Professional Documents
Culture Documents
ISBN 978-88-89507-07-0
GIACOMO MORELLI
e work presented is the nal delivery of a mission of the author in Pakistan within the
project Promotion of the production and marketing of olive oil. e project has been nanced
by the Italian Ministry of Foreign Aairs and implemented by IAO (Istituto Agronomico per
lOltremare, Italy) in close collaboration with the PODB-MINFAL (Pakistan Oilseeds
Development Board - Ministry of Food, Agriculture and Livestock). e justication of the
project is the extreme burden of the bill for edible oils importation in the Pakistani balance of
payments, the second absolute largest one aer petroleum and its derivates and the single
largest one for food items. e work is divided into two main sections: the rst one is a brief
overview of the edible oils in Pakistan whereas the second one focuses on olive oil market and
attempt to describe future scenarios of olive oil production and market in Pakistan. It is the
rst work done about this specic sector of edible oil and hence it is intended to be an initial
tool useful for foreseeing what can happen in the olive oil market in the coming years.
GIACOMO MORELLI
GIACOMO MORELLI
Front cover:
Works in progress at the newly established oil mill in Tarnab (NWFP) - R. Del Cima, 2008
GIACOMO MORELLI
Florence 2008
Graphics:
Laura Bonaiuti, IAO
Printed in Italy
NOVA ARTI GRAFICHE
Signa, Florence
Index
Acknowledgements
Introduction
Chapter 1
11
Chapter 2
17
17
20
23
23
World Production
24
World Consumption
25
28
30
Chapter 3
32
34
40
40
42
42
43
68
List of Abbreviation
81
83
Acknowledgement
Introduction
fulfilled this lack of first hand information regarding the current olive
trees cultivation in Pakistan.
The methodological approach to the study followed the research
questions logical order of the consultants ToR. The four questions
are strongly interrelated; the first two are the framework and the
starting point for the olive oil market analysis (questions 3 and 4). The
structure of the report follows the same logical order.
In addition the report ends attempting to describe future scenarios
for the olive oil production and market in Pakistan: this has been a
decision taken by the project manager Mr Raffaele Del Cima and the
consultant.
Consultants work was developed interviewing three major
stakeholders involved in the edible oils business- an olive oil importer,
a producer of ghee and a producer and importer of sunflower and
canola oil.
Other sources of information were:
1. available national statistic reports which were a valid and
reliable source of information;
2. PODB staff who represent the most informed national
institution concerning the edible oils business and therefore
were quite involved in the work;
3. visit to the Islamabad markets to collect data about olive oil
prices.
Moreover PODB know first hand the olive tree cultivation system in
Pakistan since all the projects regarding olive trees cultivation are
under its direct responsibility and management1
10
Chapter 1
Justification of the Work
2006-07
47.8
65.5
Wheat Unmilled
131.4
41.5
45.4
56.5
187.7
184.2
44.0
44.9
615.6
763.3
Sugar
378.0
256.0
135.7
1,585.6
217.9
1,629.8
Dry fruits
Tea
Spices
Pulses
Food Imports
Edible oils imports in the last 5 years from 2002-032 to 2006-07 are
2
National statistics always refers to the Pakistan fiscal year from July to June of the
following year. Therefore year 2006-07 refers to the period from July 2006 to June 2007.
11
represented in figure 1.
60,000
Rs (Millions)
50,000
40,000
30,000
20,000
10,000
0
2002-03
2003-04
2004-05
2005-06
2006-07
12
Provinces
Sponsor
Executor
Budget
(Rs millions)
Sindh and
Balochistan
MINFAL
PODB
113,08
Implementing
Years
From 2005 to
2010
Table 3 - Production of High Quality Canola Seeds for Enhancing Productivity. Source:
PODB
Objectives:
To produce, process and market 1,200 tonnes of certified canola seeds;
To focus on multiplication of certified seeds of improved commercial varieties
of canola (Bulbul-98) and other promising varieties available in the country;
To motivate the private sector in seed business particularly in local seed
production;
To establish a network for sustainable seed production in the long run.
Provinces
Sponsor
Executor
Budget
(Rs millions)
NWFP
and Punjab
MINFAL
PODB
35.97
Implementing
Years
From 2005 to
2010
13
Table 5 - Rapid Conversion of Wild Olive into Oil Bearing Species. Source: PODB
Objectives:
To enhance oilseed production and productivity through development of
improved varieties, area specific technologies, crop promotional activities,
introducing appropriate farm machinery, bringing new areas under olive
cultivation, involving private sector in promotional campaigns, providing
support to solvent extraction industry by involving it in oilseed sector
production programs, organizing farmers groups for facilitating input supply
and marketing, training of farmers, technicians and scientists;
To establish mother plant olive grove in NWFP of about 0.4 million oil bearing
trees under forest control for future use as source of multiplication;
To convert the existing wild olive trees into oil-bearing olives to the extent of
140 millions of wild olives by top working;
To motivate the private sector in the top working;
To utilize the oil cake of olive in feed or manure through Effective Microbes
Technology;
To supplement indigenous edible oil production through olive promotional
endeavours;
To set basis for large scale commercialization of olive plantation through
experimentation under this project;
To develop technology packages for olive plantation and conversion of wild
types into fruit bearing plant through top working;
To generate technical literature and extension/training material for olive
promotion;
To establish an olive network in private sector for sustainable growth of olives.
14
Provinces
Sponsor
Executor
Budget
(Rs millions)
Punjab and
Balochistan
MINFAL
PODB
186.379
Implementing
Years
From 2001 to
2008
Objectives:
Maintenance of 364 acres olive orchards established by PODB;
Establishment of 3 olive orchards, 10 acres each in NWFP, Potohar and
Balochistan;
Production of 0.300 million olive saplings;
Training of 1,000 growers/farmers;
Import of 25,000 olive saplings of different varieties from abroad.
Provinces
Sponsor
Executor
Budget
(Rs millions)
Implementing
Years
NWFP,
Punjab and
Balochistan
MINFAL
PODB
39.185
From 2005 to
2009
Objectives:
Oil Palm cultivation on 12,000 acres in
Lasbella District.
District
Budget
(Rs millions)
Lasbella
466.251
Implementing
Years
From 2005 to
2009
Objectives:
To standardize the olive processing and
oil extraction unit on sustainable basis.
Districts
Quetta, Khuzdar, Loralai, Pishin,
Mastung, Zhob, Kalat, Kharan,
Barkhan, Musakhail, Killaah,
Saifullah, Noshki
Budget
(Rs millions)
Implementing
Years
190
From 2007-08
to 2009-2010
15
Chapter 2
Analysis of Edible Oils Market in Pakistan
(Research Questions 1 and 2)
Results of a blind test conducted in Lahore by Mr. Raffaele Del Cima while consulting
for FAO showed that ghee can be substituted by olive oil in traditional recipes without
changing their organoleptic qualities.
