Cheaper cooking oil on the cards, but not just yet

 

Palm oil prices are expected to come down in a month or so, bringing down the prices of cooking oil, says an analyst.

PETALING JAYA: Lower cooking oil prices are on the cards now that palm oil futures have dropped substantially over the past week, says a palm oil analyst.

However, Singapore-based Sathia Varqa of Palm Oil Analytics said it could take over a month for the lower prices to take effect.

Yesterday, it was reported Malaysian palm oil futures are on track for their biggest drop in more than 16 months after they fell nearly 10%.

Sathia said lower prices of soybean and sunflower oil, the main competitors of palm oil, contributed to the drop in palm oil futures, a scenario which is likely to continue for several months with both the United States and Ukraine increasing the acreage of planting for soy and sunflowers respectively.

He said the main driver for cooking oil prices in Malaysia was the price of crude palm oil (CPO), and while prices would increase quickly in tandem with CPO prices, it would not go down just as fast.

“Retail prices will not drop immediately because retailers bought their supply when prices were high,” he said.

He said the rise in oil prices was also due to the very high global and domestic demand for palm oil products last month amid lower supply.

“In fact, local stocks of CPO dwindled by 96.1% in May from April. This could be because of the Hari Raya festivities, panic buying, and the fact that many industries and businesses remain open under lockdown.”

Dealing with higher prices

Sathia said the government’s move to only subsidise the 1kg cooking oil packets was perhaps the best way to ensure that the subsidies spent on cooking oil will reach those who really need it.

Several proposals have been mooted in addressing the rising price of cooking oil which has increased by over 100% since December 2019.

These include ceiling prices for bottled cooking oil, increased subsidies funded by taxes collected from the palm oil industry, and a two-tiered pricing system for CPO.

On ceiling prices or subsidies for bottled cooking oil, Sathia said it was difficult to ensure the subsidies reached the targeted group.

“The rich or businesses who do not need subsidies will end up benefiting. But they are less likely to buy the small 1kg packets.

“Also, if you are taking money from the plantation companies to provide subsidies, all you are doing is giving back the money to the plantations through the sale of subsidised cooking oil.”

Sathia said market intervention measures for highly volatile products like palm oil were “tricky”, and that market forces were still the best way to determine prices, especially when the product has a global demand.

“Measures like ceiling prices or two-tier pricing can be counterproductive as they may discourage producers, because essentially, it means lower profits.”

He said a better alternative would be targeted subsidies for the poor, which will see the government using taxes from the palm oil industry for cash aid or food baskets, rather than blanket subsidies. - FMT