Pakistan’s Duty Structure Upsets Dairy Industry

Recently, Pakistan slapped a 45% import duty on dairy products which raised quite an uproar from the dairy industry. In the light of this issue, FrieslandCampina, one of the largest dairy companies in the world, recommended that Pakistan should review the situation as many dairy companies are suffering a negative impact from Pakistan’s decision.

It was revealed that the CEO of FrieslandCampina, Roelof Joosten took the step to speak up for the matter during a meeting with the Prime Minister of Pakistan, Nawaz Sharif.

Recently, a share of almost $450 million in Engro Foods was acquired by FrieslandCampina.

The government withdrew the zero-rating regime and additionally implemented a 17% tax on dairy products in the budget year 2016-17. As if this wasn’t enough, it also imposed a 25% duty on imported powdered milk which sums up to 45% overall duty on dairy products.

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This unexpected additional duty on imported items halted the deal between Engro Foods and FrieslandCampina. The deal was in its initial stages and the business equation has been disturbed due to an increase in duty.

Irresponsibility of the FBR

According to sources, FBR had been showing the dairy sector’s annual sales tax refunds of $8 billion as revenue of its own. The sudden withdrawal of the zero-rating regime on dairy products was an action taken by the government in order to cover up for the FBR.

Moreover, the government implied additional duties on these products in the name of protecting the farming community’s interests.

Decline in Sales

Dairy industry had to go through a rough patch due to the sudden alteration in tax structure and the implementation of additional duties. During the first nine months of 2016, profits for Engro Foods remained constant at Rs2.6 billion. Sales for the company were Rs34.3 billion, down by 7.8% as compared to the same period of the previous year.

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A dinner was hosted by Engro Foods on Wednesday and the issue of additional duties also came up to the surface. While discussing the issue, Joosten stated:

“The authorities should play a role in establishing a level playing field in import and export of dairy products, for example by ensuring realistic and competitive import charges”

He also said that if the government lowers the duty on dairy products, it will help them import high quality dairy products in Pakistan while others were of the view that there should be low duty on dairy products like infant milk, that are not produced in Pakistan.

Legislation on Dairy Products

The CEO expressed his idea that legislation should also be introduced for matters including food. He also encouraged his coworkers to work for the cause. He referred to the dairy industry as an important part in the economy of the country. In addition, he also said that the government and the dairy industry should work shoulder by shoulder. Subsequently, it will increase the standard of food in Pakistan in order to promote a healthy lifestyle in the country.

As an example, Joosten said that there should be legislation for the pasteurization of milk. It is an important process which kills germs and harmful bacteria from the milk. As a result, it makes the milk clean and safe to drink. In the recent years, many diseases have spread as the selling of loose milk has started.

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He said that his company wanted to invest in an Asian country as it was very beneficial for their business. Pakistan offered FrieslandCampina an opportunity to invest in the country and Joosten seized the prospect immediately. He also told that due to this investment, the company will try to shift Pakistan’s milk industry to packed milk instead of loose milk. He said:

“That is why we are bringing in our technology, capabilities and our experiences to develop these products for Pakistani market. We will work together with the country’s farmer community”

In the following years, we might see Pakistan developing into a dairy product exporting country. What are your thoughts?

Source: Express Tribune

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