17
1,698,276
55,222
103
48,492
2,468
1,463
196
6,88
447
9,466
470
1,764,680
58,809
Sunflower
Soybean
Olive
Others for edible purposes
Others for non-edible purposes
Total
Value - Millions of Rs
Value
Millions of Rupees
Qt oil
Tonnes
Sunflower
318,098
6,474
143,602
Canola
838,114
17,889
300,066
1,156,212
24,363
443,668
Total
Qt oil Tonnes
3,890,000
478,000
Rapeseed
204,000
63,000
Sunflower
556,000
251,000
Canola
180,000
65,000
4,830,000
857,000
Cotton
Total
18
Tonnes
1,392,688
Sunflower
394,705
Canola
365,066
Rapeseed
63,003
Cotton
478,000
Soybean
48,492
Olive
1,463
Others
6,880
Total
2,750,297
All the people interviewed during the consultants mission in Pakistan did not have
any information about edible oils exportation. National statistics do not report any
edible oil exportation from Pakistan.
19
Rs/Ton
Rs/Kg
Palm
32,516
32.52
Sunflower
65,280
65.28
Rapeseed
80,392
80.39
Soybean
50,886
50.89
133,773
133.77
Olive
Oil palm has never been cultivated in Pakistan. There are just two ongoing pilot projects
as reported in chapter 2. Soybean is not reported to have been produced in 2006-07 and
cotton and rapeseed have been cultivated and destined mainly for ghee production.
Production systems range from big commercial plantations to small farms. Small farms
can be joined to a cooperative or be independent and either have their own mill or not.
6
The equivalent cost stands for the cost to produce the necessary quantity of seeds to
obtain 1 ton of oil.
20
Table 14 - Cost of cultivating sunflower and canola. Source: PODB, elaborated by the author
2006-07
Cultivated - Ha
Seed - Tonnes
Cost - Rs/ha
Sunflower
382
556
16,720
Canola
145
180
13,480
Table 15 - Production cost of oil from nationally cultivated oilseeds. Source: PODB,
elaborated by the author
2006-07
Equivalent Cost
Rs/ton
Conversion Cost
Rs/ton oil
Production Cost
Rs/ton
Sunflower
39,420
56,000
95,420
Canola
46,820
56,000
102,820
Table 16 - Import cost of sunflower and canola seeds. Source: PODB, elaborated by the author
2006-07
Qt Imported Seeds
Tonnes
Value
Millions of Rs
Qt oil
Tonnes
Import Cost
Rs/ton
Sunflower
318,098
6.474
143,602
20.352
Canola
838,114
17.889
300,066
21.344
21
Table 17 - Production cost of oil derived by imported sunflower and canola seeds. Source:
PODB, elaborated by the author
2006-07
Import Cost
Rs/ton
Processing Cost
Rs/ton
Production Cost
Rs/ton
Sunflower
20,352
56,000
76,352
Canola
21,344
56,000
77,344
Table 18 - Production cost of sunflower and canola oil . Source: PODB, elaborated by the
author
2006-07
Production Cost - Rs/ton
Sunflower
84.595
Canola
79.124
2006-07
Raw Material Cost
Rs/ton
Processing Cost
Rs/ton
Production Cost
Rs/ton
39,431
4,367
43,798
Ghee
In table 20 the mean selling prices of ghee and canola and sunflower
oils are reported.
Table 20 - Selling price of ghee, canola and sunflower oil. Source: FBS
2006-07
Price - Rs/kg
Ghee
Sunflower and canola oil
22
98
117
Chapter 3
Analysis of Olive Oil Market in Pakistan
(Research Questions 3 and 4)
23
look at the world market and at its development can provide some
interpretational tools to better foresee possible future scenarios for
the olive oil market in Pakistan.
The olive oil world market is very complex. Production is spread over
developed and developing countries and entails many different
production systems7 even within a single country. Olive oil is
produced regionally, mainly in Mediterranean countries but traded
globally. Mill activities are dispersed, while bottling has become more
and more concentrated with a strong presence of multinational
corporations.
Olive oil consumption is growing, but consumption patterns vary
widely, both in quantity and quality. Market segmentation is the
norm; in some countries and for some consumers (the wealthier and
more health conscious) quality product attributes have assumed an
increasingly important role in consumption decisions. The largest
producer and consumer of olive oil, the European Union, tenaciously
protects its domestic market, despite the preferential access it grants
to a number of Mediterranean countries. Some large exporters are
large importers as well (Italy), and there are also exporters (Great
Britain) that produce no olive oil at all.
World Production
Table 21 shows the percentage shares of the global production for
major producing countries.
World production of olive oil has been increasing over time. In 04/05
it exceeded 2.5 million tons, a 42% increase from 90/91 (table 22).
Most of the expansion occurred in the largest producing countries,
7
Production systems range from big commercial plantations to small farms. Small farms
can be joined to a cooperative or be independent and either have their own mill or not.
24
32.1%
Italy
28.4%
Greece
13.5%
Syria
6.6%
Tunisia
5.2%
Turkey
4.8%
Morocco
3.3%
Others Mediterranean
5.5%
0.6%
World Consumption
Italy is the country with the highest consumption of olive oil (30% of
overall world consumption in 2003, the most recent year for which
information on consumption is available), followed by Spain (19%)
25
1990-93
2002-05
Thousands
Tonnes
601.1
487.4
313.5
72.0
190.0
61.5
52.0
Thousands
Tonnes
984.3
660.3
392.2
163.7
155.4
121.3
75.1
90.6
115.7
27.7%
Algeria
Jordan
Palestine
Libya
Lebanon
Israel
Portugal
France
Cyprus
Croatia
Albania
Slovenia
Serbia and Montenegro
25.9
9.6
19.9
7.8
5.1
0.2
34.7
2.0
1.6
1.0
2.6
0.0
0.1
26.7
20. 3
16.0
8.5
6.0
4.5
39.2
3.8
3.2
2.1
1.1
0.2
0.1
3.1%
111.8%
-19.5%
8.7%
17.8%
1,869.6%
13.1%
87.2%
96.3%
106.0%
-57.0%
###
18.2%
27.3
26.0
-5.0%
Argentina
Chile
11.7
1.0
11.0
1.4
-6.0%
36.5%
USA
Iran
El Salvador
Mexico
0.6
1.3
0.5
0.4
0.9
0.8
0.5
0.2
44.3%
-39.2%
1.9%
-50.0%
Australia
0.1
0.2
128.6%
1,895.5
2,693.9
42.1%
Spain
Italy
Greece
Syria
Tunisia
Turkey
Morocco
WORLD
26
Variation
63.7%
35.5%
25.1%
127.2%
-18.2%
97.2%
44.4%
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
and the United States (8% of world consumption); the other main
consumers of olive oil are Greece (7%), Syria (5%), France (4%) and
Morocco (3%).
