The heavy FED toll on fruit-beverage industry

The importance of readily available chilled beverages increases in summers. With temperatures rising above 40 degrees centigrade in major cities of Pakistan, the beverage industry normally expects high profits during this time of the year. Additionally, juices and nectars are often considered part of a balanced diet by many. In fact, most high quality juices available in the market offer health benefits such as provision of essential vitamins, minerals and antioxidants as well as hydration to maintain fluid balance in the body. Juices also offer convenience to consume nutrients found in fruits especially during summers when a chilled sugary beverage is essential to prevent dehydration and low blood sugar. Moreover, with the standard Pakistani diet being centred on fibre and protein, intake of juices adds diversity to the nutrient intake and flavour profiles. A good quality fruity beverage increases the body’s digestibility as some individuals find it easier to consume liquids like juices.

While the benefits of high quality fruit beverages are many, the Pakistani market is flooded with counterfeit, unhealthy alternatives. These are often labeled as part of the shadow juice industry, with undocumented sellers producing unsafe products. This undocumented sector rakes in huge profits every year. According to estimates, the informal players have grown by a significant percentage over the last year alone. The mushrooming growth has been attributed to a 20% Federal Excise Duty (FED) imposed on fruit juices in the last year’s budget. If these undocumented players were part of the formal economy, the government would have been able to collect tax from them too. Since they are not, the shadow industry’s growth has not only hurt the formal industry that pays taxes but also the consumer and the government’s hopes of collecting revenue. This matter also concerns food authorities as most of these beverages pass through zero quality control and are often unfit for consumption. The FED imposition on fruit juices is resulting in a large proportion of consumers switching to these low-priced, low-quality alternatives offered by the undocumented sector. As prices of beverages from the formal fruit juice industry have increased due to the FED, many are unable to afford a high quality beverage and are forced to opt for options with high sugar and almost no fruit content.

Additionally, the low affordability of products produced by the formal juice industry has caused many established businesses in the sector to shrink. This has created a crisis of unemployment within the industry as businesses are unable to utilise installed production capacity in full. As a result of the FED, and subsequent industry contraction, no new investment was made in 2023-24 and isn’t planned for 2024-25 either. Some companies have had to let go of workers, especially daily wage workers, as a result of dipping sales. This dip has also negatively impacted fruit growers and farmers because of plummeting volumes of pulp procurement.

Overall, after the implementation of 20% FED on fruit juices in June 2023 under the Federal Budget, the formal packaged juice industry volumes have plunged by 40% — a significant impact during this year, depriving consumers of healthier options that contain actual fruit content. Moreover, in the wake of the 20% FED levy, industry sales have plummeted by 40% in 2024. The fruit-based beverage industry engages more than 100,000 people in the value chain to provide a safe, high quality product to the consumer. However, the FED has made the formal juice business unviable which is cause for alarm for economic growth of the rural economy. It is imperative that informal players are brought into the tax net so the industry can achieve economic stability and continue to thrive.

Published in The Express Tribune, May 14^th, 2024.

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