How Treasury is driving up cooking oil prices

A shopper compares the prices of cooking oil at a supermarket in Kakamega town. [Mumo Munuve, Standard]

Kenya has maintained a higher import duty on vegetable oils than other East African Community (EAC) countries, a move that has contributed to high prices of cooking oil.

Despite the spike in the retail price of cooking oil, Kenya has opted to suspend the application of the EAC common external tariff (CET) of 25 per cent.

Instead, the government has applied a duty rate of 25 per cent or $500 (Sh58,950) per tonne, whichever is higher, for one year on all vegetable oils, which are key ingredients used in the manufacture of cooking oil.

This is contained in an EAC Gazette dated June 30 this year.

Retail prices of cooking oil have risen sharply by more than a half, with a litre going at an average of Sh387.98 in June this year compared to Sh255.83 in June last year, data from the Kenya National Bureau of Statistics (KNBS) shows.

The gazette notice shows that the duty will apply to RDB palm olein (liquid fraction obtained by fractionation of palm oil after crystallisation at controlled temperatures), RDB palm stearine, other palm oil refined, refined soya bean oil, sunflower oil, and refined corn oil.

The higher duty on vegetable oil was introduced in the 2018/19 financial year by the former Treasury Cabinet Secretary Henry Rotich, who noted that Kenya’s local manufacturers have adequate capacity to manufacture vegetable oils to meet regional demand.

Although prices of palm oil, the main ingredient used to manufacture vegetable oil which is then processed into cooking oil, have been going down, they are still high at $4,055 (Sh478,490) a tonne compared to $3,736 (Sh440,848) a year ago.

Kenya Association of Manufacturers Edible Oil Sub-sector Chairman Abdul Ghani towards the end of last year noted that following the onset of the Covid-19 pandemic, the global price of crude palm oil - critical for the preparation of cooking oil - has almost doubled.

Kenya imports most of its palm oil from Malaysia and Indonesia, with the latter at some point banning the export of this raw material to satisfy its local demand.

Olive oil. [iStockphoto]

Specific interventions

Unlike in the increase of prices of other commodities and raw materials such as fuel, fertiliser and maize where the State has introduced specific interventions, Treasury does not seem to have specific short-term measures to bring down the price of cooking oil.

“A long-term solution is being sought to ensure self-sufficiency in palm oil production by increasing palm oil production in Western and coastal counties,” said the National Treasury Cabinet Secretary Ukur Yatani in a statement dated July 1.

Additionally, the government will encourage the establishment of local oil processing plants, promotion of local production of oil crops such as sunflower and sim-sim, and securing and planting material for supply to farmers.

Other than the high costs of palm oil, edible oil manufacturers such as Pwani Oil have also decried the shortage of dollars, which has made it difficult for them to buy the raw material from the global market.

This is despite the Central Bank’s denial.