The non-Mediterranean European countries, all together, account for
9 per cent of world consumption (figure 2).
In Asia olive oil consumption is not yet as noticeable as in other parts
of the world8.
In the neighbouring countries of Pakistan the demand for this oil is
approximately following the same trend (fig 3 and 5).
The increasing levels of health consciousness amongst the richest part
of the population in these countries is now underlining the sector
expansion. Although there is not yet any consolidated statistical data,
major edible oil stakeholders in China and India think there are many
chances for the olive oil consumption to increase in the near future.
Currently there is not yet a noticeable local production in China, India
and Pakistan.
27
7,000
Tonnes
6,000
5,000
4,000
3,000
2,000
1,000
Yr
0
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Figure 3 - Imports of olive oil to China. Source: China International Exhibition of Olive Oil &
Edible Oils, Beijing 2006
28
2002-05
Thousands
Tonnes
670.1
375.9
186.2
284.4
14.2
28.2
13.3
Thousands
Tonnes
1,332.5
1,004.8
209.1
202.8
117.7
61.7
14.6
62.9
48.4
-23.0%
Syria
Jordan
Lebanon
Palestine
Egypt
Israel
Algeria
Libya
France
0.0
1.0
1.4
5.6
0.1
0.0
0.1
0.7
54.0
23.5
3.1
2.8
1.2
1.2
0.4
0.0
0.0
16.2
###
210.0%
100.0%
-78.6%
1,100.0%
###
-100.0%
-100.0%
-70.0%
8.7
36.9
324.1%
1.8
2.9
1.5
16.0
7.2
5.2
788.9%
148.3%
246.7%
20.4
33.3
63.2%
13.3
4.2
0.3
0.2
0.1
17.0
7.4
1.1
1.1
1.0
27.8%
76.2%
266.7%
450.0%
900.0%
1,664.3
3,061.7
84.0%
Spain
Italy
Tunisia
Greece
Turkey
Portugal
Morocco
Variation
98.9%
167.3%
12.3%
-28.7%
728.9%
118.8%
9.8%
29
In 2005, four exporters accounted for more than 90 per cent of the
world market in value; EU-25 as a whole, ignoring intra-EU trade,
remains the largest exporter of olive oil, with 65% of the market,
followed by Tunisia (14%), Turkey (10%) and Syria (4%). 48% of EU25 exports in value are directed towards the USA, 10% to Japan and
6-7% each to Australia, South Korea, Canada and Brazil. More than
90% of what Tunisia and Syria export are destined to the EU; 6% of
Tunisia exports are shipped to the US. Turkeys exports are more
differentiated by country of destination, with 59% of exports going to
the EU-25, and 24 and 6% to the US and Canada, respectively.
30
2002-05
Thousands
Tonnes
823.1
234.6
135.5
39.0
33.7
48.3
16.0
85.0
30.8
Thousands
Tonnes
1,242.8
532.3
240.5
123.7
120.2
116.6
111.5
102.5
78.8
81.3
46.0
-0.4
Greece
Libya
Morocco
Israel
Turkey
Tunisia
Algeria
Egypt
Palestine
Lebanon
Jordan
39.3
17.6
1.3
1.8
0.8
0.0
0.6
2.0
0.3
6.4
11.2
12.7
11.8
10.6
6.9
1.4
0.9
0.7
0.7
0.2
0.1
0.0
-0.7
-0.3
7.2
2.8
0.8
#####
0.2
-0.7
-0.3
-1.0
-1.0
41.5
168.0
3.0
13.3
10.4
5.7
3.3
3.5
2.1
3.2
42.2
38.3
31.0
18.1
16.0
12.2
10.2
2.2
2.7
4.4
4.5
3.6
4.8
2.2
119.3
346.9
1.9
25.7
36.7
4.2
1.5
0.3
9.2
1.3
68.7
65.4
27.7
23.8
21.6
19.7
11.4
1.7
0.8
5.6
14.9
71.0
1.1
7.8
1,720.5
3,287.8
0.9
Italy
USA
France
Germany
United Kingdom
Portugal
Japan
Spain
Australia
Variation
0.5
1.3
0.8
2.2
2.6
1.4
6.0
0.2
1.6
31
32
Ha
n. of Trees
Orchards managed by
Sangbhatti
61
8,000
PODB (2000-05)
Pirsabak
49
4,700
PODB (2000-05)
Toro khas
20
950
PODB (2000-05)
Khawoo
10
698
PODB (2000-05)
Tarnab
1,127
PODB (2000-05)
SUB-TOTAL
148
15,475
PODB (2000-05)
Place
Ha
n. of Trees
Orchards managed by
Unknown
Unknown
SUB-TOTAL
Unknown
Place
Ha
n. of Trees
Orchards managed by
Unknown
47
12,400
PODB (2004-06)
SUB-TOTAL
47
12,400
PODB (2004-06)
More than
195
106,048
TOTAL
33
n. of Trees
in Balochistan
n. of Trees
in Punjab
Total
2002-03
87,000
73,000
41,000
201,000
2003-04
430,000
153,000
170,000
753,000
2004-05
338,000
200,000
201,000
739,000
2005-06
712,000
304,000
246,000
1,262,000
2006-07
900,000
416,000
267,000
1,583,000
TOTAL
2,467,000
1,146,000
925,000
4,538,000
Year
A few small farmers cultivating olive trees are present in Balochistan. Recently
they have bought small Oliomio extraction machines to crush their olives.
34
Qt tonnes
Value - Millions of Rs
Rupees/ton
1997-98
146
15,931
108,424
1998-99
80
11,080
137,713
1999-00
179
24,770
138,176
2000-01
202
28,475
140,908
2001-02
253
36,462
143,952
2002-03
276
37,267
134,767
2003-04
195
26,815
136,897
2004-05
480
61,054
127,022
2005-06
836
111,060
132,752
2006-07
1,463
195,741
133,773
59.73%
Italy
21.64%
Turkey
15.51%
1.01%
Tunisia
0.71%
China
0.71%
Others
0.69%
35
10
National available statistics generally divide the population into income quintiles.
Each quintile represents 20% of the Pakistani population. The fifth quintile includes
the richest part of the Pakistani population. Therefore 5% of the richest part of
Pakistani population is equal to 1% of the whole Pakistani population.
