INTERNATIONAL

1 | IMPACT OF IMPORTED FOOD ITEMS ON TRADE BALANCE OF PAKISTAN

TRADE
PROJECT
IMPACT OF IMPORTED FOOD
ITEMS ON TRADE BALANCE OF
PAKISTAN
Date: 24th March, 2009

Presented by:
Rabia Saeed
Atufa Ambreen Dar
Ayesha Mujahid
Nida Malik
Presented to : Miss. Yusra

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CHAPTER NO.1

INTRODUCTION
Agriculture plays an important role in Pakistan's economy, accounting for about 25
percent of GDP and almost half of the country's labor force. Crop production
accounts for the largest share of agricultural GDP (63 percent), followed by
livestock (32 percent) and fishery and forestry (5 percent).
Despite the rising trend of agricultural output, the country faces a number of
challenges in respect of the sector. One is to reduce food imports, which have been
growing steadily, especially in recent years. According to projections, food demand
will rise substantially by the year 2010, with the share of imports in domestic
consumption likely to go up further. With limited scope for expansion of cropped
land, higher crop output will have to come essentially from higher yields, which
requires investments in agricultural research and irrigation, among others. Yet,
investment in agriculture has been on the decline.
Agricultural exports have contributed significantly to overall export growth.
Pakistan has a strong comparative advantage in the production for exports of a
number of agricultural products, including cotton and rice. In recent years,
horticultural exports have increased rapidly, with little by way of subsidies. The
country's climate and location give it an advantage in accessing a number of niche
markets and it is generally considered that, given an enabling environment,
horticultural exports could grow substantially.
1.0 FOOD INDUSTRY OF PAKISTAN
Pakistan is basically an agricultural country and thus agriculture is the 'backbone' of the
economy and the mainstay of our national economic life. It contributes about 25% to
the GDP, employs about 50 % of the total labor-force, provides livelihood directly to
70 % of the rural population, and earns about 60 % of the total value of exports.
Overall, it meets the food needs of the population. But unfortunately, the backbone
is aching badly now and may suffer crack under the pressure on soil discordance
and natural calamities.
One of the finest Pakistani achievements related to the historical fact of post
independence period has been the green revolution of 1960, which turned the
country from an ardent importer of food grains into an exporter of a few crops. The
newly developed early maturity and high yielding dwarf varieties of wheat and rice
during the period helped in increasing the production of food grains significantly.
This has led to enormous transformation in the positive direction of economy of the
country, which came about through the combined efforts of scientists, researchers,
planners and farmers.
The country produces wheat, rice, cotton, sugarcane, maize and other cereal in
sufficient quantities. Wheat is the leading food grain in Pakistan. Rice is the second
most important food grain. It requires irrigation and is grown as a Kharif crop.

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Maize is mostly grown in Kharif season. Cotton is an important cash crop of the
country. It is exported in sufficient quantity. Other crops of food products millet,
sorghum, soybean, dry beans, chickpeas, tomatoes, pepper, tobacco. The
important fruits are date palm, apples, citrus, mangoes, bananas. The production of
all major food commodities in Pakistan have shown as upward trend, but the
increase was most significant in the case of poultry meat, fruits, eggs, red meat
and vegetables. Pulses also showed substantial increase in production. Pakistan's
major imports of food commodities include edible oils, sugar, tea, dry milk and
pulses. The country however, is a major exporter of rice and cotton and other
exports include fruits and some vegetables. Since independence, the population
increased many folds, similarly the grain production increased several times.
Besides green revolution, significant production advances have been made in milk,
fish, fruits and vegetables. To propel agriculture of the country into 21st century,
the quality of technical skills and management of agricultural manpower must
improve. Science, technology and generation of new technology will of course be
helpful in increasing the agricultural productivity of the country.
Pulses: The pulses include gram, mung, masoor (lentil), mash, mattar and other
pulses of Rabi and Kharif season. The area and production of all pulses in Pakistan
are (Area 1530.5 x 103 hectares, Production 951.4 x 103 tons).
Edible oils: The edible oils crops include soybean, sunflower, sesamum,
groundnut, mustard, linseed, canola, rape-seed, castor-seed etc.The total area,
production and yield of all oilseed crops are (Area 690 x 103 hectares, Production
3790 x 103 tons).
The oilseed crops do not fulfil all the requirements of our increasing population,
therefore Government of Pakistan have to spend billions of dollars on the purchase
of palm oil and soybean from the foreign countries.
Vegetable: The important vegetable crops grown in the country are potato,
tomato, egg plant, lady finger, kakri, bitter gourd, loki, pumpkin, chillies, ginger,
cucumber, garlic, radish, carrot, turmeric, corriander etc.
Livestock: Pakistan is self-sufficient in the production of livestock. The livestock
includes, cattle, sheep, buffalo, goats, canals, asses, horses, mules and poultry. All
the four provinces are enriched in livestock production. However, the production of
livestock in the country are: cattle (17541 x 103), buffaloes (15705 x 103), sheep
(23287 x 103), goats (29945 x 103), camels (958 x 103), asses (2998 x 103),
horses (388 x 103), mules (69 x 103) and poultry (57503 x 103).
Fruits: The important fruits, which grow in Pakistan are: citrus, mango, banana,
apple, guava, grape-fruit, apricot, peach, pears, plum, grapes, pomegranate, dates,
almonds.

