Pakistan's Promise: Trade Policy Helps U.S. Soybean Exports

The 1990s were a stormy decade for U.S. soybean exports to Pakistan. U.S. soybean producers shipped soybean oil to Pakistan under USDA food aid programs but commercial opportunities have been scant until now. decart3b

Pakistan has long been an important market for other U.S. agricultural products, such as wheat, but now there is an opening for whole soybeans as well, thanks to a new trade policy.

The Pakistani Government plans to discourage imports of oils through higher tariffs and favors imports of bulk oilseeds through tariff reductions. The revised tariff policy reflects a growing realization that imported oilseeds are needed to help develop the country’s processing industry.

Pakistan’s total worldwide oil imports are valued at $350 million, which includes a variety of products, but is mainly palm oil. Its total world soybean imports are valued at $10 million.

If, however, the country follows through on its plans to supply its oil needs through imported soybeans which are then processed in Pakistan, the total for imported soybeans could increase substantially. This is the commercial opportunity for the United States.

The competition U.S. soybeans face–not counting substitutions of other oilseeds–will be Argentina and Brazil, but both nations tend to export more processed soybean products, and not soybeans.

Pakistan's tariff changes reflect its effort to stabilize the economy and rebuild its industry.

The country is currently a major importer of palm oil. Its domestic production now supplies only a quarter of consumers’ vegetable oil needs, and that percentage is expected to drop in 2001.

To supply the remaining 75 percent of edible oil its consumers demand, Pakistan must import and loses a lot of money annually in scarce foreign exchange. If Pakistan remains dependent on continued imports of palm oil, it would not only drain foreign exchange but also reduce profit margins for the local industry and create a major disincentive to domestic production. That’s why importing raw ingredients might serve them better.

Moreover, demand for soybean oil is expected to increase in the near future as Pakistan’s middle- and upper income consumers–a small, but growing, segment of the population—shift to palm oil alternatives.

In addition to the tariff changes, the Government of Pakistan is encouraging domestic production of sunflower seeds and canola, but not soybeans. The idea is to grow crops that produce an abundance of oil–soybeans fall below these crops in oil production.

Beyond being crushed for oil, U.S. soybeans can be used for the protein meal necessary for the poultry and dairy industries.

GSM Helps Exports to Pakistan

Wheat exports have benefited from FAS’ Export Credit Guarantee Program (GSM-102), which covers credit terms up to three years. The two programs underwrite credit extended by the private banking sector in the United States (or, less commonly, by the U.S. exporter) to approved foreign banks using dollar-denominated, irrevocable letters of credit to pay for food and agricultural products sold to foreign buyers.

Benefits to U.S. Exporters

There have been no sales of bulk soybeans under the new tariffs yet. But during the past five years Pakistan has purchased bulk soybeans from the United States.

In fact, Pakistan’s overall business attitude toward the United States remains quite positive, according to the U.S. Department of State. Bilateral trade and investment could improve, its report adds, with better transparency and economic growth.

The potential market growth for whole soybeans will in part depend on the capacity of Pakistan's infrastructure.

The country’s solvent extraction industry was developed in the late 1980's. But many plants which could be high producers have remained idle largely due to a shortage of oilseeds.

Pakistan’s crushing industry consists of older, inefficient plants that crush the oilseeds, but have no refining capacity. It also has some newer solvent extraction plants. Pakistan's oilseed processing sector is entirely private with only indirect government support.

Growth in production capacity, as well as the new changes in tariffs favoring whole soybeans, will be essential for this industry’s future.

It will take a combination of both imported and domestic oilseeds for the nation to achieve its full oil-production potential. A viable processing sector would also help strengthen the economy and provide jobs.

Ikram-ul-Haq Chaudhary is an agricultural specialist at the American Embassy in Islamabad, Pakisan; Tel.: (011-92-51) 2080-2276, FAX: (011-92-51) 278-142 E-mail: agislamabad@eudoramail.com