CURRENT INDUSTRY ANALYSIS: The case of Edible oil industry reveals all the aspects of edible oil and

the prevailing impact of it on the other countries and also the economy and GDP of Pakistan. Exhibit 1: Monthly per capita consumption in Pakistan by Income Quintile 2001-02 1st Urban Desi Ghee Veg. Ghee Cooking Oil Rural Desi Ghee Veg. Ghee Cooking Oil All-Pakistan Desi Ghee Veg. Ghee Cooking Oil 0.00 0.49 0.03 0.01 0.51 0.01 0.01 0.51 0.01 2nd 0.00 0.56 0.09 0.02 0.61 0.01 0.02 0.60 0.03 3rd 0.00 0.61 0.13 0.04 0.66 0.02 0.03 0.65 0.05 4th 0.01 0.65 0.19 0.06 0.74 0.04 0.04 0.71 0.09 5th 0.03 0.60 0.45 0.14 0.84 0.09 0.09 0.73 0.26 Overall 0.03 0.59 0.23 0.05 0.66 0.03 0.04 0.64 0.09

The exhibit shows that the consumption of vegetable ghee, till date, is the highest while the consumption of desi ghee has decreased over the years drastically. This shows a change in customer trends. Oil production is forecast at 1.5 million tons, 17 percent higher than the previous year. Vegetable oil imports are forecast at a record 2.16 MMT, an increase of 5 percent relative to MY2010/11. Palm oil accounts for 81 percent of the total imports. Exhibit 2: Edible Oil Production and Imports Years 1970-71 1980-81 1990-91 1997-98 1998-99 1999-00 2000-01 2001-02 Annual Consumption (millions kg) 316 972 1616 1898 2098 1746 1979 1994 Population (millions) 65.3 84.3 110.8 131.5 134.5 137.5 140.5 146.0 Per Capita Consumption (kg) 4.8 11.5 14.6 14.4 15.6 12.7 14.1 13.7

We can witness that after the year 1970, there was a severe increase in the level of per capita consumption showing that demand for edible oils Multiplied after this year and has been on the increase from then. The edible oil imports stood at $2.69 billion out of the total import volume of $5.72 billion. Edible oils Multiplied after this year and has been on the increase from then.

Exhibit 3: Edible Oil Imports and Production Domestic Production 136 505 656 719 773 695 835 797 Edible Oil Imports Price per Value unit 7.5 1.4 5.6 2.6 9.4 9.0 28.3 33.3 30.6 40.5 20.4 21.4 16.6 19.0 20.1 24.0

Years 1970-71 1980-81 1990-91 1997-98 1998-99 1999-00 2000-01 2001-02

Quantity 180.0 466.9 959.6 1178.6 1324.9 1050.9 1143.5 1196.8

% of Total Import Bill 3.8 4.9 5.3 7.6 8.7 4.0 3.0 3.8

Pakistan Total Imports 36.0 53.5 171.1 436.3 466.0 533.8 627.0 634.6

Somewhere after the year 1998-99 the production and quantity of edible oil imports stabilized somewhat. However, in the same years when you take a look at the percentage of total import bill, you will see that the figures in that column show drastic variations, which showed that the import breakup was varying as a result of varying prices per unit. Pakistan imports around 8 percent of its total edible oil imports from Indonesia. After linking of the imports with the composite rates of dollar, the unabated increase in edible oil prices has already hit the masses severely as the price of palm oil in local markets has gone up by at least Rs 1190 per 40 kg. China has a fundamental role in the imports and they charge a higher price so that they continue their imports in third world countries like Pakistan. Chinas priority is the local consumption so there is a decrease in the supply of edible oil. Exhibit 4: Company of Pakistans Imports of Edible Oil Years 1985-86 1990-91 1995-96 1996-96 1997-98 1998-99 1999-00 2000-01 2001-02 Quantity (tones) Soybean 239 272 158 199 145 364 202 128 34 Palm 576 688 984 858 1034 961 849 1015 1162 Value (Rs Billion) Soybean 3.2 3.8 3.9 4.7 4.3 11.2 4.6 2.6 0.8 Palm 3.7 5.3 24.8 19.2 29.2 29.3 16.8 16.5 23.3

Pakistan has become one of the main palm oil importers in the world. Other developing countries, for whom price is an overriding purchase factor, are also large importers of palm oil. On the other hand, industrialized countries like the United States have been seen to import large quantities of Soybean due to its greater nutritional value.

An intelligent forecast for the year 2011 and afterwards shows that due to higher import cost, the manufacturers of vegetable ghee and cooking oil were unable to pass on the maximum benefit in case of any slight decline as they were facing multiple problems including power and gas load shedding and production loss.

