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Pakistan: a consistent market for palm oil.

I am fully aware that the market for palm products in the subcontinent i.e. India and Pakistan plays a very important role in determining the price direction for the Malaysian market.

The theme of my paper is "consistency". The Malaysian palm oil industrialists will agree with me that although Pakistan is not the biggest importer of palm products from Malaysia, we are the most consistent and easily accessible market. Over the years--Pakistan has proved to be a dependable and reliable buyer for Malaysian exports of palm products. The infrastructure at ports and logistical arrangements to receive oil are not only efficient but also give an edge vis-a-vis the freight for Pakistan.

According to the Economic Survey of Pakistan (2000-2001) the current population is around 140.5 million. The average growth rate is 2.3% per annum. The per capita consumption of edible oil is around 13.80 kg. Based on this pattern the total yearly edible oil requirement of the country is around 2.00 million tonnes.

Pakistan has an import-oriented economy and in spite of the fact that we have an agricultural base, our edible oil import requirement is almost 70% of the total consumption. Edible oil constitutes the single largest component of food imports. Over the last three years, the value of annual imports averaged around US$500 million which is roughly one third of the country's deficit.

The edible oil industry is broadly classified into two products categories, namely "vanaspati" and "cooking oils". The bulk of the market (75%) is accounted for by vanaspati, while the remaining 25% constitutes cooking oils.

The import of edible oil is revenue-generating item for the government, therefore, has to modify the tariff structure vis-a-vis the international prices and local production. I am presenting the duty structure of edible oils before and after the budget of 2001

Now, let me give the statistical position of edible oil imports into Pakistan for the last three years i.e. 1999, 2000 and 2001. I have restricted the statistics for three years as I believe the same will be enough to understand will be enough to understand the Pakistan scenario. The statistical figures are based on the quantity arrived in Pakistan. I have obviously concentrated on palm oil and palm olien as my paper is focused on palm. However, since we have to look at Pakistan's requirement vis-a-vis all edible oils, my presentation will also cover soya oil, rapeseed oil, sunflower oil, cottonseed oil, crude account oil, RBD palm kernel oil and oil seeds.

From table-IV it can very well be seen the consistency of palm oil import into Pakistan in the year 1999-00-01.

From this table it can be seen that Pakistan for the very first time has imported considerable quantity of olien in the year 2001 because of tariff advantage after the budget and narrow difference between the international price of palmoil and olien.

From the comparison slide of RBDPO and olien for the year 2001, it can be seen that while RBDPO has maintained the consistency, the Pakistan market has imported a quantity of 2l6,261 million tonnes olien over and above RBDPO.

The interesting point is that in the second half of 2001, it can be seen from the table that a quantity of about 121,166 million tonnes of RBD palmoil and olien arrived in Pakistan from the Indonesian ports. This is obviously an added factor that the Indonesian oil will be competing with the Malaysian oil for the Pakistan market.

Here it can be seen that once R80 palm kernel oil prices came down internationally and since tariff structure was already too low, Pakistan for the first time imported RBD PKO in considerable tonnage, particularly in the month of May-June 2001 i.e. prior to the budget. The government then realised the folly on their part and consequently increased the duty structure from 15% ad valorem to Rs. 10,800 per million tonne + 15% sales tax and brought it at par with RBD palm oil which made this product incompetitive.

The crude coconut oil import also has the same pattern as RBD palm kernel oil but to the advantage of Malaysian Industry, Pakistan Ghee Industry was more adaptable to RBD PKO as compared to coconut oil.

The soya oil slide will show a gradual reduction in import year-wise as it can be seen that in the year 2001, our soya oil import was almost 50% own as compared to the year 1999. It is worth mentioning that the 2001 figures include 74,998 soya oil from USA which was given under aid programme. The reasons for reduction in soya oil imports were primarily international prices, availability of soft oil out of the imported seeds and lately shift to olien import, which was used as a blend in place of soft oil. Now let me give you details of indigenous oil production in the year 1999-2000 and 2000-2001

Oil seeds the major oilseed crops include cotton, rapeseed, sunflower and soyabean. The total consumption of edible oils in 1999-2000 was 1.9 million tonnes. Local production accounted for 32 per cent of the domestic requirement while the remaining 68 per cent of the country's requirement was met through imports. In 2000-01, the total consumption was around 1.95 million tonnes. The local production was sufficient to meet 29 per cent of the consumption while the remaining 71 per cent was met through imports. The edible oils are either directly imported or are obtained by crushing the imported oilseeds in the country. The imported oilseeds are mainly canola and sunflower. Production of oilseed crops during 1999-2000 and 2000-2001 are as given in table-II.

