Been to your supermarket recently and not found your favorite nutella spread? You are not alone. Many consumers have told Samaa Digital that they were unable to find imported food items such as cereals, cheese, fries and their favorite chocolates because stores across Karachi are short of these imported items. A market survey indicates some stores may run out of these stocks soon if the dollar rises further.
Suppliers (traders) of imported food have not been able to buy in bulk because of higher duties and a steep surge in the dollar price that has jolted their financial position. This is what emerged in background interviews with industry sources, people involved in the supply chain, importers and management staff of supermarkets. In fact, some small suppliers have gone out of business recently and the import of these items at some stores, such as Imtiaz Super Market (ISM), the largest in the city, has been disturbed.
“Everything [imported food] from A to Z has become expensive and is in short supply,” a staffer from ISM said. That includes juices, drinks, chocolates, cheese and cereals etc., he said. “Our imports are disturbed and this has been going on for three months.”
He said some of these items are still available because some shipments were cleared recently. But, he added that the supplies will stay uneven if the dollar remains at the same level and the situation may worsen if the dollar increases further.
“Duties for some items have more than doubled while the dollar appreciation has had a big impact as well, making these items very expensive to import in bulk. Not everyone has this much cash in hand,” he said.
In mid-October the government had increased import duties on 570 food items, including but not limited to milk and cream (25%), whey powder (25%), cheese (50%), chocolate (30%), and fruit juices (60%). On the other hand, the dollar rose sharply, moving from Rs128 when the new government came in power to Rs139 as of Thursday. This made bulk imports more expensive for traders. For ISM, grocery accounts for 25% of the imported items they sell.
“There is a big supply and demand gap in the market because of higher duties and a stronger dollar,” said an industry source with vast experience in supply chain management. Explaining the shortage, he said these grocery stores used to have three months of imports as buffer stock to fill in this gap and maintain supply all the time. However, that buffer is not there anymore.
This is because when the government imposed duties on grocery items, traders challenged it in court, hoping it would rule in their favour and the Federal Board of Revenue would not charge higher duties. The matter remained in the court for three months and traders put their imports on hold, anticipating a favorable ruling, which created this gap. However, the judgment ruled in favour of the FBR, making imports expensive. Later, the dollar rose significantly, which choked their finances even further.
Why did duties increase and dollar go up?
The government has increased duties on several imported items, such as luxury cars, high-end mobile phones and food items to name a few, because it wants to stop the drain on our reserves of dollars, which are being squeezed.
We earn one dollar but spend two, which is not sustainable for the economy. On the other hand, we are seeking a loan from the International Monetary Fund (IMF) to bolster our dollar reserves, but this loan comes with conditions, such as free-float exchange rates. This means the government will let market forces of demand and supply decide the rupee’s real value against the dollar. Since the change in policy, the dollar has been rising because the rupee was overvalued.
Opportunity for local food manufacturers
As imported foods become expensive, local producers have jumped in to cash in on the opportunity, say industry sources.
“French fries are a case study,” said an industry official. “McCain’s fries have become ridiculously expensive and thus unviable for our market.”
Except for large brands, such as McDonald’s and KFC, no one is buying them. A staffer from Metro Cash and Carry seconded this.
People involved in the trade say, Pakistan used to import 15 to 20 containers of frozen fries but that volume has come down now.
By contrast, FreshnFreeze of Fauji Foods, which installed the first plant for frozen fries with a capacity of 100 tons a day, has been able to sell a huge stock of their fries Opa during this time because of the price difference. In fact, some traders who were just dealing in the import of McCain fries are out of business now, he said.
Similarly mozzarella cheese is another big chunk of our food imports and has been growing in the double digits on the back of mushroom growth in pizza joints across Karachi. However, not everyone can buy imported Happy Cow cheese whose price increased 50%. Local players, such as Fauji Foods, Acha Dairy, Adam and Day Fresh are coming into this segment because there is a high demand for these items.
However, the representative from ISM said local brands have also increased prices. “I think once the imports of these items stop completely, traders will see how the demand plays out and decide how much to import and whether to import [grocery items] at all,” he said. In the meantime, the supply chain will stay disturbed till the dollar settles down.