. Year 1970 1980 1990 1995 1996 1997 1998 1999 2000 2001 Palm Oil ($/ton) 260 584 290 527 466 507 671 436 310 286

Year

1970 1980 1990 1995 1996 1997 1998 1999 2000 2001

Soybean Oil ($/ton) 307 594 447 524 484 524 626 427 338 354

In case of Soybean the highest price increase observed from 1970 to 2001 is $628 in year 1998.After 2001 the highest price rise is observed in 2008 and then in present year that is 2011 where prices have jumped up to 1330.9 $ per mt The international price of RBD was hovering around $1,054 per metric tone, while the price of palm oil around $1,063 per metric tone. The country consumes around 2.2 million tones edible oil every year out of which 0.63 million tones is contributed by the local growers while the remaining is imported to bridge the demand-supply.

Exhibit 6 96-97 Soybean Palm Sunflower Rapeseed Cottonseed Peanut Coconut Olive Palm Kernel Total Growth % 20.5 17.6 8.6 10.5 3.7 4.4 3.7 2.5 2.2 73.8 97-98 22.6 17.0 8.3 11.4 3.7 4.2 3.3 2.5 2.2 75.2 1.9 98-99 24.7 19.3 9.2 11.8 3.6 4.4 2.7 2.5 2.4 80.5 7.2 99-00 24.6 21.8 9.6 13.7 3.6 4.2 3.3 2.4 2.8 86.0 6.8 00-01 26.7 24.3 8.5 13.0 3.5 4.3 3.6 2.5 3.1 89.5 4.0 01-02 28.8 25.4 7.6 12.7 3.8 4.9 3.2 2.8 3.1 92.4 3.2 02-03 30.5 27.2 8.3 11.7 3.5 4.3 3.2 2.2 3.4 94.3 2.1 03-04 31.9 28.1 9.5 13.0 3.9 4.8 3.3 2.8 3.5 100.9 7.0

The exhibit shows the world production of vegetable oils from year 1996-2004. It shows that overall vegetable oil production grew at an annual rate of 4.6% per year. Soybean remained the most popular vegetable oil globally however Palm oil being catching up the same pace. However the more rapid growth in palm oil production and use was being driven by higher population growth rates in developing countries, which were the major palm oil consumers. The recent scenario shows that the world production for 2008-09 stood for around 133 million tons while for 2010-11 it is estimated to be 145 million tons. The main Producers are Indonesia, Malaysia of palm oil whereas United States, China, Argentina and Brazil are main producers for soybean oil. Exhibit 7 Shows health implications of various types of fats. Unsaturated vegetable fats tended to increase the level of 'good' cholesterol or high-density lipoproteins (HDL), in the blood and lower the level of 'bad' cholesterol or low density lipoproteins (LDL). Saturated fats from dairy sources and Trans fats from vanaspati ghee had the opposite effect: they raised LDL levels

Exhibit 8 Shows Nutritional Comparison of Various Edible Oils. It shows which vegetable oils which are healthiest more nutritious and good for health. The exhibit shows vegetable oils such as canola oil, sunflower oil, corn oil, olive oil and soybean oil were among the healthiest of vegetable oils with not more than 15% saturated fat content.

Exhibit 9 Average Production 1998-2003 Million tones Soybean Oil Palm Oil Rapeseed Oil Sunflower Oil Other Total 27.1 23.3 12.4 8.6 16.6 88.0 % 0f total

31% 26% 14% 10% 19% 100%

The exhibit shows the percentage of oils utilized, and how each oil has its own place. The highest use is of soybean oil where as the lowest is of Sunflower oil. Total domestic oilseed production during MY 2011/12 (Oct-Sep) is forecast at 5.8 MMT, up 24 percent over the 2010/11 production estimate due to an anticipated increase in cottonseed production. Production of cottonseed is forecast at 4.8 MMT, 25 percent higher than last years flood reduced production level.

Exhibit 10: Pakistans Oilseeds Crop Production 2001-02 Area (000 acres) Cottonseed Rapeseed/ Mustard Sunflower Canola Others Total 281 122 0 8,747 197 73 0 4,070 79 29 5 606 7,772 572 Seed (000tonnes) 3,612 188 Oil (000 tones) 433 60

This exhibit shows the relation how much input gets an amount of output for different oils. For example for sunflower the 3rd lowest area is required of 281000 acres, 197000 tons of seed is required and this gives an output of 79,000 tons of oil.

