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Steps towards sanity in cooking oil industry

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In November 2020, the government re-introduced 16.5 percent Value Added Tax (VAT) on refined cooking oil. The development has seen prices of refined cooking oil rising substantially, leaving consumers helpless. Our reporter CHIMWEMWE MANGAZI engaged Competition and Fair Trading Commission (CFTC) Director of Consumer Affairs Lewis Kulisewa on the plight of consumers and measures taken towards addressing the challenge.

Does CFTC have the mandate to intervene on issues such as the rise in cooking oil prices?

The commission is established under the Competition and Fair Trading Act (CFTA) as a public protector for trade related injustices on the market. It envisions a competitive market characterised by enhanced consumer protection. To achieve that vision, the commission resolves injustices that impede consumers and commercial enterprises from enjoying their rights under the CFTA. Where such rights are violated through unfair or anti-competitive business practices, the commission provides remedies and imposes sanctions against the perpetrators. The commission’s powers cut across sectors including the cooking oil industry.

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What have you done to cushion consumers in regard to recent increases in prices?

Through its active market monitoring and surveillance programme, the commission has observed that the prices of certain brands of refined cooking oil have increased by over 65 percent, raising suspicion of possible exploitative pricing. Local manufacturers have attributed this increase to the re-introduction of 16.5 percent VAT on cooking oil. However, the Ministry of Finance has repeatedly said that the re-introduction of VAT on refined cooking oil was not expected to trigger a substantial increase in prices.

Therefore, it has become necessary for the commission to establish whether or not the magnitude of the upward price adjustments is justified. The commission has launched formal investigations against all the cooking oil manufacturers on allegations of suspected of unconscionable conduct in the pricing of cooking oil.

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Further, the commission observed that the market structure for the cooking oil industry in Malawi comprised six players. Out of the six, five players had organised themselves into an association known as Edible Cooking Oil Association of Malawi (ECOAM), which is suspected to be engaged in collusion. As collusion by rival enterprises to collectively enforce certain arrangements is a serious breach of the CFTA, the commission has also launched investigations into ECOAM.

Are you disputing that reintroduction of VAT on cooking oil has triggered the rise in prices of the commodity?

As I mentioned, the matter is a subject of an on-going investigation. Suffice to say that, if cooking oil prices have gone up due to the introduction of 16.5 percent VAT, then the corresponding increase in prices should have been 16.5 percent or less. However, that is not the case. Cooking oil prices have increased by over 65 percent. So, probably, there must be other factors at play.

The onus is on the manufacturers to show a direct link between the 16.5 percent VAT and 65 percent increase. For instance, the Ministry of Finance’s position is that before the reintroduction of VAT on cooking oil, manufacturers were not able to claim VAT refunds from Malawi Revenue Authority (MRA) on input VAT paid on raw materials such as crude palm oil, water, electricity, packaging materials etc. However, with the introduction of VAT on cooking oil, manufacturers are now entitled to claim input VAT paid, thereby effectively reducing their production costs. The burden of proof lies in the manufacturers to show that this projection is not correct.

What about assertions that developments on the local market are reflecting global cooking oil prices?

Most of the crude palm oil used in the country is imported from Malaysia and other countries. A market inquiry into global prices shows that the price of crude palm oil has been rising since March 2020 largely due to the devastating effects of the Covid pandemic, which resulted in the reduction in the number of workers at production sites in Malaysia. This ultimately led to low production while international demand remained high. This situation caused an upward shift in the price of crude cooking oil on international markets. In addition, the rates of freight and shipping costs of goods have surged during the pandemic due to lockdowns and prolonged shipping periods. A combination of these factors might explain the increase in the domestic price of cooking oil.

To avoid this situation from recurring, there is scope for this country to invest more in the production of soya bean on commercial basis. The only reason why local manufacturers import crude palm oil is because the country is not producing enough soya bean.

The production of soya bean, as a raw material for cooking oil, would be a viable industry with potential to create more jobs in the agricultural sector as well as contribute to foreign exchange gains through reduced imports of crude palm oil.

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