The cooking oil industry is struggling to sustain the growth momentum that had set in after the establishment of new manufacturing units in 2011-12. Power outages, liberal imports of foreign brands of edible oil and informal production are a challenge to the industry’s ability to expand output.

In FY14, production of cooking oil grew around 2.4pc and in four months of this fiscal year it fell by 6.5pc. This is in a sharp contrast to a handsome 9.9pc growth in FY13, and 5.2pc in FY12.

The question is what made the industry’s rather impressive performance so short-lived?

“Our policymakers seldom make efforts to ensure sustainability of growth of any kind,” says an official of Pakistan Vanaspati Manufacturers Association. “We had achieved high growth due to investment in new oil making plants. But sustaining that growth required uninterrupted power supply at affordable rates and protection against unregistered industries. Unfor­tunately, these things remained missing.”

In last two years or so, packed cooking oil produced at unregistered plants seem to have captured more of the market share and some new brands have also popped up in the sector.

“Some big edible oil producers in the formal sector are now producing Me-2 versions of their own well-established brands to stop the spread of brands being manufactured by unregistered factories,” says marketing manager of one such company giving details of how the system works. “Our own company sells our brand with its original name as well as with a different name, oil pouches named differently are marketed mostly to the markets in troubled districts of Karachi as well as to most of roadside hotels there and elsewhere.”

In the last two years or so, packed cooking oil produced at unregistered plants seems to have captured more of the market share and some new brands have also popped up in the sector

Company executives say production of cooking oil is costlier than the manufacturing of vegetable ghee because processing of RBD palm oil (the main ingredient of ghee) is lower than processing soybean oil, canola oil or sunflower oil.

That is why when unregistered companies scale up production of cooking oil at a cheaper rate by using non-standardised processes, it becomes too difficult for edible oil makers in the formal sector to compete with them.

“And that’s why, some companies introduce (inferior quality) Me-2 version of their own brands and others make up the shortfall in sales revenue by producing more of vegetable ghee,” says an official of Habib Oils.

This explains why vegetable ghee production has recorded some modest increase of 3.7pc and about 2pc even during FY14 and in four months of FY15 respectively when cooking oil output first faltered and then slid.

According to industry sources, higher cost of cultivation of local oilseeds including soybean, canola and sunflower has made them more expensive and that, too, is affecting output of cooking oil industry.

Smuggling of edible oils and vegetable ghee to Afghanistan is reflected in officially-recorded low production. “Some oil extraction plants have been under-reporting outputs of vegetable ghee and edible oils to the authorities because of a part of their production is smuggled to Kabul,” says owner of a plant in Bahawalpur.

But officials of the Ministry of National Food Security and Research point out that in 2014, average prices of imported oilseeds used in manufacturing of edible oil were higher than in preceding two years. That was why oil industries couldn’t sustain high growth in production of cooking oil seen in 2012 and 2013. Despite that imports of edible oil increased to about 1m tonnes in FY14 from 725,000 tonnes and 730,000 tonnes respectively in FY12 and FY13.

Officials say that domestic output of rapeseed and cottonseed has been growing consistently but these are used mostly in manufacturing of vegetable ghee. On the other hand, local production of sunflower and canola oilseeds still meet only 20-25pc of the edible oil industry’s requirement — and the remaining 75-80pc of their needs is imported.

They claim that a lot of efforts are underway to boost production of local oilseeds and hope that imports of oilseeds will be gradually minimised. But up till FY14, Pakistan witnessed a declining trend in production of sunflower and canola. In FY12 production of sunflower oilseeds stood at 473,000 tonnes which fell to 244,000 tonnes in FY13 and then inched up to 265,000 tonnes in FY14.

Similarly, Canola oilseed output almost halved from 30,000 tonnes in FY12 to 16,000 tonnes each in FY13 and in FY14. (Figures for FY14 are provisional). Olive plantation drive is progressing well but officials of Pakistan Oilseeds Development Board say it will take a few years before we can obtain commercial-level output of olive oil. n

Published in Dawn, Economic & Business, January 26th , 2015

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