7 percent on edible oils in the Finance Bill 2019 as it will fail to support the long term objective of achieving self-sufficiency in edible oil in the country. The move fails to support the Prime Minister's National Agriculture Emergency Programme which aims to revive the local oilseed crops and improve agricultural efficiency.
Import bill for edible oil and oilseeds stands at around USD 4 billion, which is the third highest category after petroleum products and machinery. Our local crops contribute less than 12 percent to our edible oil demand.
It is pertinent to note that the current slab of Customs Duty (CD) on edible oils (Rs 9,050 for palm olein, Rs 10,700 for RBD palm Oil and Rs 9,050 on Crude Degummed Soybean Oil which was later increased to Rs 10,500 in the Finance Bill 2018) was fixed around 15 years ago when the prevailing palm oil prices were around USD 400, and the USD/PKR exchange rate was at around 58. CD was kept at around 40 percent but implemented in fixed rupees to curb the prevalent under invoicing. The primary objective was to support the growth of local oilseed crops. However, despite of palm oil prices averaging from USD 700 to 900 (reaching a peak of around USD 1500 in 2008) in the subsequent years, the rate of CD was kept unchanged. This has resulted in negative growth in the local oilseed production in 25 years, despite having reached a peak harvest area of one million acres in 2008. At current levels of Palm Olein at USD 525 (which are extremely low levels historically) and a USD exchange rate of 158, current CD is below 11 percent. With the grant of generous FTAs to Indonesia and Malaysia, these imports attract a further 15 percent discount, bringing the CD on palm oils below 10 percent.
APSEA also rejects the recent attempts by interest groups within the ghee industry to reduce import tariff on palm oil by comparing import tariff of soybean oil with soybean seed which obviously negates the basic economic principle of value addition. Demanding a similar tariff between a raw material and its finished product tantamount to shutting down local industry and shifting local jobs to exporting countries.
APSEA also rejects claims of potential monopoly developing in the solvent industry, as more than 80 plants are operational in the country to produce edible oil locally and the industry has a very low capacity utilization of around 50 percent.
With imported palm oils accounting for more than third of its edible oil consumption, Pakistan needs to promote intake of healthier cooking oils with lower saturated fat content.
The World Health Organization recommends limiting intake of saturated fats to less than 10 percent of total energy intake, which translates to around 20 grams per day. Agencies like the American Heart Association recommend an even lower intake of 13 grams. Pakistan currently consumes more than 3 million tons of palm which translates to 20 gram per capita per day, leaving no room for further intake of saturated fat from other essential sources like meat and dairy products.
Soybean oil currently attracts a discounted CD of Rs 10,500 versus Rs 15,000 on its replacement products, canola and sunflower oil. Most cooking oil manufacturers use these products interchangeably and this reduces demand for canola and sunflower oils which are produced locally with from local crops or from imported oilseeds thereby providing value addition.
APSEA has requested FBR to raise CD on edible oils be raised to at least 25% ad val. to support growth in local oilseed crops and value addition in the country.-PR