11
Prices are calculated as mean of the price/kg without considering the relative weigh
of the packaging.
12
Surveyed by the consultant during the mission in December 2007.
36
599.36
Olive Oil
562.74
Pomace Oil
314.88
150%
125%
100%
75%
50%
Qt Var
25%
Price
Var
0%
-25%
-50%
Figure 4 - Import variations (quantity and import price) of olive oil. Source: Elaborated by
the author; original data from PODB
37
0
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
the behaviour of the retailers who do not want to pay for olive oil at
product delivery and prefer to buy it on a credit base.
Price has no significant impact on the demand of olive oil which has
a trend that can not be yet defined as linear, although since 2003-2004
it has been recording a similar growth rate (figure 5).
Olive oil consumers in Pakistan are not yet used to this commodity
and its demand is still unpredictable although major stakeholders in
the edible oils business agree that a substantial growth in short and
medium term can be foreseen.
Historically, the demand for edible oils has gone through different
stages which are mainly marked by consumers research of healthy
properties of the oils. Pakistani has shifted in their diet habits from
animal saturated fats (butter) to healthier products like vegetable
saturated fats (ghee) and finally to even healthier products such as
vegetable unsaturated fats (canola, sunflower oils). Nowadays a
further substitution of ghee and vegetable oils with olive oil can be
envisaged. In rural areas and amongst the poorest parts of Pakistan the
38
40%
30%
20%
10%
0%
-10%
-20%
2002-03 2003-04
Qt Var
Price Var
-30%
-40%
-50%
Figure 6 - Import variations (quantity and import price) of palm oil. Source: Elaborated
by the author; original data from PODB
39
Tonnes (Millions)
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
Yr
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
40
Currently the average per capita consumption of olive oil within the
segment is estimated equal to 0.94 kg/year13. In table 30 the edible oils
per capita yearly consumption is summarized by income quintiles in
urban areas where the richest part of population live.
Table 30 - Edible oils per capita yearly consumption income quintiles. Source: PSLM
Household Integrated Economic Survey (HIES) 2004-05
Quintiles
First
Second
Third
Fourth
Fifth
Ghee
Kg
5.52
7.08
7.80
7.44
6.60
Edible Oils
Kg
0.60
1.08
1.56
2.88
6.24
Being total consumption equal to the imports and 5% of the richest part of Pakistan population equal to 1% of the whole population. Whole population =156.17
million. Source: PSLM (Pakistan Social and Living Standards Measurements) Household Integrated Economic Survey (HIES) 2004-05.
41
42
Estimated production
Table 31 - Estimated production of olive oil. Source: Elaborated by the author
Olives - kg/tree
Olives - Ton/ha
Oil -Ton/ha
Year 0
0.0
0.000
0.000
Year 1
0.0
0.000
0.000
Year 2
0.0
0.000
0.000
Year 3
0.0
0.000
0.000
Year 4
4.5
1.872
0.262
Year 5
6.5
2.704
0.379
Year 6
8.0
3.328
0.466
Year 7
11.0
4.576
0.641
Year 8
12.0
4.992
0.699
Year 9
13.0
5.408
0.757
From Year 10
15.0
6.240
0.874
43
Rs/ha 258,980.00
Unit Unit Cost - Rs
Total
Trees (purchase)
416
30
12,480
Bamboo Posts
416
100
41,600
1,600
120
192,000
875
12
10,500
2,400
2,400
Metal Wire
Initial Soil Fertilization
Land Preparation
Unit Cost
Rs/ha
Irrigation System
4,000,000
100,000
50,000
1,250
Trolley
100,000
2,500
Tractor
459,000
11,475
Power Spray
125,000
3,125
1,350,000
33,750
Rotative Tiller
Tree Shaker
44
Inputs cost14:
Table 34 - Input cost - year 1. Source: Elaborated by the author
Year 1
Rs/ha 1,991.08
Unit
Unit Cost
Fertilization
Cost/ha
366.08
Urea
33.28 kg/ha
11.00
Treatment
366.08
725.00
Copper Sulphate
Diesel
1.50 kg/ha
5.00 lt/ha
350.00
40.00
Treatment
525.00
200.00
300.00
Pesticide
Diesel
0.40 kg/ha
2,50 lt/ha
500.00
40.00
Weeding
200.00
100.00
600.00
Diesel
15.00 lt/ha
40.00
600.00
Rs/ha 2,557.16
Unit
Unit Cost
Fertilization
Cost/ha
732.16
Urea
66.56 kg/ha
11.00
732.16
2.00 kg/ha
5.00 lt/ha
350.00
40.00
700.00
200.00
Treatment
900.00
Copper Sulphate
Diesel
Treatment
325.00
Pesticide
Diesel
0.45 kg/ha
2.50 lt/ha
500.00
40.00
Weeding
225.00
100.00
600.00
Diesel
15.00 lt/ha
40.00
600.00
14
The cost to extract water from wells or superficial water bodies is not estimated
because it varies a lot, depending on the geographic conditions. Running cost of irrigation is also not estimated as the climate conditions are unknown.
