Federal Excise Duty (FED) Takes a Toll on Rural Economy as Fruit Pulp Procurement and Juice Sales Decline

June 7, 2023 – Fruit farmers in Punjab, Khyber Pakhtunkhwa, and Gilgit Baltistan are facing the detrimental consequences of a 50 percent decline in fruit-pulp procurement by pulping companies and juice manufacturers. The primary reason for this significant drop in demand is the imposition of a 10 percent federal excise duty (FED) in the supplementary budget of February 2023. As a result, the rural economy is being negatively impacted, hindering its formalization and burdening farmers with wastage.

Industry data reveals that in 2022, approximately 100,000 tons of mangoes and various other fruits were procured from local farmers for pulp production. However, following the implementation of the FED in 2023, the projected fruit pulp purchase volume has plummeted from around 61,000 tons to 31,500 tons, representing a significant 50% decline.

This downturn is not only affecting the rural economy but also causing farmers to bear the brunt of wastage, exacerbating their financial struggles. Additionally, the formal packaged juice industry has experienced a substantial 45% decline in volumes during March and April 2023 due to the 10% FED on juices implemented in February 2023 through the Supplementary Budget.

Consequently, the industry’s size has contracted, leading to unfavorable consequences for sales tax revenue. Prior to March 2023, the formal packaged juice industry contributed approximately Rs16 billion in tax revenues, but these circumstances are now adversely affecting its revenue generation.

Furthermore, the shrinking business size within the industry is likely to result in increased unemployment. The imposition of FED has prevented the industry from utilizing its full production capacity, discouraging new investments in the foreseeable future (2023-2024).

Farmers like Jabbar Tatypur, a local mango farmer in Multan, managing mango production in Rajanpur, Jhang, and Khanewal on over 1700 acres of farmland, are now forced to sell their surplus produce in the open market due to the decline in pulp purchase by pulping companies and juice manufacturers. This exposes them to constant price fluctuations. Similar issues are faced by farmers growing other fruits, such as apples in Gilgit. Muhammad Esa, who owns a small farmland in Rakaposhi and primarily produces apples and cherries, shares the same concerns.

The perishable nature of fruits, coupled with inadequate handling, storage, packaging, and transportation practices, contributes to high rates of wastage. Consequently, farmers are compelled to sell their produce at low prices, especially during peak seasons, further exacerbating their financial burdens. Commission agents who serve as intermediaries in the buying and selling of fruits confirm this situation.

However, it is crucial to recognize the vital role played by the formal packaged juice industry in reducing significant food wastage and safeguarding farmers’ livelihoods by procuring fruits in a timely manner. The industry has also been actively assisting farmers in adopting best practices, leading to their upliftment and overall development.

The formal packaged juice industry not only ensures the availability of safe and healthy fruit-based juices and drinks to consumers but also contributes significantly to the economy, with an annual turnover of approximately Rs60 billion and an investment of PKR 40 billion. Moreover, it provides employment opportunities to over 5,000 individuals.