1.1 INTRODUCTION TO TRADE BALANCE OF PAKISTAN

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Pakistan has been experiencing severe macroeconomic problems since the last one
year. Two biggest economic problems faced by the new government are inflation
and the trade deficit. This report focuses on the later and suggests a strategy for
reducing the deficit through import management.

Our basic focus is on food imports and its effects on trade deficit of Pakistan. But
before we start our argument on food imports we first examine how and when this
deficit started to expand.
The trade balance in Pakistan has nearly always remained unfavorable. Trade
deficit, defined as exports minus imports, started increasing in 2003-04. The deficit
figure increased from $1060.1 in 2002-03 to $3278.5 in 2003-04, showing a rise of
209 percent. The average growth in trade deficit since 2003 is colossal 92%. Table
1 show that the trade deficit has reached 20.75 billion US dollars in 2007-08, which
is even higher than the total exports of Pakistan.
Table 1: Pakistan's Trade* (in US $)
Year Exports Imports Balance
FY 03 11160.2 12,220.3 -1060.1
FY 04 12313.3 15,591.8 -3278.5
FY 05 14,391.0 20,598.0 -6207
FY 06 16,451.0 28,581.0 -12130
FY 07 16,976.0 30,540.0 -13564
FY 08 19,220.0 39,968.5 -20748.5
* Excluding Re-Exports & Re-Imports
Source: Federal Bureau of Statistics, Govt. of Pakistan.

Chart 1, below, shows that the trade deficit has increased by around 7.2 billion
dollars in 2007-08, which is the highest ever increase in one year. This is not
because of lower exports but due to the unprecedented rise in imports. Pakistan
achieved its export target of $19.2 bn in 2007-08, with a growth of 13.22 percent.
However, the sharp surge (31%) in imports took the deficit to all time high. The
upward sloping steep part of the curve in the front page diagram depicts the
severity of the situation. The decade-wise trend line shown as a dotted line shows
the long-term rising tendency of the trade deficit.

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If this growth in trade deficit is not controlled at this stage it can make the
economy more vulnerable.

In order to find out the reasons for the country’s soaring trade deficits, one may
have to look deeper into the composition of the country’s exports and imports.
THE EXPORT PICTURE
A study of the exports statistics for 2007-08 (July-April) shows that textile exports
and though lower by 2.5 per cent as compared to the same period last year ñ had
enjoyed a share of 57 per cent in the total exports. Exports of food group had a
share of 13.2 per cent; petroleum group a share of 6 percent and other
manufactures had a share of 19 per cent in the total exports. Export of all other
remaining items had a share of 5 per cent.
THE IMPORT PICTURE

Coming to the imports now, the country’s total imports had grown by 28.3 per cent
in 2007-08 (July-April), compared to the same period last year, reaching a
formidable $32.06 billion. Petroleum group occupied the largest share of 27 per
cent in total imports, followed by 16.6 per cent share of raw material, 13.2 per cent
of machinery, 11 per cent of food group, 5.9 per cent of telecom sector-related
imports, 5.3 per cent of consumers’ durables and the remaining 21 per cent share
of others.

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The external trade data for the years 2006-07 and 2007-08, released by Federal
Bureau of Statistics, is reproduced in the table below showing only group wise
summary of imports.

Group-wise Summary of Imports

Value in
Commodities thousand Growth Share
$
39,968,49
GRAND TOTAL 30.87 100
6
A FOOD GROUP 4,209,742 53.51 10.53
B MACHINERY GROUP 7,376,383 10.32 18.46
C TRANSPORT GROUP 2,251,116 -6.04 5.63
D PETROLEUM GROUP 11,380,048 55.14 28.47
E TEXTILE GROUP 2,348,808 49.96 5.88
F AGRICULTURAL AND OTHER CHEMICALS GROUP 5,828,912 31.59 14.58
G METAL GROUP 2,542,409 8.37 6.36
H MISCELLANEOUS GROUP 738,115 11.62 1.85
I ALL OTHERS ITEMS 3,292,963 38.55 8.24

Above table is showing increasing trend of imports of all group of commodities. The
highest import growth is recorded in Petroleum, Food and Textile group, which was
around 50%. On the other hand a 6% decline was recorded in Transport Group.
Overall imports increased by 31% in 2007-08 in terms of value calculated in US$,
while in terms of Pak rupees this growth rate was 36%.