45
Rs/ha 3,123.24
Unit
Unit Cost
Fertilization
Cost/ha
1,098.24
Urea
99.84 kg/ha
11.00
Treatment
1,098.24
1,075.00
Copper Sulphate
Diesel
2.50 kg/ha
5.00 lt/ha
350.00
40.00
Treatment
875.00
200.00
350.00
Pesticide
Diesel
0.50 kg/ha
2.50 lt/ha
500.00
40.00
Weeding
250.00
100.00
600.00
Diesel
15.00 lt/ha
40.00
600.00
Rs/ha 8,457.96
Unit
Unit Cost
Fertilization
6,022.96
Urea
Super Triple Phosphate
122.09 kg/ha
390.00 kg/ha
11.00
12.00
Treatment
1,342.96
4,680.00
1,250.00
Copper Sulphate
Diesel
3.00 kg/ha
5.00 lt/ha
350.00
40.00
1,050.00
200.00
Pesticide
Diesel
0.57 kg/ha
2.50 lt/ha
500.00
40.00
285.00
100.00
15.00 lt/ha
40.00
600.00
Treatment
385.00
Weeding
600.00
Diesel
Harvest
200.00
Diesel
46
Cost/ha
5.00 lt/ha
40.00
200.00
Rs/ha 11,499.83
Unit
Unit Cost
Fertilization
Cost/ha
8,699.83
Urea
Super Triple Phosphate
176.35 kg/ha
563.33 kg/ha
11.00
12.00
Treatment
1,939.83
6,760.00
1,600.00
Copper Sulphate
Diesel
4.00 kg/ha
5.00 lt/ha
350.00
40,00
Treatment
1,400.00
200.00
400.00
Pesticide
Diesel
0.60 kg/ha
2.50 lt/ha
500.00
40.00
Weeding
300.00
100.00
600.00
Diesel
15.00 lt/ha
40.00
Harvest
600.00
200.00
Diesel
5.00 lt/ha
40.00
200.00
Rs/ha 13,882.48
Unit
Unit Cost
Fertilization
Cost/ha
10,707.48
Urea
Super Triple Phosphate
217.04 kg/ha
693.33 kg/ha
11.00
12.00
Treatment
2,387.48
8,320.00
1,950.00
Copper Sulphate
Diesel
5.00 kg/ha
5.00 lt/ha
350.00
40.00
1,750.00
200.00
Pesticide
Diesel
0.65 kg/ha
2.50 lt/ha
500.00
40.00
325.00
100.00
Treatment
425.00
Weeding
600.00
Diesel
15.00 lt/ha
40.00
Harvest
600.00
200.00
Diesel
5.00 lt/ha
40.00
200.00
47
Rs/ha 18,412.78
Unit
Unit Cost
Fertilization
Cost/ha
14,722.78
Urea
Super Triple Phosphate
298.43 kg/ha
953.33 kg/ha
11.00 3,282.78
12.00 11,440.00
Treatment
2,440.00
Copper Sulphate
Diesel
6.40 kg/ha
5.00 lt/ha
350.00
40.00
2,240.00
200.00
Pesticide
Diesel
0.70 kg/ha
2.50 lt/ha
500.00
40.00
350.00
100.00
Treatment
450.00
Weeding
600.00
Diesel
15.00 lt/ha
40.00
600.00
Diesel
5.00 lt/ha
40.00
200.00
Harvest
200.00
Rs/ha 20,186.22
Unit
Cost
Unit
Fertilization
16,061.22
Urea
Super Triple
Phosphate
325.57 kg/ha
1,040.00 kg/ha
11.00
3,581.22
12.00 12,480.00
Treatment
2,825.00
Copper Sulphate
Diesel
7.50 kg/ha
5.00 lt/ha
350.00
40.00
2,625.00
200.00
Pesticide
Diesel
0.80 kg/ha
2.50 lt/ha
500.00
40.00
400.00
100.00
40.00
600.00
Treatment
500.00
Weeding
600.00
Diesel
15.00
lt/ha
Harvest
200.00
Diesel
48
Cost/ha
5.00
lt/ha
40.00
200.00
Rs/ha 22,099.65
Unit
Cost
Unit
Fertilization
Cost/ha
17,399.65
Urea
Super Triple
Phosphate
352.70
kg/ha
11.00
1,126.67
kg/ha
12.00 13,520.00
Treatment
3,879.65
3,350.00
Copper Sulphate
Diesel
9.00
5.00
kg/ha
lt/ha
350.00
40.00
Treatment
3,150.00
200.00
550.00
Pesticide
Diesel
0.90
2.50
kg/ha
lt/ha
500.00
40.00
Weeding
450.00
100.00
600.00
Diesel
15.00
lt/ha
40.00
Harvest
600.00
200.00
Diesel
5.00
lt/ha
40.00
200.00
Table 43 - Input cost - from year 10. Source: Elaborated by the author
From Year 10
Rs/ha 25,176.52
Unit
Cost
Unit
Fertilization
Cost/ha
20,076.52
Urea
Super Triple
Phosphate
406.96
kg/ha
11.00
1,300.00
kg/ha
12.00 15,600.00
Treatment
4,476.52
3,700.00
Copper Sulphate
Diesel
10.00
5.00
kg/ha
lt/ha
350.00
40.00
Treatment
3,500.00
200.00
600.00
Pesticide
Diesel
1.00
2.50
kg/ha
lt/ha
500.00
40.00
Weeding
500.00
100.00
600.00
Diesel
15.00
lt/ha
40.00
Harvest
600.00
200.00
Diesel
5.00
lt/ha
40.00
200.00
49
Labour Costs
Each year labour costs are 7,875 rupees/ha, 225 hours/year/ha at 35
rupees/hour.
The manager of the plantation will earn 12,000 USD/year, which
means, at the current exchange rate15, 736,200 rupees/year, e.g. 18,405
rupees/year/ha.
Mechanical means depreciation16 and maintenance cost
Table 44 - Mechanical means depreciation and maintenance cost - from year 1 to year 3.
Source: Elaborated by the author
From year 1
to year 3
Rs/ha 2,979.13
Tractor
1,644.75
Maintenance
Depreciation
27,540.00
38,250.00
Trolley
187.50
Maintenance
Depreciation
5,000.00
2,500.00
Rotative Tiller
125.00
62.50
162.50
Maintenance
Depreciation
1,500.00
5,000.00
Irrigation System
37.50
125.00
500.00
Maintenance
Depreciation
10,000.00
10,000.00
Power Spray
250.00
250.00
484.38
Maintenance
Depreciation
15
688.50
956.25
3,750.00
15,625.00
93.75
390.63
50
Table 45 - Mechanical means depreciation and maintenance cost. Source: Elaborated by the
author
From year 1
to year 3
Rs/ha 2,979.13
Tractor
1,644.75
Maintenance
Depreciation
27,540.00
38,250.00
Trolley
688.50
956.25
187.50
Maintenance
Depreciation
5,000.00
2,500.00
Rotative Tiller
125.00
62.50
162.50
Maintenance
Depreciation
1,500.00
5,000.00
37.50
125.00
Maintenance
Depreciation
10,000.00
10,000.00
250.00
250.00
Irrigation System
500.00
Power Spray
484.38
Maintenance
Depreciation
3,750.00
15,625.00
93.75
390.63
437,360
Year 1
57,148
Year 2
57,714
Year 3
58,280
Year 4
67,665
Year 5
70,707
Year 6
73,090
Year 7
77,620
Year 8
79,393
Year 9
81,307
Year 10
84,384
51
Processing Cost
Due to the lack of an olive oil industry in Pakistan it is not currently
possible to estimate any sort of processing cost17.
Some considerations are necessary to have a basis upon which future
scenarios are envisaged.
In table 47 the import prices for different categories of olive oil
defined by PODB are represented.
Table 47 - Import prices for different categories of olive oil defined by PODB. Source:
PODB
2006-07
Olive oil virgin
Olive oil & its fraction
Oil solely from olive its blend
Qt
tonnes
Value
Millions of Rs
Rupees/kg
273,141
37,472
137.18
1,112,099
147,683
132.79
77,988
10,586
135.73
These prices are well below the average price paid on the international
market, which at the current exchange rate is 303.88 Rs/kg.
