Edible oil shock risks worsen with Indonesia curb

Edible oils witnessed another hike on the international market Wednesday following palm oil export curbs by Indonesia, the largest global exporter of the vegetable oil and also the main sourcing country of Bangladesh.

The export curb sent palm oil to $1,980 per tonne – up by $140 dollar from the previous rate – while soybean too jumped to $2,000 per tonne.

According to oil importers and refiners, cooking oil that is now in the local market was imported at $1,328 per tonne.

Bangladesh imports 80% of the palm oil it needs from Indonesia and 20% from Malaysia. Indonesia alone meets 45% of Bangladesh's total cooking oil demand.

Without any alternatives left, oil importers said a major blow is waiting for the local edible oil market if the already tight international supply does not ease up anytime soon.

Md Taslim Shahriar, assistant general manager (accounts) at Meghna Group, told The Business Standard Wednesday that they were not sure where the oil rates would ultimately reach.

"With the current stock, we might be able to maintain the supply until May," he added.

Soybean oil is now at Tk180-Tk190 per tire at retail despite the government fixed rate of Tk168. After raising oil prices at least five times in the past one year, the refiners recently proposed another Tk12 hike per litre to the government. The government's disapproval of the proposal met with a local market supply crunch and volatility.

"We have no choice. If the international rates go up, we will have to buy edible oil at higher prices in the local market too," Biswajit Saha, general manager of City Group, told TBS.

Indonesia produces about 48 million tonnes of palm oil annually and the country's domestic demand is 15.4 million tonnes. Jakarta came up with the recent curb on export to increase domestic supplies and to contain a surge in cooking oil prices.

Cooking oil prices have been soaring in the international market for the last two months. Russia-Ukraine war has added to the global oil market instability, forcing countries to adopt protective measures over essential consumer items.

Quoting James Fry, a veteran analyst and chairman of consultancy firm LMC International, a Bloomberg report noted Wednesday that cooking oils are facing "a perfect storm", with as much as 60% of sunflower oil exports from the Black Sea region being delayed in the current marketing year because of Russia's invasion of Ukraine.

According to the report, combined palm oil shipments from Southeast Asia will not surpass volumes in 2020 until the third quarter, as world soybean oil shipments will likely decline in 2021-22 because of higher demand in exporting countries.

Govt working on VAT waiver on oil

The Federation of Bangladesh Chambers of Commerce and Industries (FBCCI), the country's apex trade body, met with oil importers and traders this week. The withdrawal of 15% VAT on edible oil imports was demanded at the meeting. And, the refining companies announced that they would keep their supplies intact.

The commerce ministry had earlier written to the National Board of Revenue, seeking withdrawal of VAT on oil imports. The ministry is now working on this.

The Directorate of National Consumer Rights Protection also held a meeting with edible oil traders this week. The directorate took several decisions at the meeting.

According to the law, the oil price fixed by the government has to be written on the supply order (SO). In no way can the supply of oil be withheld against SO for more than 15 days.

"We will look into whether oil is being smuggled out of the country," said AHM Safiquzzaman, director general at the consumer rights protection directorate, on the basis of some allegations.

"I will write to the home ministry and BGB to look into the matter," he added.

The traders also alleged that they needed to pay Tk50,000 as a bribe to line up trucks at the oil mills in Rupganj.

AHM Safiquzzaman said they along with law enforcement agencies would work together to verify the allegations and take action accordingly.

However, oil refining millers at the meeting claimed that their supply was alright. On the contrary, wholesalers complained that the millers sell oil at higher prices by showing reduced supply.

The Directorate of National Consumer Rights Protection will visit mills to verify the authenticity of their allegations.

Those found responsible for intentionally hiking oil prices will be brought to book.

AHM Shafiquzzaman said the good news of withdrawing or reducing VAT on edible oil imports may come soon.

According to the commerce ministry, the country's annual demand for edible oil is 20 lakh tonnes. Of the amount, 2 lakh tonnes are produced locally, while the remaining 18 lakh tonnes, palm oil 53% and soybean 47%, are imported.

In the current fiscal year, 9 lakh tonnes of crude soybean and 11 lakh tonnes of crude palm oil have so far been imported.