From the slide on indigenous production, it can be seen that the availability of local oil was around 611,000 tonnesintheyearl999-200and around 569000 tonnes in the year 2000-2001. This means that we only have 30% indigenous production out of the total requirement of about 2 million tonnes.

The most interesting scenario developing in Pakistan for the last three years is the import of oil seeds. Prior to the year 1999, oil seed import was negligible as the duty structure was discouraging and the extraction plants were completely idle. However, the solvent industry successfully represented to the Government of Pakistan reduction in duty on the import of seeds as local seeds were not sufficient to meet the installed capacity of the solvent industry.

Table-III will show the duty structure of oil seeds.

Since the duty structure was changed from he year 1999-2000, the solvent industry started importing seeds which is reflected in my Table for the year 199, 2000 and 2001. The soyabeans arrived in the year 2001 was under US aid.

The import of oil seeds into Pakistan market is indeed a change of pattern as upto the year 1999, seed import was not even discussed. However, the following factors are responsible for this change:

* Poor support price for the farmers fixed by the government.

* Favourable tariff structure for the import of seeds.

* Reduction in the international prices of seeds.

* Sufficient capacity with the solvent industry to crush seeds.

* Pakistan finding export market for meal as for the first time Pakistan exported rapeseed/sunflower seed meal in the year 2001 and the quantum was about 100,000 million tonnes.

It is generally expected that Pakistan will continue the seed import which will directly effect the import of soft oil into Pakistan. From the statistics given earlier, you will recall that Pakistan soya oil import has already come down by 50 per cent.

Now let us see that against total consumption requirement of around 2.00 million tonnes in the year 2001, the Pakistan market received over 2.21 million tonnes as given in table-IV.

From the table-IV, we arrive at the conclusion that:

Either:

1. Pakistan consumption has gone up. Or

2. Pakistan is meeting Afghanistan's requirement, directly or indirectly. Or

3. Pakistan has overbought.

To my mind, I will go for the third option and I will attribute its reasons to the of following factors:

a) Liberal import policy whereby any one can import any quantity without limit.

b) Since Pakistan has proved to be the most consistent and dependable market, we have seen that this market becomes the ultimate choice of sellers in the event other destination turn out to be unattractive or unresponsive, as result of which, often various desperate sales are concluded, giving way to unplanned imports and most of the time, C&F price of parcel sold to Pakistan surprised many.

Project for the Year 2002: Before I project the quantum for the year 2002, I would like to indicate the quantity already arrived/transacted:

Rapeseed/soyabeans 296,000 million tonnes Arrived/Transacted upto April. Soyabean oil quantity includes 60,000 million tonnes under US Aid.

The sudden increase in the import volume of olien in November! December, 2001 and January! February, 2002 has put some pressure on RBD palm oil as perhaps Pakistan was the main market for palm oil. I am sure the people who are interested in the Pakistan market, would be keen to know whether Pakistan would now be a palm oil or olien-oriented market.

Strictly speaking from the tariff structure point of view, olien has an advantage of $28 per million ton. If the price difference between olien and palm oil remain at $151 per million ton, olien will have an edge over RBDPO. However, the good news for the palm oil producers is that Pakistan palm oil offtake will improve in the summer months viz April-October, 2002.

While projecting the quantum for the year 2002, I am a bit skeptical on the following two fiscal measures which may be announced by the government prior to the annual budget or during the budget.

1. Imposition of sales tax on end-product i.e. ghee and cooking oil. At the moment the sales tax is only at the import stage. The consequence of this imposition would reduce trading activity as ghee manufacturers will have to show the production/consumption of the oil imported.

2. Increase in the import duty of RBD palm oil. Although i personally do not expect this to happen, there is one school of thought in our ghee industry which wants to discourage import of palm oil and encourage import of olien.

Barring the above two apprehensions, I still expect Pakistan to import about 1.2 to 1.3 million tonnes of palm oil and olien.