To better understand the destiny of the olive oil production in
Pakistan, five scenarios are outlined and analysed.
17
Processing cost is considered equal to crushing cost + bottling cost + mark-up of the
miller.
52
Scenario n. 1
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on the international market)
Processing cost = 56.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller
for the milling service. In both cases it is assumed that the processing cost is equal to the processing cost
of sunflower and canola seeds oil18 in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10
Yr25
0
437,360
-437,360
0
57,148
-57,148
0
57,714
-57,714
0
58,280
-58,280
79,640
82,342
-2,701
115,036
91,906
23,130
141,583
99,181
42,402
194,676
113,496
81,180
212,374
118,531
93,843
230,072
123,705
106,366
265,467
133,305
132,162
265,467
133,305
132,162
n. 1
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 Yr16 Yr17 Yr18 Yr19 Yr20
-400,000
-600,000
-800,000
Rs
*NPV19
276,687
IRR20
10.36%
Break even point occurs between year 11 and 12, cumulative cost equates to cumulative income.
Afterwards cumulative incomes are positive and the investment is completely recovered. Throughout the
years these are the interest rates of the whole investment:
Year 10
Year 12
Year 20
Year 25
Year 40
Return on Capital
-9.77%
7.94%
43.88%
54.80%
71.31%
18
The processing cost of sunflower and canola seeds oil is taken as a benchmark in order to outline possible scenarios since sunflower
and canola oils are the most important edible oils produced in Pakistan. The extraction techniques are different, but the business
sector remains the same and no other benchmarks are possible.
19
The Net Present Value (NPV) is the value of the discounted flow of annual incomes. A positive NPV indicates that the investment
should be accepted. It is calculated for the first 25 years of the investment. A negative value means that the investment is not
financially viable.
20
The Internal Rate of Return (IRR) is the maximum interest rate that a project could pay for the resources used if it is to recover all
costs and still break even. The project should be accepted if the IRR is greater than the opportunity cost of capital. It is calculated
for the first 25 years of the investment.
21
The discount rate equal to 7% is the opportunity cost of capital in Pakistan. Source: Economist, Pocket World in Figures, 2007
Edition.
53
Scenario n. 2
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on the international market)
Processing cost = 28.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller
for the milling service. In both case it is assumed that the processing cost is equal to half the processing
cost of sunflower and canola seeds oil in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10
Yr25
0
437,360
-437,360
0
57,148
-57,148
0
57,714
-57,714
0
58,280
-58,280
79,640
75,003
4,637
115,036
81,307
33,729
141,583
86,135
55,447
194,676
95,558
99,118
212,374
98,962
113,412
230,072
102,506
127,566
265,467
108,844
156,623
265,467
108,844
156,623
Scenario n. 2
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0
-200,000 Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 Yr16 Yr17 Yr18 Yr19 Yr20
-400,000
-600,000
-800,000
Rs
*NPV
446,433
IRR
12.08%
Break even point occurs between year 10 and 11, cumulative cost equates to cumulative income.
Afterwards cumulative incomes are positive and the investment is completely recovered. Throughout the
years these are the interest rates of the whole investment:
Year 10
Year 11
Year 20
Year 25
Year 40
54
Return on
-1.59%
9.99%
65.87%
80.56%
103.42%
Scenario n. 3
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on the international market)
Processing cost = 84.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller
for the milling service. In both case it is assumed that the processing cost is equal to one and half the
processing cost of sunflower and canola seeds oil in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10
Yr25
0
437,360
-437,360
0
57,148
-57,148
0
57,714
-57,714
0
58,280
-58,280
79,640
89,680
-10,040
115,036
102,506
12,530
141,583
112,227
29,356
194,676
131,434
63,242
212,374
138,099
74,275
230,072
144,905
85,167
265,467
157,766
107,701
265,467
157,766
107,701
Scenario n. 3
1,000,000
800,000
600,000
400,000
200,000
0
-200,000
Yr0
Yr1
Yr2
Yr3
Yr4
Yr5
Yr6
Yr7
Yr8
Yr9
Yr10 Yr11 Yr12 Yr13 Yr14 Yr15 Yr16 Yr17 Yr18 Yr19 Yr20
-400,000
-600,000
-800,000
Rs
*NPV
106,941
IRR
8.40%
Break even point occurs between year 12 and 13, cumulative cost equates to cumulative income.
Afterwards cumulative incomes are positive and the investment is completely recovered. Throughout the
years these are the interest rates of the whole investment:
Year 10
Year 13
Year 20
Year 25
Year 40
Return on
-16.69%
3.82%
27.04%
35.48%
47.95%
55
Scenario n. 4
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on the international market)
Processing cost = 112.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller for the
milling service. In both case it is assumed that the processing cost doubles the processing cost of sunflower
and canola seeds oil in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
437,360
-437,360
0
57,148
-57,148
0
57,714
-57,714
0
58,280
-58,280
79,640
97,018
-17,378
115,036
113,106
1,930
141,583
125,273
16,310
194,676
149,372
45,305
212,374
157,668
54,706
230,072
166,104
63,968
265,467
182,227
83,241
265,467
182,227
83,241
*NPV
-62,804
Scenario n. 4
IRR
6.10%
Break even point occurs between year 13 and 14, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the year these are
the interest rates of the whole investment:
Year 10
Year 14
Year 20
Year 25
Year 40
Return on
-22.63%
2.14%
13.73%
20.44%
30.20%
Investment under this scenario should not be undertaken because the NPV is negative and the IRR is lower
than the opportunity cost of capital.
56
Scenario n. 5
Price at the farm gate of olive oil = 133.78 Rs/kg (average current import price)
Processing cost = 28.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after processing it himself or paying a miller
for the milling service. In both case it is assumed that the processing is equal to half the processing cost of
sunflower and canola seeds oil in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
437,360
-437,360
0
57,148
-57,148
0
57,714
57,714
0
58,280
-58,280
35,061
75,003
-39,942
50,644
81,307
-30,663
62,331
86,135
-23,805
85,705
95,558
-9,853
93,496
98,962
-5,466
101,288
102,506
-1,219
116,870
108,844
8,026
116,870
108,844
8,026
Scenario n. 5
0
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
-100,000
-200,000
-300,000
-400,000
-500,000
-600,000
-700,000
-800,000
Rs
The break even point for the industrial production of olive oil is between year 99 and 100 after the
plantation installation. Investment under this scenario is therefore unwise.
