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Self-sufficiency in edible oil

A big amount of foreign exchange spent on import of edible oil

By Syed Jamil Ahmed Rizvi, FCMA
Jan 22 - 28, 2001

Despite the fact that Pakistan being overwhelmingly an agrarian economy, it is unable to produce sufficient domestic requirement of edible oil and substantial amounts of foreign exchange are spent on the import of Soya bean and Palm oils. According to State Bank of Pakistan Annual Report 1999-00, the outflow for the last 5 years were as follows:

.

1996

1997

1998

1999

2000

US Dollar
in million

856

611.7

767.9

824.1

413.4

The country's major source of edible oil is cottonseed. Another source of edible oil is rapeseed, sunflower and canola. Oil content in cottonseed is 10 to 12 per cent while it is 32 per cent in rapeseed. Oil content is as high as 37 to 38 per cent in sunflower. As such in spite of the fact that the size of the cotton crop in the country has shown substantial increase over the last 50 years, the availability of cottonseed oil remains far below the domestic requirement of the growing population. The requirement for the next five years is worked out as per table A:

Table A: Projection of Demand

Year

Population in million

Edible oil million tons

2000-01

140.94

1.550

2001 -02

144.47

1.590

2002-03

148.08

1.630

2003-04

151.78

1.670

2004-05

155.58

1.711

Thus against the total requirement of edible oil which is estimated at 1.55 million tons, the domestic production of various types of edible oil is around 620,000 tons annually and therefore the shortfall of about 930,000 tons is met through imports of Palm oil and Soya bean oil. Per capita consumption of edible oil is 11 Kgs.

In order to save an average outflow of foreign exchange of about $ 700 million for import of the oil, there is a strong need to accelerate efforts in the agriculture sector to steadily increase the local production of oil seeds. Keeping in mind the oil content in seeds and other factors, a tentative projection of oil seed crops which may bring the country to be self-sufficient in oil production is shown in table B:

Table B: Potential for Cultivation of Oil Seed

.

Area Hectares

Production Oil Seed
tons

Edible Oil tons

Cotton

3,468,200

4,262,500

511,500

Rapeseed

980,400

726,500

232,500

Sunflower

937,000

1,675,500

620,000

Canola

331,200

408,000

155,000

Others

43,200

51,500

31,000

Total

5,760,000

-

1,550,000

Oil content is higher in sunflower seed which indicates an immense potential for a substantial growth. In 1998-99, sunflower was planted on 172,800 hectares, which was reduced to 117,360 hectares in 1999-00. This may be due to lack of timely review of support prices for sunflower. As a result, the farmers would have apparently lost interest in increasing the hectares due to continuous rise in the cost of agriculture inputs. Area and production of oil seed crops for the last 2 years is shown in table C:

Table C: Area & Production of Minor Crops

1998-99

1999-2000

. Area Production Area Production . .

Oil Seed crops

Hectares

Oilseed Tons

Edible Oil

Hectares

Oilseed Tons

Edible Oil Tons

Cotton

2929955

3153600

315360

2961060

3639929

436791

Rapeseed

295020

276000

88320

282475

209400

67000

Sunflower

172800

299000

113620

117360

209916

77109

Canola

70820

87500

33250

66370

81750

31065

Others

1150

1376

298

9715

11600

7000

Sub Total

3469745

.

550848

3436980

.

618965

Source: Economic Survey 1999-00

Production processes

Ghee (Vanaspati) is produced from vegetable oils which are refined, hydrogenated, deodorized and vitaminised.

The manufacture of ghee consists of five main processes which are (1) pre-refining; (2) hydrogenation; (3) post-refining; (4) deodorisation; and (5) packing.

Pre-refining process helps to remove the objectionable slime, dirt, free fatty acids and colour of the raw oils. Pre-refining consists of "alkali neutralization" followed by bleaching. After bleaching, the oil is filtered over filter presses for removal of bleaching earth.

Hydrogenation: The neutralised bleached oil is then subjected to hydrogenation. During this process, hydrogen is added at the double bends in the oil molecule; thereby reducing the degree of unsaturation and increasing the melting point of the oil. The oil mixed with the necessary amount of nickel catalyst is heated in 'Autoclaves' or hydrogenation vessels are treated with hydrogen. The hydrogenated oil is filtered over filter press for removal of nickel catalyst.

Post-refining: During the process of hydrogenation, there appears a slight increase in the free fatty acid content of the oil, which is removed again by the neutralization and bleaching process. However, the caustic employed is less and more dilute and the bleaching earth usage is lower. After this, the oil is filtered again for removing the bleaching earth.

Deodorisation: The purpose of deodorisation is to remove endorous substances from the oil.

Packing: The Vanaspati oil blend is enriched with vitamins A and D before being packed into containers. Vanaspati is produced either with a granulated texture resembling 'ghee' or as a smooth grainless product.

By-products: The most distinct by-products in the Vanaspati industry are soap stock, oxygen (02) or carbon dioxide (C02) in accordance with nature of hydrogen generation process. Soap stock may be converted into acid oil, oil studge, soap or glycerin. The oxygen gas may be sold for industrial or medical uses and carbon dioxide gas is supplied to the beverage industry.

Means of cost control

With the objective of helping the manufacturing companies of this essential commodity in analyzing the problems of costs for solving them, the Securities and Exchange Commission of Pakistan promulgated Vegetable Ghee and Cooking Oil Companies (Cost Accounting Records) Order, 1990. The Government made the Audit of Cost Accounts mandatory under Section 258 of the Companies Ordinance, 1984.

It has been realized that this very specialized Audit by cost and Management Accountants, who are fully qualified to undertake the work, helps not only the industry itself but also the nation at large by providing a basis for an action programme to reduce costs and put resources to better use.

Comparative yield of seed cotton:

According to SBP Annual Report 1999-2000, comparative yield of seed cotton is provide as follows:

.

Kgs per hectare

Pakistan Potential (At experimental Stations in Pakistan) in 1987

2,257

Yield for the year l999:

Pakistan

1,531

India

690

Iran

2,004

Developing countries - Asia

1,496

Developing countries - World

1,411

Laos - Highest yield

5,882

Conclusion

Timely review of support prices by the Government provides incentive to farmers for cultivation of crops and boost up their tempo. Since Pakistan is an agrarian country and is heavily indebted, it is absolutely essential that balanced policy for cultivation of four major cash crops wheat, cotton, rice and sugarcane as well minor crops of oil seeds should be chalked out by the Government to meet the food requirement of growing population of the country.

The Writer is Director Research of Institute of Cost and Managemennt Accountants of Pakistan (ICMAP).