The sudden rise in the price of cooking oil – what’s the problem?

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PETALING JAYA (July 15): The sudden rise in the price of cooking oil is of concern to all Malaysians, not just those in the bottom 40% (B40) and M40 incomes who spend most of their income on food. Although household spending on cooking oil is only about 0.42% of total household spending on food, rising oil prices are affecting the prices of other food items, especially out-of-home food.

Malaysia is the second largest producer of palm oil. Logically, there should be no price hike amid plenty. In addition, cooking oil is subsidized.

The PEMUDAH Food Cost Technical Working Group (TWGFC) led by Professor Emerita Tan Sri Dr Sharifah Hapsah Syed Hasan has brought together industry experts, regulators, government agencies and researchers to analyze the supply chain. supply of cooking oil and identify possible parties contributing to higher prices.

Of the approximately 18 million tonnes of crude palm oil (CPO) produced annually, only around one million tonnes is allocated to cooking oil. Therefore, only a small fraction (5% to 7%) of CPO is transformed into cooking oil. Of the total, 720,000 tons are dedicated to subsidized cooking oil, which represents 60,000 tons per month. The rest (300,000 tonnes) is unsubsidized cooking oil sold in 1 kg to 5 kg bottles and 17 kg cans.

In terms of costs, 70% to 80% of the cost structure of cooking oil is due to the purchase of CPO. The rest (20%) is split between processing, packaging, storage and retail. Therefore, the price of cooking oil is highly dependent on the price of CPO. Since the amount used for cooking oil is only around 5%, it makes sense for the government to step in with industry subsidies to keep the price affordable.

Currently, the subsidy is only for the quota of 60,000 tons per month, which is packed in 1 kg polythene bags. Statistics show that the per capita consumption of cooking oil is 1 kg to 1.5 kg per month (which is higher than the national dietary recommendation of 620 g/month). Assuming everyone consumes this amount of cooking oil per month, the total required for B40 and M40 is only about 26,000 tons per month. Therefore, we produce enough subsidized cooking oil for B40 and M40 – in fact, enough for the entire population of Malaysia, with even a surplus.

Where is the problem then? The TWGFC believes that the packaging of cooking oil in 1kg polythene bags may be the source of the problem. Packing quota is allocated to selected packers. We need to better understand how they are chosen and how subsidized packages are distributed to target groups. Leaks in the system may have led to the sale of subsidized cooking oil across the border. There are also concerns that subsidized cooking oil in polythene bags is being repackaged in unsubsidized bottles. A more comprehensive approach in the selection of conditioners and the right distribution mechanism should be introduced to ensure that targeted groups benefit from government assistance.

The workshop brought together the Malaysian Palm Oil Council, FGV Holdings Bhd, National Action Council on Cost of Living, Department of Statistics Malaysia and University of Putra Malaysia. Malaysia Productivity Corporation, which is also the secretariat of PEMUDAH, serves as a catalyst in bridging the gap between the private and public sectors to improve the nation’s productivity and competitiveness.

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