57
58
Estimated production
Table 48 - Estimated production of olive oil (wild converted trees). Source: Elaborated by
the author
Olives - kg/tree
Olives - Ton/ha
Oil - kg/ha
Year 0
0.000
0.000
0.000
Year 1
0.000
0.000
0.000
Year 2
0.000
0.000
0.000
Year 3
0.000
0.000
0.000
Year 4
0.250
0.063
0.009
Year 5
0.700
0.175
0.025
Year 6
1.300
0.325
0.046
Year 7
2.800
0.700
0.098
Year 8
4.000
1.000
0.140
Year 9
5.750
1.438
0.201
From Year 10
8.000
2.000
0.280
Estimated costs
Table 49 - Installation costs (wild converted trees). Source: Elaborated by the author
Year 0
Rs/tree
Labour
6.0
Plastic
2.5
Bud wood
6.0
Equipment
1.0
Total
15.5
59
Table 50 - Input cost - year 1 (wild converted trees). Source: Elaborated by the author
Year 1
Urea
Cupper Sulphate
Pesticide
446.70
Unit
1.00
0.90
0.24
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
350.00
500.00
11.00
315.50
120.19
Table 51 - Input cost - year 2 (wild converted trees). Source: Elaborated by the author
Year 2
Urea
Cupper Sulphate
Pesticide
569.09
Unit
1.20
1.20
0.27
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
350.00
500.00
13.20
420.67
135.22
Table 52 - Input cost - year 3 (wild converted trees). Source: Elaborated by the author
Year 3
Urea
Cupper Sulphate
Pesticide
692.58
Unit
1.50
1.50
0.30
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
350.00
500.00
16.50
525.84
150.24
Table 53 - Input cost - year 4 (wild converted trees). Source: Elaborated by the author
Year 4
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
993.53
Unit
3.75
12.50
1.80
0.34
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
41.25
150.00
631.01
171.27
Table 54 - Input cost - year 5 (wild converted trees). Source: Elaborated by the author
Year 5
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
60
1,557.13
Unit
10.50
35.00
2.40
0.36
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
115.50
420.00
841.35
180.29
Table 55 - Input cost - year 6 (wild converted trees). Source: Elaborated by the author
Year 6
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
2,241.50
Unit
19.50
65.00
3.00
0.39
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
214.50
780.00
1,051.68
195.31
Table 56 - Input cost - year 7 (wild converted trees). Source: Elaborated by the author
Year 7
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
3,698.49
Unit
42.00
140.00
3.85
0.42
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
462.00
1,680.00
1,346.15
210.34
Table 57 - Input cost - year 8 (wild converted trees). Source: Elaborated by the author
Year 8
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
4,877.91
Unit
60.00
200.00
4.51
0.48
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
660.00
2,400.00
1,577.52
240.38
Table 58 - Input cost - year 9 (wild converted trees). Source: Elaborated by the author
Year 9
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
6,562.21
Unit
86.25
287.50
5.41
0.54
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
948.75
3,450.00
1,893.03
270.43
Table 59 - Input cost - from year 10 (wild converted trees). Source: Elaborated by the author
Year 10
Urea
Super Triple Phosphate
Cupper Sulphate
Pesticide
8,523.85
Unit
120.00
400.00
6.01
0.60
kg/ha
kg/ha
kg/ha
kg/ha
Unit Cost
11.00
12.00
350.00
500.00
1,320.00
4,800.00
2,103.37
300.48
61
62
Scenario n. 1
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on international market)
Processing cost = 56.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost is equal to the processing cost of sunflower and canola seeds oil in
2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
3,875
-3,875
0
3,597
-3,597
0
3,719
-3,719
0
3,843
-3,843
2,659
4,634
-1,975
7,445
6,079
1,366
13,826
7,939
5,887
29,780
12,336
17,444
42,543
15,868
26,675
61,155
20,982
40,173
85,086
27,354
57,732
85,086
27,354
57,732
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
-100,000
Yr 0
*NOV
312,761
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
Rs
IRR
44.32%
Break even point occurs between year 6 and 7, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:
Year 7
Year 10
Year 20
Year 25
Year 40
63
Scenario n. 2
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on international market)
Processing cost = 28.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost is equal to half the processing cost of sunflower and canola seeds oil
in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
3,875
-3,875
0
3,597
-3,597
0
3,719
-3,719
0
3,843
-3,843
2,659
4,369
-1,710
7,445
5,393
2,052
13,826
6,665
7,161
29,780
9,592
20,188
42,543
11,948
30,595
61,155
15,347
45,808
85,086
19,514
65,572
85,086
19,514
65,572
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
-100,000
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
Rs
*NPV
358,443
IRR
46.87%
Break even point occurs between year 6 and 7, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:
Year 7
Year 10
Year 20
Year 25
Year 40
64
Return on Capital
31%
176%
286%
299%
315%
Scenario n. 3
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on international market)
Processing cost = 84.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost is equal to one and a half the processing cost of sunflower and canola
seeds oil in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
3,875
-3,875
0
3,597
-3,597
0
3,719
-3,719
0
3,843
-3,843
2,659
4,859
-2,200
7,445
6,765
680
13,826
9,213
4,613
29,780
15,080
14,700
42,543
19,788
22,755
61,155
26,617
34,538
85,086
35,194
49,892
85,086
35,194
49,892
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
Yr 0
-100,000
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
Rs
*NVP
267,107
IRR
41.52%
Break even point occurs between year 6 and 7, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:
Year 7
Year 10
Year 20
Year 25
Year 40
Return on Capital
5%
83%
126%
130%
135%
65
Scenario n. 4
Price at the farm gate of olive oil = 303.88 Rs/kg (average price on international market)
Processing cost = 112.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost doubles the processing cost of sunflower and canola seeds oil in
2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
3,875
-3,875
0
3,597
-3,597
0
3,719
-3,719
0
3,843
-3,843
2,659
5,104
-2,445
7,445
7,451
-6
13,826
10,487
3,339
29,780
17,824
11,956
42,543
23,708
18,835
61,155
32,252
28,903
85,086
43,034
42,052
85,086
43,034
42,052
600,000
500,000
400,000
300,000
200,000
100,000
0
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
-100,000
Rs
*NVP
221,439
IRR
38.35%
Break even point occurs between year 7 and 8, cumulative cost equates to cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:
Year 8
Year 10
Year 20
Year 25
Year 40
66
Return on Capital
21%
57%
87%
90%
93%
Scenario n. 5
Price at the farm gate of olive oil = 133.78 Rs/kg
Processing cost = 28.00 Rs/kg
It is assumed that each grower sells his oil at the farm gate after paying a miller for the milling service. It
is assumed that the processing cost is equal to half the processing cost of sunflower and canola seeds oil
in 2006/07.
