MARKET DEVELOPMENT
Punjab’s Ghee Crisis
Punjab’s Ghee Crisis
21/04/2016 (Aaj Tv) - If you’re a Punjabi who enjoys pakoras in Ramadan, we have some bad news for you – there isn’t enough vegetable ghee to go around in your province. At the time of writing, the current stock of palm oil (used in manufacturing vegetable ghee) is only enough to last a month from now, and more isn’t on the way. If this upsets you and you’re looking for someone to blame, know why you should blame your government.
BR Research’s meeting with the Vanaspati Manufacturers Association in Lahore brought to light some startling revelations about the business, particularly in Punjab. In addition to the usual energy shortage and cost-of-doing-business imbroglio, vanaspati manufacturers in Punjab are not even allowed to set the price of their products.
The price that Punjabi consumers have been paying for their cooking needs has been notified by the Punjab government since last year, kept low to make it affordable and win political points. That’s why most of the industry is gradually shifting out of Punjab to Sindh and KP.
Vegetable ghee (hard oil) is manufactured using palm oil, which is imported from Malaysia and Indonesia, and Pakistan is one of its leading consumers.
As such, the prices of vegetable ghee, though accounting for differences in quality and brand value, are by and large based on the international price of palm oil. The PVMA will usually maintain a stock of 250,000 MT of palm oil at any given time, while daily consumption is 4000-5000 MT.
The palm oil takes between 30 and 45 days to reach the buyer, from opening of the LC to landing of the raw material. Now, those in Punjab are already disadvantaged because they have to pay added shipping for bringing the palm oil in from the Sindh port (and the truckers monopoly also exacerbates the issue, as per the PVMA). But when you add to that the fact that the retail price is being fixed, your industry is in big trouble.
Palm oil prices have currently gone up by 30 percent over the last six months. The problem is that the prices notified in Punjab are below the cost of production for most brands, making it unfeasible to import the raw material. Those brands that got a more favourable price got it through clout and connections. As a result, palm oil arrivals are now low and the existing stock has depleted to less than 140,000 MT as of right now (Last week it was 176,000 MT, indicating that the rate of depletion is alarming).
Generally, cooking oil/vegetable ghee is a highly taxed item in Pakistan, contributing Rs120 billion to the exchequer annually. Theres customs duty, PODB (Pakistan Oilseed Development Board) cess, FED, withholding tax on all of this, warehouse surcharge, and VAT, all of which increases the cost of production by 32 percent.
These indirect and direct taxes would then have to be passed on to the consumer in order for the business to remain profitable. After all these taxes, for the Punjab government to regulate the retail price of the end product is a double whammy, not to mention a slap on the face of a free market economy.
BR Research’s meeting with the Vanaspati Manufacturers Association in Lahore brought to light some startling revelations about the business, particularly in Punjab. In addition to the usual energy shortage and cost-of-doing-business imbroglio, vanaspati manufacturers in Punjab are not even allowed to set the price of their products.
The price that Punjabi consumers have been paying for their cooking needs has been notified by the Punjab government since last year, kept low to make it affordable and win political points. That’s why most of the industry is gradually shifting out of Punjab to Sindh and KP.
Vegetable ghee (hard oil) is manufactured using palm oil, which is imported from Malaysia and Indonesia, and Pakistan is one of its leading consumers.
As such, the prices of vegetable ghee, though accounting for differences in quality and brand value, are by and large based on the international price of palm oil. The PVMA will usually maintain a stock of 250,000 MT of palm oil at any given time, while daily consumption is 4000-5000 MT.
The palm oil takes between 30 and 45 days to reach the buyer, from opening of the LC to landing of the raw material. Now, those in Punjab are already disadvantaged because they have to pay added shipping for bringing the palm oil in from the Sindh port (and the truckers monopoly also exacerbates the issue, as per the PVMA). But when you add to that the fact that the retail price is being fixed, your industry is in big trouble.
Palm oil prices have currently gone up by 30 percent over the last six months. The problem is that the prices notified in Punjab are below the cost of production for most brands, making it unfeasible to import the raw material. Those brands that got a more favourable price got it through clout and connections. As a result, palm oil arrivals are now low and the existing stock has depleted to less than 140,000 MT as of right now (Last week it was 176,000 MT, indicating that the rate of depletion is alarming).
Generally, cooking oil/vegetable ghee is a highly taxed item in Pakistan, contributing Rs120 billion to the exchequer annually. Theres customs duty, PODB (Pakistan Oilseed Development Board) cess, FED, withholding tax on all of this, warehouse surcharge, and VAT, all of which increases the cost of production by 32 percent.
These indirect and direct taxes would then have to be passed on to the consumer in order for the business to remain profitable. After all these taxes, for the Punjab government to regulate the retail price of the end product is a double whammy, not to mention a slap on the face of a free market economy.