Positive Trends of Indonesian Palm Oil Export To Pakistan
Pakistan is one of the main export destinations for Indonesian palm oil, which is in the 4th position with export share of 7.9% in 2019. This is because the country has large domestic vegetable oil market potential. Domestic vegetable oil demand continues to increase in line with the increasing population, which is estimated to reach 220 million people by 2020.
Increasing purchasing power due to the growing middle income-class also contributed to the increasing of vegetable oils in Pakistan. In addition, the shifting in the appetite of the Pakistani both in urban and rural areas from consuming animal oil to vegetable oil is also a factor that drives the demand for vegetable oil in this country is getting bigger.
Based on the comsuption structure of vegetable oil in Pakistan, palm oil is the main vegetable oil consumed by the Pakistani with a proportion reached 66 percent or 3.19 million tons in 2018. The large of palm oil consumption is due to the lower price of palm oil compared to other vegetable oils such as rapeseed oil, corn oil, or soybean oil.
Most of the palm oil is used by the food industry as a raw material to produce Vanasphati Ghee. Vanasphati Ghee is an oil or fat with a semi-solid texture and is a suspension made from refined vegetable oil. Besides this product, palm oil also used by other such as other food industries (cooking oil, margarine, shortening), cosmetics industries and toiletries (soap) industries.
To fulfill the growing demand for palm oil, so that the Pakistan Government imports palm oil from Indonesia and Malaysia. Before 2014, the imported palm oil market in Pakistan was dominated by Malaysia, but since the implementation of the Indonesia-Pakistan Preferential Trade Agreement (IP-PTA), this has implications for making Indonesian as the largest exporter in Pakistan. This is confirmed by global trade data which shows Indonesia’s market share in 2019 was 80.6%, while Malaysia’s market share was only 19.4%.
Even during the global economic recession due to the pandemic, Pakistan became one of the export destinations for Indonesia’s palm oil which showed a positive trend in export performance. Indonesia’s palm oil (CPO + RPO) exports to Pakistan reached 1.83 million tons with an export value of USD 1.15 billion in January-October 2020 period. When compared with the export performance in the same period at 2019, which was 1.78 million tons or USD 915.89 million. It can be concluded that the export performance of Indonesia’s palm oil to Pakistan has increased.
However, amidst the performance of imported palm oil market in Pakistan that more bright, it has triggered trade barriers, one of which is the Punjab Food Authority (PFA), which is the health and food product control authority in Pakistan. This institution has issued a recomendation banning the consumption of Vanasphati Ghee from palm oil, because it is considered endangered health since October 2017. Regarding this recommendations, it received various responses, one of which was from the Pakistan Vanaspati Manufacturers Association (PVMA) who responded that recomendation was baseless and contradicted with Pakistan’s national standard policies.
However, after going through various meetings, both official and unofficial, and discussions between the Pakistan Government and private parties regarding these constraints, finally, the recommendation to ban the consumption of Vanasphati Ghee from palm oil was officially abolished at the Pakistan Standards & Quality Control Authority (PSQCA) meeting in Karachi on April 10, 2019. In the meeting, it was also agreed that the decision to make Vanasphati Ghee production would still be allowed, however the trans fat levels had to be reduced gradually to keep it safe for consumption by Pakistani consumers.
The success story of trade diplomacy to reduce trade barriers of palm oil in Pakistan has again opened the way for strengthening the palm oil market in that country. Not only dominating the Pakistani palm oil market, but Indonesia also has the opportunity to enter the markets of other countries such as the Middle East, South Asia, and Central Asia by using Pakistan as a trade and investment hub. In other words, Pakistan can become a gateway to access the broader market for Indonesian palm oil.
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