How the double whammy of rising prices is frying consumers

LAHORE: The steady rise in edible oil and oilseed prices, reflecting a 119.84% jump in world markets and the 23.25% rupee-dollar exchange rate widening over the past three years, has become a double whammy for the masses, especially the poorest of the poor.

Despite rising oilseed prices, the failure to encourage farmers to increase local production has caused edible oil prices to soar. Due to internal and external factors, a liter of edible oil now costs around Rs 509/litre (13 May 2022 price) from an average price of Rs 225/litre in 2019. .22% of the oil price. edible oil for the past three years or so.

Being the mainstay of the food basket, oilseeds and edible oils are the major food imports of a country like Pakistan, accounting for about 80 to 90 percent of total utilization.

Local demand for edible oil is met both by crushing locally produced and imported oilseeds and by importing edible oil in bulk. Although it is a major agrarian economy, the heavy reliance on imports to meet edible oil needs has been a major reason for soaring cooking oil prices, which increases inflationary pressure on the poor, thus jeopardizing the country’s food security.

Soaring food import bills are further straining foreign exchange reserves and this trend is going largely unnoticed. In 2021, the total import bill for edible oils and oilseeds soared to $5.45 billion from $2.63 billion recorded three years ago in 2019, showing a staggering increase the cost of imports of edible oils and oilseeds by 107.22%.

In 2019, Pakistan imported 2.69 million tonnes of soybean and canola oilseeds, worth $1.10 billion. In addition to this, 2.55 million tons of palm oil and other by-products were also imported in the same year which cost another $1.53 billion in the same year.

The import of oilseeds increased to 3.33 million tons in calendar year 2021 with a price of $1.98 billion. Similarly, imports of palm oil and other derivatives in the same year soared to 2.98 million tons, at a cost of $3.74 billion.

Consumer ordeal from crushing inflation appears to be dying hard as prices have yet to peak, market insiders said. In the last two months of political instability, the rupee has devalued to 193.70 rupees or 8.82% against the dollar, which could further inflate the price of edible oil by around 25 rupees /litre on the retail market within a fortnight.

Adding to this cost escalation would be the impact of the three recent upward revisions to the retail price of edible oil, market insiders said.

Indonesia’s ban on the export of palm oil and other by-products, the war between Ukraine and Russia, and the prolonged heat wave may also contribute negatively to the cost of oil. edible, further straining the livelihoods of people in this part of the world.

In order to rein in cooking oil prices, Pakistan needs to turn this crisis into an opportunity by encouraging the cultivation of edible oil. Neighboring India is doing the same and has succeeded in increasing domestic production.

It is a sheer lack of good governance that no specialized department exists in the public sector at both federal and provincial level for the systematic promotion of oilseed crops in the country.

With the scope of the Pakistan Oilseeds Development Board (PODB) remaining significantly limited at the national level and the failure to establish similar institutions at the provincial level after the passage of the 18th Amendment, all development work in the oils sector edibles have stopped.

The problem of the capacity of the provinces has not yet been solved, although it receives billions of rupees each year from the Centre. The lack of will, a broader vision and a proactive approach have cost the whole nation dearly, with virtually no work being done to improve domestic oilseed production.

Apart from the so-called “achievement” of the PODB to increase the area of ​​sunflowers, no other initiative has been introduced for this food sector so far. Consequently, no one has taken responsibility for coordination and policy formulation for oilseed development and with virtually no results-oriented research on oilseeds, farmers have found no charm in planting these crops.

Because of this dismal ‘performance’, no tangible work could be done on introducing soybean farming, which requires a financial incentive to make it a profitable option for potential growers. Despite promising prospects, intercropping of corn and soybeans is still a failure. To make matters worse, mismanagement is rampant in agricultural departments and research institutions in the absence of real technocrats in key positions.

Besides increasing local oilseed production, which will have a huge impact in this regard, the government should also consider reducing the tax rate on imports to provide short-term relief.

With regard to the fiscal regime of the edible oils sector, duties on oilseed imports have been structured to encourage domestic value addition through relatively low tariffs.

However, the overall taxes at the import stage are too high, totaling more than 30% of the value. If the government wants to relieve consumers, the tax ratio should be rationalized in such a way as to make possible a price reduction of around 15 to 20%. Last but not least, a continued decline in cotton production has also led to reduced availability of seed cotton for oil extraction, limiting the supply of relatively cheap locally produced oilseeds.

This year, however, a 10-15% jump is likely in cotton production, which could optimistically translate into a drop in the cost of blended cooking oil to some extent.