Group Petroleum constituted the largest share in our import bill which was 28.5%,
while Machinery Group and Agriculture & Other Chemical Group, was second and
third highest groups, with 18.5% and 14.6% share, respectively. Our major focus is
on the imports of food items and their contribution in the trade deficit of the
country.

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Here we want to know what contribution food group is making in broadening the
trade deficit of the country.

CHAPTER NO.2
2.0 FOOD IMPORTING CULTURE AND ITS IMPACT ON TRADE DEFICIT:
Below is more detailed analysis of the food import groups:

2007-08 2006-07 Growth

Commodities Unit MT Value Value Unit MT Value Value Unit MT Value Value
Rs. Mn 000 $ Rs. Mn 000 $ Rs. Mn 000 $
264,29 4,209,74 166,24 2,742,27
FOOD GROUP - 3 2 1 5 - 58.98 53.51
Milk, Cream & Milk 39,5 84,
Food For Infants 29,107 4,640 74,344 86 5,108 223 -26.47 -9.16 -11.73
1,823,41 1,241.1 2,048.1 1,969.3
Wheat Unmilled 5 54,091 860,001 135,960 2,518 41,559 4 7 5
Dry Fruits & Nuts 116,369 4,962 79,452 115,051 4,136 68,185 1.15 19.97 16.52

Tea 102,261 12,659 202,099 112,136 12,965 213,812 -8.81 -2.36 -5.48
Spices 132,909 5,393 85,270 86,198 3,275 54,021 54.19 64.67 57.85
Soyabean Oil 108,382 6,455 103,488 48,492 2,468 40,666 123.50 161.55 154.48
1,766,47 101,82 1,614,39 1,710,43
Palm Oil 1 2 0 7 55,529 915,779 3.28 83.37 76.29

Sugar 36,605 912 14,750 586,543 15,722 260,334 -93.76 -94.20 -94.33
Pulses (Leguminous 520,9 1 244,
Vegetables) 333,899 12,635 200,755 22 4,839 773 -35.90 -14.85 -17.98
All Others Food 4 818,
Items - 60,724 975,193 9,681 923 - 22.23 19.08

The above table shows that Palm Oil has the biggest share of 35.38% in overall
Food Group imports. Value of its imports was increased by 76.3% however,
quantity increased by 3.3% only. This shows that this increase in import bill is
because of the price factor, which has grown rapidly in international markets over
the last fiscal year. Almost entire import of this item comes from Malaysia and is
included in Pak-Malaysia FTA. Pakistan has allowed its import under Tariff Rate
Quota regime with specific duty. So, it is not advisable to take any preventive fiscal
measures to reduce its imports. This is an essential food item; therefore any tariff
hike would further increase inflation, since being an essential food ingredient, it is a
very price inelastic good.

Crude and refined palm oil shipments from top producers Malaysia and Indonesia
make up about 75 percent of Pakistan’s total imports as these products satisfy
strict Muslim dietary laws and are among the cheapest vegetable oils. Normally,

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Pakistan’s palm oil imports consist of 80 percent refined palm products and the rest
crude palm oil.

As regards, edible oil (Palm Oil plus Soya bean Oil), the jump in import value
occurred essentially through continued rise in world prices of edible oils, like palm
oil, soya bean oil, canola and rapeseed oil. Malaysia (largest producer of palm oil),
USA (largest producer of soya bean oil), Canada (largest producer of canola oil),
and Europe (largest producer of rapeseed oil), all engaged in biodiesel production
in a big way, diverting their largest commodity away from edible oil market. This
supply constraint, in addition to other reasons like ballooning fuel prices, resulted
in high import prices for Pakistan for palm oil and soya bean oil, while the
quantities imported did not change significantly. It is forecast by commodity
analysts that prices of oilseeds would not increase this year, and are in fact likely to
fall. This should then be reflected in lower world edible oil prices, and thus lower
import for Pakistan. Simultaneously there is an urgent need for MINFAL to mobilize
its Oil Seed Corporation to launch some kind of “OIL SEED UGAO” campaign
nationwide.

