KARACHI: It was revealed on Thursday that two additional staples, ghee and cooking oil, will also be in short supply and more expensive ahead of the holy month of Ramazan if corrective measures are not taken immediately. This comes as rising prices of wheat flour and chicken have already impacted the budgets of the majority of households.
Due to banks’ reluctance to open letters of credit (LCs) and retire documents for goods clearance despite the State Bank’s listing of these raw materials as essential items on December 27, 2022, producers are quickly running out of palm oil, soybean oil, and sunflower.
Because banks are refusing requests for the opening of LCs and the retirement of documents, the removal of 358,000 tonnes of edible oil from the Customs Bonded Warehouses has been halted.
The State Bank has been informed that importers and manufacturers have been informed by commercial banks that edible oil has been removed from its list of “Essential Items” immediately.
Consequently, the default in the retirement of LCs in favor of foreign suppliers attracts a late payment surcharge and demurrage, and the rupee’s continued decline in value in relation to the dollar increases the price of imports.
Umer Islam Khan, secretary general of the Pakistan Vanaspati Manufacturers Association (PVMA), made a comment on the situation, noting that the palm oil price has already increased to Rs14,000 per pound from Rs13,000 per pound. He added that as a result, the cost of cooking oil and ghee has increased by Rs26 per kg/liter.
The outer anchorages of the Karachi and Bin Qasim ports hold approximately 175,000 tons of raw material awaiting discharge, while 358,000 tonnes of the material are still awaiting clearance.
Mr. Khan stated that consumers would face a further price increase of Rs15-20 per kg/liter if the LC retirement issue continued.
From other countries, it takes at least 60 days for palm, sunflower, and soybean oil to reach Pakistan.
He urged the concerned authorities to resolve the situation right away to prevent a ghee and oil shortage during Ramadan, which could begin in the third week of March. According to Mr. Umer, during the fasting month, demand for oil and ghee products rises by 20-25 percent.
Letter to SBP
In a letter to SBP Governor Jameel Ahmed, PVMA Chairman Sheikh Abdul Razzak stated that 90 percent of the edible oil consumed in the nation is imported to meet the national requirement of over 4.5 million tonnes per year.
Our presently available stocks can only satisfy demand for three to four weeks. Therefore, the central bank’s Dec. 27, 2022, circular stipulates that the unhindered opening of LCs and retirement of documents must be prioritized.
He pleaded with the head of SBP to instruct the commercial banks to grant the industry’s request for LCs.
He stated that the sector is facing a singular and unprecedented obstacle. He added that the industry is unable to lift the sufficient stocks that have been discharged in Karachi’s Custom Bonded Warehouses due to banks’ refusal to retire the documents.
The PVMA chief stated that the phenomenon, which has been occurring for a few weeks, has begun to generate negative market sentiment.
In a related development, Mohammed Tariq Yousuf, president of the Karachi Chamber of Commerce and Industry (KCCI), expressed regret that LCs are not being opened despite the State Bank’s instructions.
He said in a statement that banks aren’t opening LCs for the import of essential things like raw materials, food, fruits, vegetables, pulses, medicines, and household goods.
He stated, “The import of raw materials by commercial importers for industries, particularly export-oriented industries, is critical and should not be stopped at any cost.”
According to the chief of the KCCI, a large number of containers are awaiting clearance at the port, which has resulted in exorbitantly increased demurrage charges to the point where, in many instances, demurrages have exceeded the value of the goods contained within the container. He added that Pakistan’s image is being tarnished by the delay in clearing these containers, which are the property of shipping lines and must be returned as soon as possible.
Mr. Yousuf requested that the government issue instructions directing the immediate release of all of the containers that had been held without charging demurrage fees.
