Edible oil imports stall as dollars run short

LAHORE: Edible oil has started disappearing from the market as importers struggle to pay for cargoes stuck at the port amid a dollar shortage in the country and unofficial non-tariff barrier (NTFs) imposed by the authorities, industry officials said on Tuesday.

The consumers have been facing a high cost of edible for the last couple of years due to one reason or another, now they are staring at shortage of edible oil following drop in dollar reserves as commercial banks reportedly refused to open letter of credit (LCs) for import of edible oil and oil seeds.

Pakistan imports close to 90 percent of edible oil every year. Being the 8th largest consumer of edible oil in the world, the country is directly influenced by volatility in the global oil market in addition to any restrictions on its import.

In the financial year 2021, over four million tons of edible oil was imported which may further increase to 4.5 million in FY22.

In the current year, dependence on imports also spiked due to failure of the cotton crop as it contributes a major share in extraction of edible oil from domestic sources. It is estimated that local production of oilseed crops may contribute only about 8 percent to the overall demand of edible oil.

The refusal to process LCs against import deals is going to add more pressure on prices of ghee and edible oil, sparking a full-blown crisis. Traders have blamed that banks are only willing to honor LCs if the Rs250 dollar exchange rate against rupees is to be followed, which is unjustified.

“It is understandable that we are facing foreign exchange crunch due to multiple factors, there should be a way out for clearing consignments of edible oil as soon as possible,” an importer said.

Consequently, edible oil stocks are shrinking and may only be sufficient for meeting three weeks requirements.

As many as a dozen of ships having edible oil cargoes, comprising oilseed and oil equivalent to approximately 250,000 tons of oil have been languishing at Karachi and Gwadar ports for the past several weeks.

Pakistan Vanaspati Manufacturers Association (PVMA) expressed dismay over non-release of imported consignments.

The rate of palm oil has already gone up by 10 percent in recent days which has already started translating into a jump in the retail prices of ghee and cooking oil.

It is highly unfortunate for the consumers that despite a marked downward trend in the international market in the price of Palm oil and its byproducts, which make up the lion's share in total imports of edible oil, prices in domestic market have not been reduced primarily due to persistent disparity in dollar and rupee parity.

It may be noted that a respite in edible oil prices shock for consumers in the medium to long term could only be possible by enhancing domestic production of oilseed crops. Being an agrarian country, cultivation of such crops at a fairly large area is possible if steps are taken for its promotion. Some interventions in this regard include availability of high-quality seed, introduction of intercropping of oilseed through incentives, announcement of attractive price of locally produced oilseed and restrictions on imports.