The edible oil prices is set to follow the sugar and cement price-spiral pattern

May 08 - May 14, 2006

Both the president and the prime minister in their recent observations have exposed their services concerns about the keeping inflation and unprecedented price hike and called for corrective steps in this regard president Musharraf in particular had asked the state bank during his recent visit, for urgent remedial measures to check the inflation how's impact was causing widespread repercussions.

Pakistan's economy has been unfortunately on a roller-coaster ride due to the uncertain and unpredictable straight of oil prices. How ever, some of the inept policies and particularly poor governance by the newly inducted city district government has added much to the woes of the common people faced with unbearable price hike in almost everything raining from food items to conveyance and other necessities of life.

The edible oil prices is set to follow the sugar and cement price-spiral pattern as the Pakistan Vanaspiti Manufacturing Association (PVMA) has decided to raise its retail price by eight to 10 per cent by mid-2006.

Syed Yawar Ali, Chairman PVMA, talking to PAGE has said that the edible producing countries have starting converting oil to bio-diesel, which he said had created shortage. Yawar said that despite all out efforts by the government to bridge the gap between the supply and demand of this essential commodity, local production of oilseeds having reached a plateau. He said that following the inability to catch up with the constant increase in demand. Had lead to heavy dependence on imports.

The PVMA chairman said that edible oil was one of the largest businesses in Pakistan, not only the consumption and imports had increased the industry had also expanded over the last couple of years. He said that there were 75 operational hydrogenation plants with a total capacity of 1.2 million tons, 28 solvent extraction plants and 1 physical refinery until 1999.

Yawar said that the number of hydrogenation plank had increased to 98 with operating capacity 1.8 million tons, 40 solvent extraction and 5 physical refineries with a capacity to produce 0.98 million tons of palm oil annually by 2005. He said that total consumption of edible oil stands at 2.5 million torts with a per capita consumption of 18 calories.

He said that the country was primarily dependent on imports for its edible oil requirements and the trend was unlikely to change any time soon. The farmers, he said, were more inclined towards cash crops like cotton, wheat arid sugarcane etc.

He said that scarcity of land and water making it impossible for the government to expand the production of oilseeds so as to bridge this huge gap between the requirement and local availability of this essential item. He said that the constraints besides the duties recently the government had imposed and additional one thousand rupees per ton on the import of all edible oils.

He said that physical Refineries has got concession of five hundred rupees per ton for the import of Crude Palm Oil which had resulted in an exponential increase in the amount of Crude Palm Oil being imported and consequently new refineries springing up.

Yawar said that Indonesia had been the major beneficiary of this incentive given to the Physical Refineries. He said that since Malaysia had imposed restriction on the export of Crude Palm Oil, Indonesia had captured the major share for this product. 'With an installed capacity of almost a million tons coming into production with the inception of the current year, Pakistan would also be primarily a Crude Palm Oil importer like India rather than a refined oil market' he added.

The government may extend the cement export ban or levy regulatory duty on cement export if prices are not reduced or not brought back to previous level of Rs. 280, it is learnt.

Sources told PAGE that government may levy regulatory duty (RD) on the export of cement as the government conveyed to the cement manufactured to either bring down back to Rs. 280 level to avoid concessional duty regime on cement import.

An official, who was part of the government team, which conveyed the government's concern to the All Pakistan Cement Manufactures Association (APCMA) during a meeting held recently, told me that the manufactures had been asked to bring down the prices at Rs 280 level for avoiding concessional duty regime on cement import.

He said that cement was heavily consumed in the construction sector. A number of factors resulted in the shortage of cement in the country. Some of the factors are undergoing repair. Export of cement to Afghanistan has increased, and the people who were not purchasing cement prior to budget 2005-06 later started buying it and its demand increased.

The sources said that the manufacturers were, however, reluctant in accepting the government's demand of reducing cement prices, whereas the authorities had yet to devise a mechanism for taking action against cartels, an official said. "We are yet to determine what action the government can take against the cement manufactures, "the official said as the cement industry had, by and large, turned down the government's persistent demands for decreasing the cement price to the level of Rs. 280 per 50kg bag.

The official said that the MCA had prepared its own independent report on the issue, while the industries and commerce ministries had already held meetings with the representatives of All Pakistan Cement Manufactures Association (APCMA).

The government's overtures to allow duty-import of cement or impose duty on cement exports couldn't any impact on the prices. The officials said that the cement prices were Rs.259 per bag on June 9 last year and the manufactures in connivance with the dealers raised the rates by Rs.111 per bag in last three to four installments.

The government side was of the view that cement prices should not exceed Rs.280 per bag. The meeting looks strong notice of irrational increase in cement prices during the last few weeks and termed it unacceptable and uncalled for. Industries and Production Secretary, while rejecting the APCMA point of view that the retailers were responsible for increase in the prices to over Rs.300 has demanded that they should ensure availability of cement in the open market at some reasonable price.

The sources said that the APCMA chairman assured the meeting that cement prices would come down considerably within stipulated time. They said the secretary informed the APCMA delegation that the government would monitor cement prices on daily basis and review the progress in the next meeting to be held on the expiry of the deadline.

The government is actively working on two-pronged strategy to discourage rising trend in cement rates in the local market. It is seriously considering restricting cement export to Afghanistan, besides allowing duty-free import.

The authorities are convinced that there was no logic in cement export when it was being sold locally at much higher prices and the new duty regime would discourse its export to improve supply in the open market.

The government conducted a survey in many major cities to have average price of cement bag. According to the survey, the manufactures were minting fabulous profit of Rs.1400-1500 per tonne that was the highest in the region.

Sources said that the authorities felt that high rates can impede pace of progress of the housing and construction sector and the situation created by the profiteer's demands government's immediate intervention.