The second biggest import item, in Food Group, is wheat, whose import bill
increased by a whopping 1970% in the just-ending fiscal year. This very large
import of wheat last year was an extraordinary circumstance, when due to
mistaken forecast of surplus production, wheat was allowed to be exported. Later
when the mistake was realized, it was too late, and a large quantity had to be
imported at high price, as the world wheat prices had gone very high by then.

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CHAPTER NO.3
BRIEF ANALYSIS OF IMPORTED FOOD ITEMS
3.1 DAIRY INDUSTRY IN PAKISTAN

Dairy farming is an agro-based activity, buffaloes and cows

can be raised for milk production in an organized manner for
commercial purpose.

Pakistan is the fifth largest milk producer in the world. Milk

production is 28 million tonnes from 125 million heads. Milk is
used for drinking, tea, desi ghee, yogurt and butter making.

Milk is also used to make Khoya and different types of sweets.

Milk processing companies use milk as a raw material to formulate different types
of milk ie pasteurised milk, UHT milk, condensed milk, skimmed milk, milk powder,
etc Different value added products like yogurt, ice cream, butter and cheese are
also produced from the raw milk.

Livestock is an important sector of agriculture in Pakistan. It accounts for 39

percent of agricultural value added and about 9.4 percent of the GDP. Its net
foreign exchange earnings, in 2001-02, were 51.5 billion, which was 12.3 percent

PRODUCTION OF LIVESTOCK PRODUCTS

Product 1998-1999 1999-2000 2000-2001 2001-2002 2002-2003

Milk 24,877 25,566 26,284 27,031 27,811
Beef 963 986 1010 1034 1060
Mutton 633 649 666 683 702

of the overall export earnings of the country. The Livestock include cattle,
buffaloes, sheep, goats, camels, horses, asses and mules.

With the every passing day, dairy products are becoming costlier because live
stock farming has not scientifically grown with the increase in population and also
it did not match with the pace of urbanization.

REASONS FOR IMPORTS

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The recent increase in meat prices is attributed to the export of live animals or
meat to the Middle East and Afghanistan. There was a time when animals used to
be imported or smuggled from Afghanistan into Pakistan but after 9/11 the
situation suddenly took a 'U' turn. In Afghanistan, the war has seriously affected
the Livestock sector. Thus Pakistan started exporting instead of importing Livestock
from Afghanistan.

Besides, the smuggling of Livestock from Pakistan to Afghanistan has also started
in a big way to meet their domestic shortage of animals.

The country, though rich in Livestock, rarely got a chance to export meat or meat
products to earn foreign exchange. It was offered an opportunity when various
Middle East states stopped importing meat from European countries due to the
incidence of the mad cow disease.

Traditionally, Europe was the biggest exporter of meat and meat by-products and
Livestock and had been a major source of foreign exchange for several European
countries. Technically, meat from South Asia has a superior quality, due to grazing
and vegetable concentrates as the main source of Livestock feed here, against
bone and meat meal in Europe.

There is a greater possibility that this trend would go unbridled if the government
does not take corrective measures to ensure a steady supply of animals in the
domestic market.

3.2 WHEAT

In Pakistan, wheat being the staple diet is the most important crop and
cultivated on the largest acreages in almost every part of the It
contributes 13.7 percent to the value added in agriculture and 3.0
percent to GDP. It occupies 75 percent of total rabi cropped area of
the country Over the past three decades, increased agricultural
productivity occurred largely due to the deployment of high-yielding cultivars and
increased fertilizer use. With the introduction of semi-dwarf wheat cultivars, wheat
productivity has been increased in all the major cropping systems representing the
diverse and varying agro-ecological conditions.

IMPORT AND PRODUCTION OF WHEAT IN PAKISTAN

Pakistan experienced a negative trend since its existence up to Green Revolution

period (1965-1976). During this period, country witnessed increasing trend in
wheat yield. Pakistan has been a net importer of wheat since past several decades.

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Pakistan imported 5.7 million tons wheat during 80s and 2.07 million tons during
90s. The highest quantity of wheat (4.1 million tons) was imported during 1998,
which decreased (1.6 million tons) in 2000 (2). This decrease in import was
primarily due to record wheat production. Crop management practices and
decisions involved in wheat production may be the main factor contributed to
increased production. The data revealed that wheat yield in irrigated Punjab (2645
kg/ha) was somehow equal to the world average. Punjab is leading province
regarding wheat yield, followed by Sindh, Baluchistan and NWFP.
FACTORS CONTRIBUTING TOWARDS YIELD GAP

There is around 60% yield gap in wheat, which needs to be narrowed. Wheat
production in the country, however, has been well below potential and variable.
The major reasons for low productivity and instability includes: delayed harvesting
of kharif crops like cotton, sugarcane and rice, and consequent late planting of
wheat, non availability of improved inputs like seed, inefficient fertilizer use, weed
infestation, shortage of irrigation water, drought in rainfed and terminal heat
stress, soil degradation, inefficient extension services. Moreover, farmers are not
aware of modern technologies because of weak extension services system.

