Why are Vegetable Oil Prices Rising?

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Why are Vegetable Oil Prices Rising?

Sabina Dahal, 45, a resident of Banepa-2, expresses her frustration at the rate her kitchen budget has increased over the past few months. “Inflation is visible in almost all the daily food items but oil prices have almost doubled making it awfully expensive. Food prices are constantly rising while earnings remain the same,” she says. Families like Dahal are struggling to adjust to soaring prices on essential items which has forced them to cut back on their normal spending.

According to the annual macroeconomic and financial situation report, the average consumer price of ghee and oil rose by 17.54 percent in the fiscal year 2020/21. In the last three months of the current fiscal year, such inflation stood at 31.68 percent. Six months earlier, consumers were experiencing 21.38 percent inflation on the price of ghee and oil.  

Since the outbreak of the COVID pandemic, the average inflation on food and beverages has remained high. The higher inflation is evident in the skyrocketing cooking oil price in the market.

The average wholesale price of soybean oil is priced at Rs 260. For a box of ten packs of sunflower cooking oil which contains ten litres, consumers have to pay an average of Rs 2500. Likewise, an average wholesale cost of one litre of soybean oil is Rs 230. Even the basic mustard oil is priced at Rs 250 per litre.

According to Amul Kaji Tuladhar, General Secretary of Nepal Retailers Association, cooking oil prices have increased by eighty percent in the last one year.

Vegetable oil which used to be sold at Rs 160 per litre is being sold at Rs 240 per litre. He says that the growing price has squeezed the profit margin of retailers.

He states that a legal provision restricting the profit margin to 20 percent has not been implemented.

"Producers are booking profit margins which are higher than the limit. That is a reason why prices are going up," he claims. He also adds, "The producers of vegetable oils are being export oriented which is also having an impact on domestic consumption."   

According to the data published by the Trade and Promotion Centre, soybean oil remained the top exporting commodity, holding a 38 percent share in overall exports in the last fiscal year, with exports of soybean oil at Rs 53.65 billion. In the first four months of the current fiscal year, the country exported soybean oil worth Rs 26.4 billion. Meanwhile, it imported crude soybean oil worth Rs 27.22 in the review period. It continues to be the top commodity exported from the country.

Meanwhile the share of soybean and palm exports is gradually decreasing in terms of overall export figures owing to the intervention in customs duty by the Indian government. In the first month, soybean and palm oil accounted for a 43.3 percent share of total exports which has reportedly declined to 32.15 percent in the four months. The Indian government has reduced the import duty on crude palm oil to 2.5 from 10 percent, and to 2.5 from 7.5 percent on crude soybean and crude sunflower oils.

Madhav Prasad Timilsina, president of the Consumer Rights Investigation Forum, says the recent political parties' conventions have further driven up the overall price of essential commodities along with vegetable oils.

He also blames the government for failing to intervene in the market in the absence of a designated minister at the Ministry of Industry, Commerce and Supplies. Prime Minister Sher Bahadur Deuba has kept the portfolio with him for a long time.

"The Department of Commerce, Supply and Consumer Protection (DoCSCP) has not done enough to check unfair and abnormal price hikes," he says. "The current price hike in essential commodities is a result of weak government inspection. Instead of intervening in the market, it is siding with what the oil producers want."

Oil producers, however, defend the price hike, citing the growing production cost of edible oils.

Releasing a statement in October, the Vegetable Ghee and Oil Manufacturers Association of Nepal said that prices went up due to the rise in the cost of raw materials in the international market. The association also attributes the surge in edible oil prices to the higher transportation costs and freight charges.

However, consumer rights activists dismiss the association’s claims. Timilisina says that the current price rise is way higher than the surge in international prices. He states that the edible oil producers and suppliers have used the international price rise as a convenient pretext to maintain their profitability.  

Dhaneshwor Poudel, Section Officer at the DoCSCP says, “The department is conducting timely market monitoring and it has found the current inflation has been caused by the rise in the price of raw materials in the international market. India, our neighbouring country, has also witnessed a sharp rise in the price of vegetable oil.” He further says the oil producers have not set unreasonable prices and the profit margin is within the prescribed limit. Indian Express, one of the leading Indian news websites, recently reported India recording the highest retail prices of edible oils in over a decade.

According to the Food Price Index of the Food and Agriculture Organization of the United Nations, the Vegetable Oil Price Index went up 9.6 percent in October compared to September 2021. The Food and Agriculture Organization (FAO) states it is the highest price rise recorded in a decade resulting from lower palm production in Malaysia due to labour shortages. The labour shortage is expected to persist in Malaysia until early 2022.

The FAO Food Price Index, lists monthly changes in the international prices of food commodities, particularly in cereal, vegetable oil, meat and dairy products. The delayed harvesting of sunflower seeds in its major producing countries has also led to the price rise. India lowered import tariffs on edible oils facilitating import demand which helped to keep the price of soybean, sunflower and palm oil firm.

Looking further afield, according to the biannual report published in November by FAO, it has predicted that the production of oilseeds is anticipated to exceed global consumption of oils and meals, only by a small margin.  It has stated the market will be influenced by several factors like weather conditions in major producing regions, trade policies, crude oil prices and the new coronavirus variant. It states the reserved farmer selling has affected the prices in spite of high sunflower seed production in countries like Ukraine and Russia.

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