Here’s How Pakistan Can Save Billions of Dollars in Foreign Exchange Reserves

Pakistan is predominantly an agricultural country but it is still on a trajectory to import around $9 billion of food items by the end of this fiscal year. With just $9.7 billion in total foreign exchange reserves, Pakistan needs to quickly turn to viable long-term solutions to lessen the burden on its import bill.

Pakistan has already spent about $7.7 billion to import food items during the ongoing fiscal year – 12% more than the corresponding period last year. The import bill of consumable goods is expected to rise further this year since the government will be importing 0.6 million tonnes of sugar and 4 million tonnes of wheat to build reserves. Last fiscal year, Pakistan used $8.3 billion to import consumable food items.

The government has announced an import ban on luxury items, claiming it would save around $6 billion. However, high imports of consumable goods have raised many eyebrows, particularly because agriculture is an area Pakistan can target to become self-sufficient for consumables.

Within the consumable goods category, Pakistan spends foreign exchange mainly on wheat, edible oil, tea and pulses. So far in the ongoing fiscal year, the country has already imported more than $5 billion worth of these items.

Tea

Numbers demonstrate our love for tea. Pakistan imported $646 million worth of tea in the 2019-20 fiscal year, largely from Kenya, according to the online data platform Observatory of Economic Complexity, which listed Pakistan as the largest importer of the commodity in the world. In the 10 months of this fiscal year, our tea imports have jumped 9% to $532.4 million, compared with $580.5 million in the entire 2020-2021 fiscal year.

Let’s not forget that excess consumption of tea comes with some inherent health hazards, but that’s a debate for some other time. Back to the forex dynamic; we are largely accustomed to drinking 2-3 cups of tea in a day. Bringing that figure down to a single cup of tea would slash tea imports by 33% to 67% i.e. $200 million to $400 million.

There are other avenues we could take to reduce reliance on imports, like helping the domestic production of tea. “To grow it domestically, we need reliable buyers (from the farmer), technical, material and sometimes financial support for the farming community, a recommendation on the areas suitable for tea production (surely after a survey), and specialized machinery,” said Ahmad Mahmood, Assistant Professor, Department of Soil and Environmental Sciences, Muhammad Nawaz Sharif University of Agriculture, Multan.

He said a tea plant takes three to five years before it begins production, which means no farmer would wait for those years. “Similarly, post-harvest handling of tea is difficult, and requires technical support which is lacking,” Ahmad said, pointing out that the climate of Abbottabad is more suitable for growing tea than Shinkiari, Mansehra.

“We can grow tea, but it would require a lot of intervention, either by the government or through a public-private partnership, like involving tea marketing companies,” Sikander Bhadera, a farmer, said. “This can actually drastically decrease our food import bill.”

Edible Oil

Finance Minister Miftah Ismail said Pakistan used to import $2 billion of edible oil annually despite the fact Pakistan is considered an agricultural country. Pakistan’s palm and soybean-related imports reached $4 billion in fiscal 2021, up 47% annually, and is expected to rise to $6.5 billion in the next few years, which is unsustainable.

The palm oil import bill increased by 45% in the first ten months of the fiscal year to $3.1 billion. The soybean oil import bill more than doubled to $126 million compared to the corresponding period. According to estimates by Pakistan Oilseed Department, total demand for edible oil is expected to grow to 5.9 million tonnes in 2025-26, from 4.7 million tons in fiscal 2021.

“The combined imports of palm and soybean have been growing noticeably over the last twenty years, rising to 7.1% of total imports in FY21 from 3.2% in FY01,” State Bank of Pakistan said in a report.

Palm oil is the main ingredient for manufacturing vegetable ghee, which is a hydrogenated blend of hard (for instance palm) and soft (such as soybean) oil. Since palm oil is rich in saturated fats, the World Health Organization recommends it should be less than 10% of total calorie consumption.

Sindh Abadgar Board’s Senior Vice President Mahmood Nawaz Shah believes Pakistan has immense potential to produce all types of oil, including olive oil, identifying that sunflower, canola and mustard oil could be produced in Sindh and Punjab.

The Oil Research Institute identified Eastern North Punjab, Central Punjab and Western North Punjab with a total of around 9.5 million hectares, or 23.45 million acres, of land already under cultivation. The National Agriculture Research Council estimates about 1 million acres of cultivatable areas in the Pothohar region of Punjab, Khyber Pakhtunkhwa and Gilgit-Baltistan could be used for growing soybean.

Wheat

Wheat imports fell by 19% in the first 10 months of the fiscal year, but still stood at $795.3 million, with no wheat imported in the month of April. In the entire fiscal 2021, wheat imports totaled $983.3 million.

Shah lamented that three years ago, Pakistan was producing wheat in surplus. He said that there has been the impact of climate change as well as diseases in the wheat crop, which the country should have prepared for 10 years ago.

“Pakistan’s wheat crop didn’t catch illness while other crops in the world did. But Pakistan did not prepare itself to fight in case those [crop diseases] came to Pakistan. The country is now paying a huge price for lack of proactive approach,” he said.

He said that the country should now work on seeds that have high yield and immunity. Moreover, it should increase its per acre yield from 26 to 27 tons. China has a yield of 65 tons per acre.

Pulses

Pakistan has imported $520.6 million worth of pulses between July 2021 and April 2022, compared with $709.7 million in the entire fiscal 2021.

“Not long ago, just like wheat, Pakistan did not import pulses,” lamented Shah. He said that the region between Sindh and Punjab could easily produce pulses. He said that there has to be a policy of the government and a will to see Pakistan producing consumable goods that it needs.

What’s The Way Out?

Chairman Pakistan Agricultural Research Council (PARC) Dr. Ghulam Muhammad Ali says the country can proceed toward self-sufficiency and increase yield through research.

Ali cited a recent example where Pakistan collaborated with Korean agricultural agencies to increase chili production and post-harvest management technology with the help of the Korea Program on International Agriculture, or KOPIA.

“Good quality chili will open the door to export free of aflatoxins. This will increase the country’s ability to contribute more than $50 million to GDP,” he said.

Meanwhile, Shah said that research in the agriculture sector could never be more important than at this time when the country is facing immense problems with its foreign exchange reserves, which have been depleting amid imports of consumables too.

However, he said that each consumable has to be looked at separately to determine if it could locally be produced. “It’s not that you could grow everything in your country,” he said. However, he added that Pakistan has immense potential to grow many crops not presently being grown domestically or increase the yields of present crops.



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