Non-Availability of Seed: The non availability of seed of improved varieties to

farmers is not only resulting in lower yield but also placing them on the risk of crop
failure due to disease.

Late Planting: In Pakistan, farmers generally plant wheat late due to late
harvesting of kharif crops (cotton, rice, sugarcane and summer crop growing areas)
which results in low yields because the crop is exposed to heat stress at grain filling
period leading to the formation of shriveled grain. Currently, only 20% of wheat is
being planted at optimum planting time (15th October to 15th November). Any
delay in planting would reduce yield drastically. Non-availability of soil moisture in
rain fed areas also delays wheat sowing in these areas.

Water Shortage: Wheat crop need water for the whole growth period, but their
are some stages which are more vulnerable to water shortage and any water
shortage during this period may result in serious yield loses. The shortage of
irrigation water at crown root initiation, booting and early grain fill period results in
significant yield losses.

Other factors include inefficient fertilizer use and weed infestation etc.

EXPORT / IMPORT

Pakistan's economy has taken a new turn with the country for the first time
entering the wheat export market with the shipment of 35,000 tons to Iraq in 2001.

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Depending upon production and inland consumption, export quantity varied from
year to year.

Export (Wheat + Import Per Capita availability

Wheat Flour) (kg/year)
Quantity Value Qu Va
anti lu
ty e
2000-01 80.5 671.7 - - 113.8
2001-02 642.6 4361.6 - - 115.0
2002-03 1535.6 10713.3 - - 119.2
2003-04 334.7 2833.6 - - 119.3
2004-05 521.7 5413.3 136 - 113.4
8.0

Source: Agricultural Statistics of Pakistan 2004-05

Through the table we see that after 2004, country started to import wheat. It has
been explained before that in fiscal year of 2007 import bill increased by 1970%
which is a very large figure. And this was due to the wrong anticipation of surplus
production due to which wheat was allowed to be exported. This cost not only the
society but also made the country to import a large amount of wheat despite of
being top ten wheat producer in the world.

3.3 TEA

“Pakistan is the second largest tea importer country in the

world”

Tea is the cheapest and most popular beverage that is

served at both professional and social gatherings all over the
world. In Pakistan it is counted as a staple food item of
common man and is an integral part of our culture and
heritage. Due to these causes Pakistan consumes a
substantial quantity of tea and our country enjoys the
distinction of being the world's second largest non-producing
tea importer. Its consumption is increasing at a much faster rate because of
population growth, food habits, and comparatively cheaper means of
entertainment.

REASONS FOR IMPORT

The amount of tea required for consumption not only increased the foreign
exchange burden but also encouraged the smuggling of tea. Approximately more
than 20 percent of yearly consumption is being received by smuggling, counted as

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a major cause of losses in government revenue. Some reasons for the import of tea
are:
The rising trend in the import of tea is attributed to the indigenous increase
in the consumption of tea
The reasons for increase in the indigenous consumption are connected with
the population growth, food habits, and comparatively cheaper means of
entertainment.
The high amount of consumption and higher unit value of tea not only
increased the foreign exchange burden but also encouraged the smuggling
of tea.
Various policy measures have been introduced to encourage cultivation of tea for
eliminating foreign exchange burden and to curb smuggling by further reduction in
taxes and import duties. Unfortunately all these measures always appeared
ineffective due to bureaucratic apathy (laziness) and lack of will by the political
leadership. To get rid of these economic disasters, there is a need to take rigorous
and severe measures.

COUNTRIES EXPORTING TEA TO PAKISTAN

The world market is dominated by four leading exporters of tea, namely India, Sri
Lanka, China and Kenya and by four leading importers of tea, namely, United
Kingdom, United States of America, Pakistan, and Egypt. The major tea suppliers to
Pakistan are Kenya, Sri Lanka, India, and Bangladesh. To analyze the performance
of imported tea into Pakistan during 1988-99, the compiled data in terms of volume
and value are documented in the following table:

3.4 SUGARCANE

“Time for a clear defined policy”

Believe it or not, sugar industry in Pakistan operates without any definite

policy framework. The industry, which is the second largest after textile
industry and has a direct bearing on life of millions of farm workers and
rural population, is at the mercy of those who hardly understand industry
mechanics. They (the decision makers) are very sensitive to any
increase in sugar price but are least bothered about spending millions of
dollars on ill-timed import of sugar.