The summary of my projected quantity for2002 is based on two options as mentioned in the slide:

Price Outlook: My analysis would be as under:

* I have already given you the Pakistan scenario which I believe will be steady for market prices.

* Malaysian production between 11.50 million to 12.00 million (barring EL-NINO effect) will not have much impact as production figures are more or less same as of last year.

* Indian buying of 4.0 million to 4.20 million will be steady to slightly bearish for the market.

* The much-trumpeted China buying of 2 4 million tonnes is indeed bullish for the market but the excitement is minimal.

* Soya oil crop is bumper and the price of soya oil for A/M/J is already below he olien price. Olien will, therefore, need lots of efforts and luck to penetrate the Indian market in the presence of the gifted duty structure for soya oil.
TABLE-I

 Custom Duty Custom Duty Sales Tax
 (Rs. PMT) (US$ PMT) (%)

RBD PALM OIL
Before Budget 10,850 181 15
After Budget 10,850 181 15

RBD PALM OLIEN
Before Budget 10,800 180 15
After Budget 9,050 151 15

RBD PALM KERNEL OIL
Before Budget 15% -- Free
After Budget 10,800 180 15

CRUDE COCONUT OIL
Before Budget 10% -- 15
After Budget 9,500 158 15

SOYABEAN OIL
Before Budget 9,100 152 15
After Budget 9,100 152 15

SUN FLOWER OIL
Before Budget 35% -- Free
After Budget 9,100 152 15

RAPESEED OIL
Before Budget 35% -- Free
After Budget 9,100 152 15

TABLE-II

Production of Major Oilseed Crops

(000' Tonnes)

 1999-2000 2000-2001
 Oilseed Oil Oilseed Oil

Cottonseed 3640.0 437.0 3606.0 433.0
Rapeseed/Mustard 209.0 67.0 220.0 71.0
Sunflower 203.0 71.0 124.0 44.0
Canola 82.0 29.0 42.0 15.0
Others * -- 7.0 -- 6.0
TOTAL OIL: -- 611.0 -- 569.0

TABLE-III

Duty Structure of Oilseeds

(000' Tonnes)

Year Import Duty Central Excise Duty Sales Tax

1997-98 25% -- 15%
1999-00 Nil If the rate is below US$240
 C&f then CED @5% on Diff. Amt. --
2000-01 Rs. 1200 PMT Rs. 120 PM Or US$2.00 PMT --
 Or US$20 PMT
2001-02 5% 0.50% --

TABLE-IV

Import of Oilseeds

(Million Tonnes)

Commodity 1999 2000 2001

Rapeseed 189,981.000 415,414.000 352,083.000
Sunflower Seed 27,309.000 22,656.000 21,000.000
Canola Seed -- 30,000.000 --
Soyabean -- -- 165,000.000
TOTAL: 217,290.000 468,070.000 538,083.000

TABLE-V

Edible Oil Availability in 2001

(Million Tonnes)


RBD Palm Oil 1,016,900
RBD Palm Olien 216,261
RBD Palm Kernel Oil 64,304
Crude Coconut Oil 41,160
Soyabean Oil 135,123
Local Oil 576,600
Oil Extracted from Imported Seeds 177,574

TOTAL: 2,218,922

TABLE-VI

Quantity Arrived/Transacted Year-2002

(Million Tonnes)


RBD Palm Oil 94,898 Arrived basis January/February
RBD Palm Olien 141,448 Arrived basis January/February
Soyabean Oil 75,000 Transacted upto May Shipment

TABLE-VII

Imports of Oilseeds

(Million Tonnes)

 Option 'A' Option 'B'
 (If Olien and Palm (If Olien and Palm
 Oil Difference Oil Difference is
 Remain at $15) at $25 or above)

RBD Palm Oil 550,000-600,000 800,000-850,000
RBD Palm Olien 650,000-700,000 400,000-450,000
Soyabean Oil 100,000-125,000 100,000-125,000
Local Oils 500,000-550,000 500,000-550,000
Oil Seeds 200,000-225,000 200,000-225,000
(600,000-700,000)
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Article Details
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Author:Janmohammed, A. Rasheed
Publication:Economic Review
Date:Jun 1, 2002
Words:2327
Previous Article:SBP, watchdog or manager. (Comment).
Next Article:Review of federal budget (2002-03). (Cover Story).


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