The rising trade deficit, high inflation rates, a more expensive dollar — the age-old woes that took a back seat when the pandemic raged on are again filling business pages.

Food is where inflation hits the most which currently the government is attributing, in part, to rising global food prices on the back of stockpiling in countries such as China, given supply chains disruptions during the pandemic. Container shortages, higher cost of transportation and the exchange rate spiralling up are all the reasons that politicians have gone hoarse complaining about and analysts have gotten bored explaining.

In August this year, food imports increased by 82 per cent compared to August last year, according to the Pakistan Bureau of Statistics. Ghee and cooking oil prices at home have increased roughly by 40 per cent, year-on-year in September — palm oil imports, the biggest component of food imports, more than doubled in terms of dollar value in August this year compared to last year.

Fluctuating around $2 billion every year, palm oil is a staple of food imports sourced from Malaysia and Indonesia, both countries with which we have trade agreements. The United States Department for Agriculture (USDA) estimates per capita cooking oil consumption at 24kgs. Palm oil makes vanaspati which is used in a range of goods, from bakery goodies to chocolates to soap as well as sold as an industrial frying oil.

China’s hogs and Malaysia vermin infestation all influence the price of palm oil at home

Pakistan’s oilseed production is declining due to falling cotton production which leads to a decrease in cottonseeds. In the past, the federal and provincial governments have launched an oilseed promotion initiative and growers received a subsidy of Rs5,000 per acre for planting up to 20 acres of canola and sunflower. This initiative resulted in some planting increases, but a significant breakthrough did not happen mainly due to competition from major crops ie, wheat and sugarcane that have the benefit of support prices. Soybean production is at a very low level and is difficult to increase due to harsh summer conditions and a lack of planting seed varieties, says USDA.

Given food security concerns, wheat reigns supreme through the support price mechanism. The government procures about half of the wheat crop that is marketed off-farm, which is generally sufficient to create a price floor in the wheat market. As most oilseeds are Rabi crops, farmers tend to opt for wheat over oilseeds. For sunflower and soybeans, two crops that could be produced during the Kharif season, farmers tend to view cotton, rice, corn and sugarcane as more profitable options.

Thus, Pakistan will remain among the top five palm oil-importing countries in the world, susceptible to global price trends — in the first half of 2021, edible oil prices were at a multi-year high, rising as much as 62pc. Bad weather conditions in major producing countries and increasing use of biofuels had constrained supply.

The reverberations of the meal that China feeds its pigs impact the price of the cooking oil that a housewife uses to make pakoray when it rains. China, as the leading hog and feedstock producer, is using less soybean meal to lower the country’s import dependence on the crop in the aftermath of Trump’s China-US trade war that curtailed top US export of soy to China. The pandemic further exacerbated supply chain concerns.

China is the second-largest importer of palm oil after India. As its economy grows, it will likely increase demand for ready-made and fast food for which palm oil is a widely used ingredient. China also removed import quotas for palm oil in 2019. As its soybean meal imports decrease, soybean oil loses its price advantage over palm oil and China’s demand for palm oil increases putting pressure on supply.

In the butterfly effect of impact on palm oil prices, US President Biden’s presidency campaign impacts the price of the chicken patties consumed with tea in Pakistan. During his campaign for the presidency, Biden pledged his commitment to the Renewable Fuel Standard that said refiners must blend billions of gallons of biofuels into the nation’s fuel mix or buy tradable credits from those that do. An increase in demand for biofuel starts a chain reaction that impacts the price of all edible oils, including palm oil.

In Malaysia, which accounts for about a third of palm oil production, many plantations were harvesting with two-thirds or less of the required workforce because Covid-19 restrictions cut off the usual supply of migrant workers from Indonesia and South Asia. Harvesting windows had to be extended from 14 days to as much as 40 days, compromising the quality of the fruits and risking the loss of fruit brunches. Less manpower to maintain the plantations meant more pests, including rats, moths and bagworms. The resultant disruption in supply pushed up palm oil prices.

Vermin infestation in Malaysia pushes up the price of chocolate snacks. The China-US trade war increases the price of instant noodles packed in school lunch boxes. These are just some of the chain reactions that impact the common man when the dependence is on foreign goods. The obvious impact of rising dollar prices is visible even to the layman, the more nuanced dependence on global trends that drive up domestic prices make the lack of import substitution all the more lamentable.

Published in Dawn, The Business and Finance Weekly, October 4th, 2021