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The result of lack of policy framework has been responsible for financial turmoil
and economic distress for sugar industry during the past six years in succession.
The millers faced problems whether there was a shortfall in sugarcane supply or
surplus production of sugar. The dilemma of sugar industry is a very high
component of raw material (sugarcane) cost. In addition to this, other costs, i.e.
taxes, operating expenses, depreciation and financial cost do not allow any scope
for economies of scale. Low level of capacity utilization (around 45%) and
cost/price disequilibrium in domestic and export markets are other impediments.
However, persistent increase in sugarcane support price can be termed the root
cause for the current malady (problem).
INDUSTRY SCENARIO
At present the installed capacity for sugar production is estimated above 5.5
million tonnes, whereas the demand is estimated around 3 million tonnes. The
large-scale capacity was added in the nineties and was the outcome of entry of
politicians in sugar industry — both in Punjab and Sindh. It is feared that politicians,
who enjoy power as sugarcane growers, are resisting efforts to increase sugarcane
output in the country. They fear if the output is increased there would be a
reduction in sugarcane price. The result is, over the last many years millers were
forced to pay a much higher price for sugarcane as compared to the official support
price.
A key factor, which has the potential to increase sugar production is clear cut sugar
export policy, has been missing. Whenever, there was sugar production above
domestic consumption, millers found it difficult to export the surplus. Export of
sugar is not solely aimed at earning foreign exchange but more importantly to
optimize cost through higher capacity utilization. It is worth noting that during
1999-2000 crushing season eight mills did not operate and another three could not
be commissioned. Had all of them were fully operational the level of chaos
(disorder) would have been beyond any one's expectation.
Three mills owned by Sindh Sugar Corporation: Dadu, Larkana and Thatta have
been non-operational for years. Also in Punjab some has not commenced
operations as yet. Non-operating mills and those which could not commence
sugarcane crushing are a burden on economy in general and financial sector in
particular. The apathy (lack of concern) of government is unpardonable. Most of
these mills are located in Sindh where the conditions are better suited for
cultivation of sugarcane. Besides, yield and average recovery are higher, as
compared to Punjab. Therefore, the efforts should be to make all the units

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functional at the earliest. Shortage of sugarcane should not be used as escape

goat.
SUGAR IMPORT
Everyone agrees that sugarcane is an agricultural commodity and there are various
factors, affecting output, beyond human control. Therefore, import of sugar is a
makeshift arrangement to overcome a temporary short supply. However, history
shows that sugar import has caused damage to industry rather than containing
price of commodity in the open market. It has been mainly due to two reasons: ill-
timed imports and quantity imported being much higher than desired. An
ill-timed import, that too in large quantities, affects lifting of sugar from mills.
Recently the policy planners have made a totally absurd decision about import of
sugar. It is estimated that over 750,000 tonnes has already landed Pakistan when
the crushing was in full swing. The rationale for this was said to be, "to contain
price hike." However, an industry expert has a very strange explanation for this. He
said, "The aim of large scale import was not to contain sugar price in local market,
the objective was to raise extra revenue — import duty on sugar — to satisfy the
IMF about revenue collection target. The central bank has supported this, may be
unknowingly, by buying dollars from kerb market to finance sugar import." In my
opinion it’s such a novel idea to meet shortfall in revenue collection!
REASONS FOR SHORTFALL IN PRODUCTION OF SUGAR

There is an urgent need to examine the deteriorating economics of sugar industry

(sugaronomics). While there is an urgent need to increase production of sugarcane,
it is also evident that some of the units are not economically viable. They have
been just adding losses to their balance sheet. Therefore, an option to explore is
the liquidation of such units without further delay. It is suggested that financial
institutions should take the hit by liquidating these units. They should write-off
those amounts which are not recoverable and transfer management of persistently
sick sugar mills to new sponsors. The purpose of such write-offs is to make debt
servicing sustainable. Such decisions are difficult and need political will. Creation of
CIRC has paved the way and the ultimate decision should not be delayed.
3.5 EDIBLE OIL
Major reason to import bulk of edible oil is the low production of oil seeds in
Pakistan
Import of edible oil consumes a lavish proportion of our import bill of food items.
Pakistan's total consumption of edible oil stands at 1.9 million tonnes out of which
only 0.6 million tonnes meets from local production but huge 1.3 million tonnes are
imported from different countries like Malaysia and Indonesia.

