KARACHI: The Competition Commission of Pakistan (CCP) has recommended that the government should levy uniform duties on the import of palm oil and its substitutes.
A report entitled Competition assessment of cooking oil and ghee sector highlighted that high structured import price of soybean “creates protection for palm oil-dependent firms and the asymmetry suggests an absence of a level-playing field.”
Soybean is a major substitute for palm oil for the production of edible oil in the country. CCP has also urged the government to grow alternative crops for the production of edible oil in the country in order to save foreign exchange.
It has highlighted that the edible oil and ghee sector has a cumulative installed capacity of 2.8 million tons, but total production stands between 1.5 and 1.8 million tons annually. The watchdog contended that average capacity utilisation in the sector stands at a paltry 44 per cent.
“Imported palm oil constitutes around 56 to 58 per cent of all oil used for production of edible oil and ghee in Pakistan,” said the report.
It asserted that during the past few years, annual “total demand for edible oil was about three million tons and out of this less than one million tons were indigenous production while the remaining quantity had to be imported,” adding that the country imported palm oil worth Rs106 billion annually.
Lack of competition
CCP has asserted that the sector lacks “competitive pressure” against existing companies. The study observed that in a competitive market, firms routinely refer to prices in their advertisements, adding that advertisements of companies associated with the sector seldom propagate product prices.
Four major producers namely Dalda, Kashmir, Sufi and Habib control 10 per cent market share, which is considerably below the international benchmark of 40 per cent for oligopolies.
The report showed that Dalda has been the most competitive company in this sector over the past five years. It asserted that the company held the lowest market share out of the four big companies back in 2005, but it has since become the market leader in terms of output, producing 114,000 tons of edible oil in the year.
“Over these years, Hamza (Sufi) and United (Kashmir) have remained stable in their production levels at around 70,000 tons and 40,000 tons per year, respectively,” the report added.
Profit margins for major producers peaked at an average of 5.2 per cent in 2008, however increases in the international price of palm oil and other input costs had trimmed the bottom line to just 1.8 per cent by the end of 2009. Still lower margins coupled with the entry of new firms in the sector have not had an adverse impact on sales of major producers, asserted the CCP.
Published in The Express Tribune, January 7th, 2011.
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