Daily queues to buy edible oil in Addis
If you rely on palm oil for cooking, you may have noticed that it’s increasingly becoming scarce throughout Ethiopia. This shortage has made the government intervene, by lifting a four-year ban on the importation of edible oils for local companies. However, some critics say that this move isn’t enough to change the situation on the ground – and that it won’t be profitable for local companies. EBR’s Ashenafi Endale spoke with experts and people involved in the industry to learn more about what can and should be done to remedy the edible oil shortfall.
Tsegenet Teferra, 34, a mother of two, was at Woreda 10 Fana Consumers Association outlet, located around Piassa, on the morning of July 24, 2015. Although she came to buy palm oil, she was forced to return home empty-handed for the third time in a week.
“I can’t find palm oil in a retail shop as well as at the shop of the consumer’s association in my village,” Tsegenet, who is a housewife, told EBR in frustration while going home. “I came every morning for the last two weeks but all they say is [they] are running out of palm oil.”
The last time she found palm oil at the association, which was one month ago, she was forced to divide three litres of palm oil, which she purchased for ETB72, with her two neighbours. “This is because I couldn’t afford to buy three litres of palm oil for a month,” she said.
To ease the trouble of residents such as Tsegenet, who face palm oil shortages, the government partially lifted a four-year ban on private companies to import palm oil July 2015.
Accordingly, the Ministry of Trade (MoT) announced that it picked five private companies – Alsam PLC, Hameresa Edible Oil S.C, Belayneh Kinde Import and Export, AHFA Food Complex PLC and Biftu Trading – to start importing palm oil out of the 70 private importers that were active four years ago.
In addition, Ambassel Trading Enterprise, Guna Trading Enterprise and Wondo Trade and Investment Enterprise, all endowment enterprises and Alle Bejimla, a state-owned trade enterprise, were selected for the same purpose.
These companies are tasked with importing 40 million litres of palm oil every month beginning in August 2015 in an attempt to end the shortage. The private companies picked by the MoT, however, don’t seem as optimistic as the government, since the retail price set by the MoT four years ago didn’t adjust to accommodate their needs. In fact, they say they consider the opportunity to import palm oil merely a response to the national crisis rather than a profit-making endeavour.
“If we cannot get the palm oil at a lower price in the international market, there is no way to make profit selling it at the fixed retail price, [especially with] the puffed up logistics costs,” said a manager of a private company that was picked by the MoT, under the condition of anonymity.
In May 2011, the government banned private palm oil importers following its unsuccessful attempt to regulate the palm oil market with a price cap introduced in January 2011. Since then, the government took the responsibility of importing palm oil and distributing it to wholesalers, who then sell to final consumers at fixed prices. The government fixed the price of palm oil at ETB23 for a litre of palm oil, ETB72 for three litres, and 20 litres of palm oil is set at ETB432.
“The government has still not lifted the price cap,” says Teshome Bayissa, Basic Commodity and Market Surveillance officer at the MoT. “It only allowed some companies to import and sell it at the fixed price.”
Despite private importers’ concerns, however, Nuredin Mohamed, general manager of Alle Bejimla and adviser to the State Minister of Trade, argues that the selected companies can get a profit margin of up to 8Pct if they directly sell the palm oil to retailers, who directly sell it to the final consumers.
Based on the government’s estimation, importing companies can make a 2.5Pct profit margin from one litre of palm oil with the current price cap. “An importer can have a profit margin of 4.7Pct from a 3-litre jerrycan of edible oil, 5.7Pct from 5 litres, and 8Pct from 20 litres,’’ he explains. “This means it is profitable to engage in the business even if it was sold below the fixed prices.”
But for the manager of the private company that was selected by the MoT, such a profit margin is not enough. “The profit margin is too small to operate with; and because the price of palm oil frequently fluctuates in the international market, it can erode this small profit margin even further,” he said.
Kifle Woldetsadik, Planning, Research, Reform and IT department head of Ambasel Trading House PLC, partially agrees with this assessment. “We know the profit margin is too small to operate with,” he says. “But besides making a profit, we have the responsibility to serve the society.”
Economic experts, however, have their own opinion on the matter. “In principle, the market should be governed by the demand and supply forces,” says Fekadu Beyene (PhD), a lecturer at Haramaya University who specializes in resource economics. “But allowing companies to operate by themselves currently might have a negative impact in the market because edible oil is one of the necessary goods in Ethiopia that requires the government’s attention.”
Fekadu argues that the government can withdraw from the market, although it is difficult to do so at the moment. Nuredin agrees: “The government will see how these companies perform until September 2015 and will decide how to proceed in the future,” he says.
Alle Bejimla is rationed to import 4.7million litres of palm oil monthly by the MoT starting in August 2015, although it imported 1 million litres in July to test the market, according to Nuredin. This is in addition to the 368 million litres of palm oil the government imported in the just-ended fiscal year.
Although the government managed to import 23Pct higher than the planned volume of edible oil last fiscal year, of which 58 million litres were distributed in Addis Ababa, the shortage of the commodity was not solved.
While the shortage of the commodity has been there in the market quite for some time due to a shortage of supply, there are some who attribute the scarcity of the product to problems that have to do with logistics difficulties. “The problem has occurred not because of a supply shortage but [because of] distribution problems,” argues Teshome, the Basic Commodity and Market Surveillance Officer at the MoT. The total amount of palm oil the country imported in 2012/13 was 405 million litres, while the amount has decreased to 367 million in 2013/14. The country imports palm oil mostly from Indonesia and Malaysia.
But Girma Moges, purchasing head of the consumer association from which Tsegenet tried to purchase palm oil, argues otherwise. “Currently there is shortage problem not only in palm oil but sugar [as well],” says Girma.
“We receive 100 to 300 packs of palm oil, each pack with six three-litre jerrycans per week or sometimes every other week. The amount we receive has decreased and does not meet the demand of our woreda,” explains Girma. Out of the amount the association receives from the government, it sells 80Pct of it to the private retailers and the rest directly to consumers.
A storeowner around Piassa, who spoke to EBR on the condition of anonymity, says that most retailers, including him, sell the palm oil after buying from the consumer association with an inflated price to select customers. “For instance, I sell the three-litre palm oil for ETB110 and my customers are willing to pay for it because of its scarcity,” he said.
Despite the increasing dependency on importation, Nuredin contends that the better solution for the edible oil crisis is pushing local companies to engage in producing edible oil from different oilseeds. “We even have advised Belayneh Kinde Import and Export, Hameresa Edible Oil S.C and MIDROC Ethiopia Technology Group to consider this,” he says.
Currently, edible oil produced by local companies covers only 20Pct of the 58.8 million litre monthly national demand and most of the local production is done on a small scale, according to Nuredin.
But Tadele Ferede (PhD), assistant professor and head of the economics department at Addis Ababa University, has concerns with the push to rely on locally produced edible oils. “It is impossible to produce enough edible oil locally while exporting a large volume of oilseeds every year,” he says.
Data from the Central Statistical Agency (CSA) reveals that in the last harvesting season, Ethiopia produced 7.8 million quintals and exported 60Pct of the produce.
To this end, however, it seems strides are being made to help bolster Ethiopia’s ability to produce edible oils. Recently, Alsam PLC has linked its sister company, Repi Soap and Detergent S.C, with Wilmar International Limited, a Singapore agribusiness group, to establish an ETB7 billion industry conglomerate including an edible oil factory.
The factory refines palm oil, after the crude edible oil is imported from Singapore and Malaysia, according to the statement mangers of the company made back in May 2015, when the Prime Minister Hailemariam Desalegn laid the foundation for the factory. EBR
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