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In Pakistan, cotton, rapeseed, sunflower, soybean and safflower are major oil seed
crops but oil seed crop still fall into the category of minor crops due to their
seasonal nature. Oil seed is not grown at large and wherever it is grown it gives low
yield per acre. Oil extraction from seeds is further poorer than its yield.
REASON FOR IMPORT
Major reason to import bulk of edible oil is the low production of oil seeds in
Pakistan, low yield per acre and then under utilization of present capacity of
extraction of oil from seeds. The fact to be pointed out is that the production of
vegetable ghee and oil have been showing a consistent declining trend due to the
poor technology state, under utilization of capacity, lack of value addition, off dated
tool and techniques which forced to import oil and fats from abroad.
In Pakistan we have different climatic conditions which are not as supportive for oil
seeds as for other crops. So a comprehensive planning is needed to cultivate the
crops at larger scale. Cost of locally produced edible oil is higher so it seems
irrational to produce locally when it proves uneconomical as compared to the
import.
Also the unavailability of basic infrastructure is the main detriment to harvest oil
seed at large. For the local sufficiency first we need to develop basic infrastructure
for the local production of oil seeds for instance in Malaysia and Indonesia
thousands acres of land are under cultivation with all facilities available nearby
which provides economies of scale. Scattered farming at small pieces of land does
not provide economies of scale to the farmers as well as country, he added.

CHAPTER NO.4
COMMENTS & SUGGESTIONS
Falling Exchange Rate is an implicit tariff on imports: We are living in an era
of liberal trade regime. Using a floating exchange rate in a market economy, trade
balance is the most important factor (besides interest rate and inflation) in
determining our exchange rate. Vice versa, the floating exchange rate is also a
corrective to negative trade balance. As the trade deficit rises sharply (like in our
case), the rupee starts to depreciate against dollar and other currencies of our
major trading partners. This automatically would make our imports more expensive
(for the local population) and our exports cheaper and more attractive for our
trading partners. Thus as the basic economic theory would predict, imports should
fall (if they are elastic) and exports should rise (if there are no supply constraints),
correcting our deteriorating trade balance. In such a scenario, the talk of using
tariff measures to restrict imports is not advisable, as the depreciating currency is
already taxing the imports. In case of Pakistan, rupee-dollar exchange rate has
changed from Rs.61 to Rs. 72 (in August 2008), thus imposing an implicit tariff of

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around 20 percent on all of our imports. In such a situation, imposing tariff on even
non-essentials would be of dubious use, besides creating distortions in the
economy, resulting in what economists term as a ‘net welfare loss’.

To increase your exports you have to increase your imports: A mercantilist

mindset of the 1960s is still strong and kicking in Pakistan when it is suggested that
somehow we can strategize and boost our exports while at the same time cutting
our imports through imposing tariffs. In this day and age of integrated trade and
intra-industry trade, this dictum does not work. The more one aspires to boost
exports, the greater is the need to allow imports freely. China is a great example.
While its annual exports are around one and a quarter trillion dollars, its imports
are not far behind being near to the trillion dollar mark.
Rising world food prices could become an economic bonanza for Pakistan:
World food prices have risen sharply in recent months and the trend is likely to
continue as more and more agricultural land is converted from the growing of food
crops to crops like sugar cane and maize that can be turned into ethanol – for use
as a substitute for petrol in automobiles. This change is being driven by high oil
prices, which have made ethanol a cheaper substitute.
As a big producer of food crops and other farm produce, Pakistan has the potential
to cash in on this rising trend in prices by formulating and implementing medium-
and long-term strategies aimed at making the country a major exporter of cash
crops and value-added agribusiness products. For that to happen, however, the
government needs to substantially increase budgetary spending for programmes
and projects in the agricultural, rural development, irrigation, horticulture,
livestock, small and medium enterprises and trade promotion sectors.
China is now a big importer of farm produce, with the rising demand being fuelled
partly by the growth in population and partly by rising per capita income levels and
high GDP growth that has made the Chinese economy the fastest growing major
economy in the world over the last twenty years.
Fruit exports to China (not just mangoes but many other types of fruit as well,
including citrus fruit) could become an important source of foreign exchange
earning for Pakistan, with volumes eventually running into hundreds of millions of
dollars a year.
4.1 SUGGESTIONS FOR DAIRY PRODUCTS

Dairy farming is one of the best projects if professionally done on small land
holdings. The return of the land used for feeding animals is higher as compared to
land used for traditional cropping.

The prices of dairy products are shooting up day by day. In such a situation, the
only way to control prices is to develop the dairy industry on scientific lines, which

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will not only provide meat and milk in abundant quantities to the domestic
consumers but extra quantities can also be exported.

