The Competition Commission of Pakistan (CCP) has observed that the privatisation of the cooking oil and ghee units has freed the industry of all the government influence. The study of the CCP on the cooking oil and ghee sector, issued on Thursday, extensively covered the area of "state owned enterprises and effects of privatisation".
The study pointed out that currently government has no role in this sector by way of either any functional state owned enterprise or through public procurement. Therefore, the sector can be considered free from the problems of distortion normally created by the presence of government. Prior to 1973, all cooking oil and ghee mills were in the private sector. During this era, the mills collaborated under an umbrella organisation known as Pakistan Vanaspati Manufacturer's Association (PVMA). PVMA together with the government determined the prices of cooking oil and ghee to be charged and had considerable influence on the import price of oil.
In 1973, the nationalisation of the ghee industry was initiated when 23 ghee and cooking oil units were taken over to be overseen by the provincial government.
In 1976, the Federal Government created the Ghee Corporation of Pakistan (GCP) under the Ministry of Industries. The GCP was given responsibility of managing and controlling the nationalised ghee industry.
The demand for denationalisation of the Cooking Oil and Ghee Industry gained popularity toward the end of the Zia era when nationalisation created frustration among middle level industrialists and businessmen. Zia set up a commission headed by Pakistan Industrial Credit and Investment Corporation (PICIC) Chairman N M Uqaili which resulted in a Ghee denationalisation order. However, this Order was never implemented due to great resentment among the bureaucracy, which was heading the nationalised units.
Soon after coming to power in 1990, the then government declared privatisation as its key economic objective. In the early 1990's, the production of ghee was greater than the demand for ghee as a result of which the government suffered severe losses and decided to privatise the industry.
Due to the slow pace of privatisation, the Privatisation Commission was set up in 1991, after which the process accelerated significantly. From 1991 to 2001, nineteen Ghee mills were privatised. From January 2000 to Sep 2005, another five ghee mills were privatised. According to the Privatisation Commission, 24 ghee units have been privatised to date and the Ghee Corporation of Pakistan no longer exists.
Privatisation in any industry overhauls its incentive structure and hence the decision making process. Generally, the most significant change is in pricing strategy. The cooking oil and ghee industry was no exception. The data showed the trends in real prices of cooking oil and tinned vegetable ghee since 1982. In order to keep the analysis valid for such a long time period, real prices ie, adjusted for inflation has been used. All prices are in terms of 2008 rupees. The prices have been extracted from the monthly bulletins of statistics published by the Federal Bureau of Statistics. Inflation adjustment was done using the Consumer Price Index, as calculated in the Economic Survey for the relevant time period.
Both the graphs quite clearly display the effect of privatisation of the industry on real prices of vegetable ghee and cooking oil. Between 1992, when the privatisation effort began, and 1994, the real price of vegetable ghee and cooking oil increased by about 60% and 35% respectively. Overall, the period between 92 and 2002 witnessed fluctuations in prices. Between 2002 and 2007 real prices decreased, before they surged again in 2008. The reasons behind the price increase in 2008 have been explained in earlier sections of this study, CCP study added.