25/02/2008 (The Post, Pakistan) - Ghee and cooking oil prices have once again increased this month which affected the purchasing power of consumers. Local manufacturers blame that prices of palm oil in the international market have gone up from $ 1,120 to $ 1,150 per tonne. The retail market price of a four kg of oil tin has increased from Rs 550 to Rs 625. Similarly, a 9.5 litre of cooking oil tin was being sold at Rs 1,140, is now available at Rs 1,250 per tin. The price of one kg pouch of ghee has also gone up from Rs 112 to Rs 124.

Although importers and manufacturers have one to two months stock, but they avail the opportunity to reap maximum benefits in case of any increase in the international market. They never reduce prices when any reduction took place in the international market. Historically, till late 1960s Pakistan was self sufficient in oil and ghee requirements. Since 1970 onwards, the share of imported oil is gradually increasing to meet the growing demand.

The per capita consumption of vegetable oil and ghee is 16 to18 kg per annum. The average demand growth was estimated to about 4.4 percent per annum and the domestic production was expected to increase by 7.3 percent, which was never met. The edible oil industry was nationalised in 1972 and Ghee Corporation of Pakistan (GCP) was established to run this industry. Since 1988, the private sector was allowed to set up oil and ghee units. Moreover, most units have been privatised; about 94 percent units are in the private sector.

Majority of edible oil refineries in Pakistan have integrated soap manufacturing and natural gas cracking units besides vegetable ghee and cooking oil producing facilities. The edible oil industry uses different types of raw oil like RBD soft and hard, RBD soft oil is refined, bleached and deodorized oil without hydrogenation, whereas RBD hard oil is hydrogenation. Other oils are palm olien, soybean, corn, cottonseed, rapeseed, sunflower and canola.

However, last five raw materials are used occasionally, either due to the shortage of supply, or because of specific requirement of the product. Other raw materials include various chemicals such as phosphoric acid, caustic soda, fuller's earth, nickel and sulfate used in different stages of refining process. Along with the main process chemicals like sulfuric acid, NaCl, MEA are also used for byproducts.

Apart from cooking oil and ghee, soap, acid oil and carbon oil are also produced as byproducts. Water is the most consumed utility. In addition significant amount of electricity, natural gas and steam are also utilised by oil mills.

Pakistan is second largest importer of palm olien, for instance, in the first 15 days of December. Pakistan imported 68,700 metric tonnes of palm olien that made it as the second largest importer of the commodity. China has a population of 1.2 billion imported 213,000 metric tonnes. The European Union (EU) imported around 114,000 metric tonnes oil during the same period and ranked third.

Pakistan imported $ 99.363 million worth of palm oil in December 2007 as compared to $ 49.956 million during December 2006, showing a rise of $ 49.407 million or 99 percent. Due to international prices of palm oil surged by around $ 56 per tonne to $ 876-$ 890 per tonne, importers and millers are paying around Rs 21 per kg more due to Malaysian crude palm oil price increase. In the end of February 2008 palm oil prices further rose to $ 1,200 per tone, showing a total increase of 19 percent this year. This increase would put additional burden on import bill of Pakistan.

China and India are purchasing huge quantities to raise their stocks of palm oil for future needs. A sudden increase has also been taken place in the palm oil demand due to its conversion into bio-diesel. Malaysia is the world's largest producer of palm oil and Pakistan has been the second largest user so far. In the first half of the current fiscal year, the commodity import rose to $ 671.493 million by $ 234.032 million or 54 percent as compared to $ 437.461 million during the same period of last fiscal year.

Pakistan imports mostly Malaysian palm oil and olien to meet domestic demand of 1.99 million tonnes, whereas cottonseed meets rest of the demand. Pakistan imported around $ 892 million worth of palm oil during 2006-07 as against $ 717 million in 2005-06. Local production is not increasing because growers think that producing palm products is a waste of time and money, as the money they earn is less than the overall cost and has no guarantee of procurement. They are concentrating on cultivation of cotton, rice and wheat that have a robust growth in terms of value in the country. The edible oil is imported from Malaysia, Indonesia, Norway, Singapore and Argentina. Of the imported quantity, about 56 percent is of palm oil.

Edible oil crisis is looming over the country because prices are rising in the international market due to decline in world production of palm oil and soybean crops. The overall production of palm oil in South America and soybean production in some other countries, including Argentina and Brazil, has also declined significantly this year Malaysian palm oil seed crop has also damaged due to harsh weather; this would further reduce the supply of oil to the international market.

Owing to the rising demand and low supply, palm oil prices in the international market have shot up by $ 120 per tonne to $ 1,170 from $ 1,050 per tonne just within one month and jumped now to $ 1,200. Moreover, prices of edible oil are likely to go up further which would result in crisis in the local market. Similarly, in the domestic market, prices of edible oil have already gone up by Rs 40 per kg within a few weeks. To overcome edible oil shortage innovative efforts are needed, enhancing local production of oil seeds by increasing area as well as per acre yield.

Presently, farmers are growing traditional crops such as rapeseed and mustard but per hectare yield is less as compared to non-traditional crops like sunflower, soybean, canola etc. The average per hectare yield of rapeseed and cotton seed is 750 kg and 1,244 kg while per hectare yield of sunflower is 1,810 kg, soybean 1,207 kg and canola 1,246 kg. There are many other factors responsible for low production such as sowing of non-certified seed, late sowing, under dose or overdose of fertilizers and poor plant protection that are resulting in low per hectare yield of oilseed crops. It is essential that growing non-traditional oilseed crops should be encouraged to cope with the situation.

The government is planning to slash taxes on the import so that people could get these essential products at reasonable prices. Due to surge in palm oil prices at the international level, tariff structure at import level needed to be rationalised to offset increase in price, particularly after 10 percent reduction in the import duty on the product under Pakistan-Malaysia Free Trade Agreement (FTA).

At present 215 ghee units are functioning in the country, of which 155 are in the unorganised sector producing not only sub-standard products, but also not paying taxes and selling their products at the same prices of branded products. This situation is disturbing those units working in organised sector. Therefore, government should take serious action against malpractices of these units that are producing sub-standard products which are also a threat to the health of the people.

It is predicted that edible oil and oilseed demand will increase in future for production of bio-diesel, due to high price fossil fuel, new uses in Olea-chemicals, international pacts like Kyoto Protocol under which 38 industrialised countries intended to reduce emission by using 5.2 percent bio-fuel between 2008-12. The European Union (EU) has set a target of increasing bio-fuel in energy consumption to 5.75 percent by 2010.