In spite of having a large population of Livestock, the country is spending some $40
million annually on the import of formula milk only, which is the highest amount
spent by any country in the world on this particular commodity. Currently, there
are some 160 varieties of infant formula milk available in the markets. While breast
milk is the best a mother can give her infant in terms of a balanced and healthy
diet.

To meet the domestic demand of milk and meat, the rate of growth must be at
least 5 to 7 percent per annum. Despite an increase in milk and meat production,
the prices have moved upward abnormally.

4.2 SUGGESTIONS FOR WHEAT

In the current year, the government should be very careful, and closely watch the
local production, and distribution, to discourage speculation, and hoarding.
Moreover, an export ban, along with tight border control to thwart smuggling,
would assure that high import of wheat is not required this year.

4.3 SUGGESTIONS FOR TEA

This study also recommended some important suggestions to curtail foreign
exchange burden and to curb smuggling of tea. These include:
To encourage endogenous cultivation of tea to save valuable foreign
exchange earnings.
To facilitate local farmers for the cultivation of tea.
To encourage a few national companies for setting up tea gardens in
Pakistan, in areas befitting for the cultivation of tea.
To avoid foreign companies (Lipton and Brooke Bond) for setting up tea
gardens in the county in the overall national interest.
National brands should be preferred for consumption.
To establish dairy farms, because neglection of these farms also increased
the consumption of tea.
To reduce consumption through de-marketing of tea.
There is need for further reduction in import duty, because, it still provides
incentives for smuggling of tea into the country.
4.4 SUGGESTIONS FOR SUGAR INDUSTRY:
Taxes and levies - the government should cut down level of tax to keep
sugar price at the modest level. At present the industry pays 11 different
taxes — five federal and six provincial

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Sugar pricing - Sugar industry deserves a fair market price keeping in view
its production cost plus economic return on equity. Since sugar production
cost is entirely dependent — to the extent of about 85 per cent by the
government policy framework — only the government should resolve the
outstanding issues. The government has discontinued the practice of fixing
support price of cotton, why can't the same be followed in case of
sugarcane? Let the market forces determine the price of sugarcane as well
as sugar. The government can still play the role of intervener by not allowing
the prices move beyond a specified bandwidth.
Zoning system should be introduced once again without further delay. The
country needs to double sugarcane output. This increase can be achieved by
improving yield and without increasing land under sugarcane cultivation. It
will help all the stakeholders, i.e. growers, millers, lenders and consumers.
However, the post of 'Cane Commissioner' should be filled by hiring
competent people from the private sector.
Last but not the least; the government must announce sugar export policy
valid for three years. The industry does not need to export sugar for earning
foreign exchange but to optimize cost.
4.5 SUGGESTIONS FOR EDIBLE OIL
Having agricultural base is the competitive edge to produce edible oil locally but it
demands comprehensive planning and research, high yield and proper utilization of
resources to be a big producer of edible oil. Positive attitude by government has
raised hopes in this concern being Pakistan a big producer of edible oil but all the
steps should be focused for the development and enhancement of the
infrastructure for oil seed crops and its extraction.
Modernizing the process of extraction of oil from seeds can increase the production
of edible oil. Furthermore area under cultivation for oil seeds should also be
expanded with high yield per acre which will increase the local production of
vegetable oil. Increased production of edible oil can help in curtailing the import bill
and create export opportunities if linked with the establishment of basic
infrastructure and sound policies.
CONCLUSION
The need of the hour, therefore, is to make all possible efforts to achieve food
autarky. By doing so, we would be able not only to bring down our food import bill
but, also, to boost our foreign exchange earnings from the exports of agricultural
products.
The Government has already taken some steps and is understood to be considering
a number of other measures to cut down the import bill, such as bringing down the
soaring trade deficit and improving the country’s foreign exchange earnings.
According to recent reports, appearing in the national Press, the is reportedly
considering import of bulldozers from friendly countries, in order to be able to bring

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more agricultural land under cultivation, in a bid to boost agricultural production

and earn additional foreign exchange from the export of agricultural surplus.
It is high time for this country to start a determined effort to put the economy on
the path of export-led growth. There is no justification for us to spend our limited
foreign exchange on the import of food when we can save billions of dollars by
boosting our agriculture sector. If the private sector feels shy to invest in these
industries, let the public sector come forward and do the needful.

REFERENCES
Magazine ‘Industry & Economy’, high imports of edible oil
http://www.jang.com.pk/thenews/investors/aug2003/right.htm
www.pakissan.com
http://www.fao.org/es/ess/top/prices_en.htm
http://www.icumsa45.com/trading-manual-for-intermediaries/
www.parc.com
Magazine ‘Industry & Economy’, Pakistan’s tea import performance

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