Cash flow:
Pay-off
Cost
Income
Yr 0
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9
Yr 10
Yr 25
0
3,875
-3,875
0
3,597
-3,597
0
3,719
-3,719
0
3,843
-3,843
1,171
4,369
-3,199
3,278
5,393
-2,116
6,087
6,665
-579
13,110
9,592
3,518
18,729
11,948
6,781
26,923
15,347
11,576
37,458
19,514
17,945
37,458
19,514
17,945
250,000
200,000
150,000
100,000
50,000
0
Yr 0
-50,000
Yr 1
Yr 2
Yr 3
Yr 4
Yr 5
Yr 6
Yr 7
Yr 8
Yr 9 Yr 10 Yr 11 Yr 12 Yr 13 Yr 14 Yr 15 Yr 16 Yr 17 Yr 18 Yr 19 Yr 20
Rs
*NPV
81,013
IRR
24.57%
Break even point occurs between year 8 and 9, cumulative cost equates cumulative income. Afterwards
cumulative incomes are positive and the investment is completely recovered. Throughout the years these
are the interest rates of the whole investment:
Year 9
Year 10
Year 20
Year 25
Year 40
Return on Capital
6%
22%
70%
76%
83%
67
68
69
This report does not consider the hypothesis of pomace oil commercialization that
could constitute another source of income making the production economically
viable even considering the current importing prices.
70
Under Scenario n. 1
71
16%
CULTIVATION COST
INCREASE
23%
IRR
BEFORE DECREASE
276,687
10.36%
BEFORE INCREASE
276,687
10.36%
NVP
IRR
AFTER DECREASE
-18,067
6.75%
AFTER INCREASE
-5,300
6.94%
If the olive oil price at which the growers sell the olive oil to
distributors decreased by 16% the investment made by the growers
on olive oil production would no longer be financially viable.
If the olive trees cultivation cost increased by 23% the investment on
olive oil production would no longer be financially viable, too.
Under Scenario n. 2
Investment in industrial olive oil production:
Return on invested capital after 40 years = 103%.
IRR= 12.08% so that in comparison with an alternative investment
(7% of opportunity cost of capital).
Investment in wild converted olive trees:
It is more financially profitable.
It is a livelihood able to generate a small income in remote rural areas
where alternatives are scarce.
In 2025 the total investment (industrial plus converted trees
production, about 8.3 billions of rupees) will be generating a return
on invested capital equal to 63% for the growers.
72
Moreover from 2020 (when the plantations is mature) each year, the
millers will get 28 Rs/kg (136 millions of rupees) and the rest of the
supply chain (distributors and retailers) will get 295.48 Rs/kg (1,438
millions of rupees). Therefore the added value shares within the
supply chain will be:
- Growers 46.03%
- Millers 4.67%
- Distributors and Retailers 49.30%
25%
CULTIVATION COST
INCREASE
37%
IRR
BEFORE DECREASE
446,433
12.08%
BEFORE INCREASE
446,433
12.08%
NVP
IRR
AFTER DECREASE
-14,120
6.80%
AFTER INCREASE
-7,199
6.93%
If the olive oil price at which the growers sell the olive oil to
distributors decreased by 25% the investment made by the growers
on olive oil production would no longer be financially viable.
If the olive trees cultivation cost increased by 37% the investment on
olive oil production would no longer be financially viable, too.
73
NVP
PRICE* DECREASE
6%
CULTIVATION COST
INCREASE
9%
BEFORE DECREASE
106,941
8.40%
BEFORE INCREASE
106,941
74
IRR
8.40%
NVP
IRR
AFTER DECREASE
-3,591
6.95%
AFTER INCREASE
-3,401
6.96%
If the olive oil price at which the growers sell the olive oil to
distributors decreased by 6% the investment made by the growers on
olive oil production would no longer be financially viable.
If the olive trees cultivation cost increased by 23% the investment on
olive oil production would no longer be financially viable, too.
In the described scenarios there are aspects to be discussed:
- Distributors, retailers and millers added value share in the
supply chain of locally produced olive oil is smaller than the
share currently obtained by importers, distributors and retailers
along the supply chain of imported olive oil. Anyway, it is still
larger than the share that the same stakeholders have within the
locally produced sunflower seeds oil supply chain24.
- The larger are the industrial plantations, the smaller are the unit
costs. This is due to economies of scale.
- Mills have to be in the proximities of the plantations and/or the
wild converted tree areas, because olives have to be crushed
within 1 day from harvest.
- Availability of suitable land for the olive trees cultivation should
be checked. It should not be difficult in a country the size of
Pakistan. The cultivation of olive trees need water sources
nearby and a good transport infrastructure.
- Policies have to be addressed to keep the processing cost within
the limits of 28 and 84 Rs/kg.
- Processing cost can be higher than 84 Rs/kg but this increase
should not reduce the growers income but the distributors and
retailers margins, e.g. with the current price on the shelf of olive
oil growers must keep their added value share between 36 and
46%. Growers are the stakeholders within the supply chain that
must contribute the biggest investment.
24
75
76
77
STRENGTHS:
WEAKNESS:
OPPORTUNITIES:
THREATS:
Market segment for olive oil is not yet saturated. Chances of growth.
Figure 8 - Pakistan Olive Oil Sector S.W.O.T. Analysis. Source: Elaborated by the author
78
79
Table 63 - Ranked marketing mix in the USA, the UK and Holland for the coming year.
Source: Mili S., 2004
Average
Importance
Rating*
Product
Quality Assurance
Oil type
Packaging
Labelling
Branding
After-sale warranty
4.64
4.43
4.2
4.15
4.05
3.82
Price
Price discrimination within the range of olive oils
Price discrimination with respect to substitute oils
Price discrimination with respect to domestic market
3.87
3.62
3.23
Place (distribution)
Regularity of supply
Permanence on the shelf
Delivery terms
Price stability
Terms of payment
4.61
4.49
4.3
4.21
3.59
Promotion
Media
Information at points of sale
Information in mass media
Presence at trade fairs and shows
4.42
3.98
3.95
Contents
Information on dietary and nutritional benefits
Information on differences from other oils
Information on culinary uses
Information on the natural and environmental value of oil
Information on the geographic origin of the oil
4.66
4.42
4.36
4.31
3.79
80
List of Abbreviation
ComTrade
DGCS
FAO
FAOSTAT
FBS
IAO
MINFAL
NWFP
PODB
Rs
Pakistan Rupees
ToR
Terms of Reference
USD
WTO
81
83
84
Printed in Italy
NOVA ARTI GRAFICHE
Signa, Florence
2008