Pakistan Institute of Development Economics



Edible Oil Deficit and Its Impact on Food Expenditure in Pakistan

Pakistan, a developing country, is the sixth most populous in the world [U. S. Census (2008)], whose demand is rising due to steady economic growth. Agriculture contributes 23 percent of the GDP, 42 percent of the total work force is employed to the agriculture sector and also contributes substantially to Pakistan’s export earnings [Alam (2008)]. Agriculture Commodities and Textiles Products accounts for 62.6 percent of Pakistan’s total exports [Memon (2008)]. Pakistan is the ninth largest producer of wheat, 12th largest producer of rice, 5th largest producer of sugarcane and 4rth largest producer of cotton among the top producers in the world as per statistics of FY05 [Memon, et al. (2008)]. Despite overwhelmingly an agrarian economy, Pakistan is unable to produce edible oil sufficient for domestic requirements. Edible oil is considered a necessity in Pakistan and hence its demand is relatively inelastic. There are many reasons behind this shortcoming, for example, lack of awareness of farmers, ignorance of policy makers regarding oilseed crops, technological deficiency in oilseed production and smuggling to neighbouring countries (Afghanistan in particular). The major crop responsible for 57 percent of edible oil production is cotton seed which is primarily a fiber crop. Indigenous production of edible oil is below the consumption levels with a very wide gap between the production and consumption. This gap is bridged through import of edible oil worth more than Rs 45.0 billion1 annually. Presently the oilseed production only meet about 30 percent2 of the domestic requirements and the rest is covered with imports. The high dependency on imports not only exerts the pressure on balance of payment but also develops a close linkage between international price shocks and edible oil price in Pakistan which is ultimately reflected in food expenditure. The common Pakistani food includes a significant quantity of edible oil which is the reason behind high consumption growth rates.

Muhammad Ali, Manzoor Hussain Memon, Syed Arifullah