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National budget solution to edible cooking oil debacle

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John Kapito

Objectivity and prejudice have a way of leading public and private sector players in the direction they want to take other than in the right direction.

However, when the wishes of the parties are against the inclinations of the people, or when public officials and private sector players advance desultory goals, it is the ordinary citizen that bears the brunt.

A case in point is that of edible cooking oil prices.

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When, in September 2021, Edible Coking Oil Association of Malawi members warned that the shelf price of edible cooking oil would rise, some people in the corridors of power might have thought that this was an empty throat.

However, between September 2021 and January 17 2022, the price of a five-litre bottle of edible cooking oil has jumped from between K4,000 and K4,800 to between K12,000 and K13,200.

Ironically, when the cooking oil manufacturers were issuing the warning, the government was in jovial mood, celebrating that its crop diversification goal was being met.

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Since independence in 1964, Malawi’s main export crop has been tobacco, which is dubbed the green gold in Malawi, with tea, coffee and other crops, not necessarily in that order, trailing.

President Lazarus Chakwera has been urging farmers and industry players to embrace export diversification, instead of over-reliance on tobacco.

On April 20 2021, when he opened the tobacco-selling season at the Lilongwe Auction Floors, he told Malawians to accept the harsh reality that tobacco was a dying industry.

“What must be said and accepted is that our tobacco industry is dying and we need an exit strategy to transition our farmers to crops that are more sustainable and more profitable,” Chakwera said.

He called on the Ministry of Agriculture to begin consultations with all stakeholders and come up with the timeframe within which Malawi’s economy would be completely weaned off tobacco.

He also urged the ministry to draw up a strategy for preparing farmers for “a more prosperous future built on other commercial crops that are more profitable and sustainable”.

Malawi’s romance with tobacco dates back to 1893.

However, soya beans is one of the crops that are showing promise and, no wonder, topped the list of Malawi’s exports in the fourth quarter of the 2020-21 financial year,

Coincidentally, Edible Cooking Oil Association of Malawi faulted the feat for interrupting the soya beans supply chain. Its members claimed, at the time, that soya beans exports had led to a shortage of soya beans on the local market.

This, the association said, could lead to a rise in the price of cooking oil from November onwards.

Edible manufacturers also faulted the government for imposing restrictive taxes on edible cooking oil, citing the Value Added Tax (VAT) requirement that sees manufacturers coughing up to 16 percent of the selling price to the tax collector, Malawi Revenue Authority (MRA).

However, MRA’s Steven Kapoloma has been quashing this line of argument, saying prices of edible cooking oil were, in fact, supposed to be lower because officials at the tax collection body did their mathematics and did not find any connection between VAT imposed on the product and exorbitant prices the commodity attracts.

The Ministry of Trade, on the other hand, seemed equally surprised by the manufacturers’ position that soya beans exports would result in rising prices of cooking oil, claiming that the majority of edible oil manufacturers rarely crush local oilseeds for production.

Consumers Association of Malawi (Cama) added its voice to the matter, blaming oil manufacturers for deliberately importing “expensive” crude oil as one way of externalising the much needed forex.

Cama also blamed the government for “sleeping on the job” and letting manufacturers get away with impunity.

During the fourth quarter of the 2020-21 financial year, soya beans raked in K53.7 billion, in the process contributing 27 percent to national exports.

However, the increased quantity of soya beans that was exported prompted Edible Cooking Oil Association of Malawi to warn that shortage of soya beans on the market due to massive export of the commodity could negatively affect local cooking oil prices in the coming months.

Chairperson for the association Jayshree Patel said at the time that, had the country not exported the bulk of its soya, it could have helped cushion cooking oil prices in the wake of a sharp rise in international crude oil prices.

Local edible oil manufacturers usually import crude oil from Brazil and Bangladesh.

Patel said the price of crude oil had rocketed by 120 percent in months leading to September 2021, making it an expensive raw material for cooking oil.

She added that, by November 2021, they would have no option but to buy crude oil— which was 120 percent more expensive in 2021 than in the year 2020— as a raw material for cooking oil.

However, the Ministry of Trade pointed out that it was incorrect and misleading to speculate that cooking oil prices could go up due to exportation of soya beans.

Spokesperson for the ministry Mayeso Msokera indicated that Malawi’s large edible oil producing companies rarely produce cooking oil from crushing local oilseeds.

He added that it is small producers and cooperatives in the industry that were involved in oil extraction from oilseeds.

“Secondly, we would like to reiterate that the ministry has the mandate to balance raw material needs of both the local producers and the need to promote exports. That is why the industries that combine imported crude oil with a small fraction of oil crushed from local oilseeds were given an opportunity to stockpile enough soybeans when the commodities were in excess supply on the local market,” Msokera said.

He urged players in the local industry to invest in local value-addition by crushing and extracting oil from local raw materials rather than just importing crude oil from countries such as Brazil, a development that is draining the country’s foreign exchange and contributing to the exportation of jobs.

“The ministry is committed to supporting the industry through the necessary import and export regulations to safeguard their raw material needs if there is demonstration of significant local value addition investment and commitment.

“More value-addition also entails that the companies would continue to benefit from government incentives such as the Industrial Rebate Scheme, where other raw materials would be imported without payment of duty,” Msokera said.

Cama Executive Director John Kapito said edible cooking oil manufacturers in the country had no connection with local farmers and “deliberately” buy crude oil at expensive prices as one way of externalising forex.

He said the body had been asking the government to ban crude oil imports as the practice was tantamount to exporting jobs, to no avail.

“All they need to do is to give local farmers the assurance to grow soya and guarantee that they will buy the soya. But this has not happened as they [manufacturers] continue ignoring the farmer. When they buy from local farmers at all, they buy soya beans and groundnuts at below-market prices,” Kapito said.

In the end, however, edible cooking oil manufacturers were supposed to contribute their ideas during budget consultation meetings which Ministry of Finance officials have been conducting.

However, there has been no report of the manufacturers making any contribution.

For those that made their contributions, Treasury spokesperson Williams Banda assures that officials will incorporate ideas that make sense into the national budget so that the needs of all sectors can be catered for.

All eyes are, therefore, on Finance Minister Felix Mlusu, who may either liberate or take Malawi into the deep end of financial and economic problems.

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