Exhibit 11: Area (000 hectares) Yield (kg/hectares) Production (000 tones)

1970-71 1980-81 1990-91 1997-98 1998-99 1999-00 2000-01 2001-02

510 417 304 340 327 321 273 269

527 607 750 859 853 925 842 822

269 253 228 292 279 297 230 221

This exhibit shows how gradually over the years the yield per hector has increased, but there was a decline is 2000 to 2002. The increase may be because of the advance technology used and better production facilities and methods. Exhibit 12: Cultivation of Non-Traditional Oilseeds in Pakistan Area Cultivated (hectares) Sunflower 88-89 90-91 95-96 98-99 99-00 00-01 01-02 29.5 31.4 86.2 144.2 114.3 59.0 65.1 Soybean 2.3 1.9 2.1 1.0 1.4 1.3 1.1 Safflower 0.20 0.37 1.23 0.13 0.27 0.06 0.06 Production (tones) Sunflower 34.4 34.7 109.5 194.5 149.9 68.9 76.4 Soybean 1.2 0.9 2.7 1.2 1.5 1.4 1.3 Safflower 0.10 0.20 0.78 0.08 0.12 0.04 0.04

Shows an area relation in hectares to the production of sunflower, soybean and safflower. For example the area used for sunflower increased from 88 to 99 and then there was a decline. Whereas soybean show a mixed amount of cultivation. The same trend of soybean has been followed by safflower.

Exhibit 13 It shows an expanded picture of the processes that started from the raw material to the final product available to the consumer. Pakistan was a major importer of raw material as well as processed edible oil. The domestic growth was minimum this was mainly due to problems in cropping patterns, high production costs and lack of seed technology. The processing industry or production was no better; it was growing at snails pace at a meager 2% per year. The exhibit gives an expanded picture of this processing industry. Where the raw material is provided mainly by imports, Pakistan being the major importer of soybean, palm oil and tallow. These imports are in form of crude oil which is further processed inside the country into refined cooking oil and vanaspati. Here value is added to the crude oil imported from countries like Malaysia by further processing it. The by product from this is then further used as a raw material by soap industries, here these manufacturers become suppliers to the soap industry. Oil is also extracted from cotton seed; Pakistan being one of the main cotton growers of the world has a lot of potential. Oil is extracted from the cotton seeds mainly by use of expellers, which extract almost 70% of the oil. This process can be made efficient by using solvent extraction units which have minimum wastage. The waste material from cotton seed oil, also known as oil cake is used to feed live stock. Live stock industry is big in Pakistan, most of the rural population makes their living by keeping live stock and bigger meat companies keep live stock in large amounts, these companies hence make an attractive market for the oil cake industry. Exhibit 14 Vanaspati and Allied Industries Stock Trends Year Vanaspati general index of share price (1990=100) 87 103 74 59 53 55 55 52 45 100 Growth Market capitalization Growth

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 CAGR

18.5% -28% 20.5 10.4 3.6 1.4 -5.9 -13.1 120.1 1.6

389 612 427 328 309 321 345 390 248 227

57.4% -30.2% -23.2 -5.9 3.8 7.6 13.1 36.4 -8.6 -5.8

Companies manufacturing and processing oil had increasingly high cost, due to the expensive imported raw material. These costs could not be covered by the output and profitability continued to decline. These declines in profitability are translated in share prices and capitalization which are falling every year .Companies faced huge losses and share prices declining lead them to face even more problems, people were hesitant to invest in the sector due to low returns and hence the growth of this sector remained negative. The compounded annual growth rate reminded a mere 1.6% from 1993-2002, showing the very slow growth in this sector

VALUE ANALYSIS: The value creation is extremely fundamental for the edible oil manufacturers because it signifies the perceived benefit of the industrial product. Value can be created in the following steps: Selection : The competitive edge should be selected which will enable the firm to create value for the customers. Healthy edible oil can be selected for catering to the health conscious people. Information gathering: Information can be gathered by the industrial analysis and also by the graphs and pie- charts of the current trends. Function definition: function can be allocated to be responsible for a healthy life-style among the users with good quality and taste. Generation of alternatives: Alternatives of adding vitamins or good fats should be considered. Evalution of alternatives: The alternatives will be clearly evaluated and the best option will be picked up. Presentation: these value creation strategies will be presented to all the members of the members. PRODUCT PLANNING: According to the rapidly changed consumption pattern of consumers, the product offering will also change. Edible oil industry ha gone through massive evolution since 1997 till date. The forecasted and future product offering will be healthy and no cholesterol edible oil which signifies a healthy life-style among the users. The oil will be of good quality with all the essential vitamins and ingredients that boost up the human system instead of harming it like the traditional banaspati or ghee. MARKET OPPORTUNITIES: Following are the market opportunities for edible oil industry in the future: The market for edible oil can experience a boost in the future if the local or natural resources of Pakistan are used to the maximum with effective strategies.

The opportunity of revenue maximization can exist if the resources are used in the right direction. COMMUNICATION PLANNING: Advertising and media can be used to communicate the message to the end-users. In the past years, advertising for oil was based on the richness and taste of edible oil. But at present, the focus is more on assurance of health and good life-style. Positioning of edible oil in the minds of the consumers has also changed with the changing times.