Cooking oil: Why consumers will pay more

Sunday July 09 2023

An attendant arranges cooking oil at a supermarket in Nyeri town, Kenya on December 31, 2022. PHOTO | JOSEPH KANYI | NMG


It will take longer – if at all – for consumers in the region to enjoy a drop in retail prices of edible oils following the decision by Kenya to impose a 25 percent duty on crude palm oil.

To sully the situation further, edible oil industry players in Kenya have had a spat with the government over its decision to import refined edible oil through the Kenya National Trading Corporation (KNTC).

Read: Kenyan firms seek to stop oil import plan

This week, a Mombasa resident Julius Ogogoh, moved to court to block the government’s decision to impose export duty on edible oil saying it will negatively affect companies that have invested in the business.

Ogogoh’s case stems from Trade and Investment Cabinet Secretary Moses Kuria’s letter to Treasury Cabinet Secretary Prof Njuguna Ndung’u dated June 20, in which he proposed to remove the 35 percent duty on edible oils and replace it with a 10 percent export and investment promotion levy on imported crude oil.

Manufaturers’ warning


The Kenya Association of Manufacturers (KAM) on Thursday warned that cooking oil prices will continue rising following a decision application of stays on the Common External Tariff (CET) by a section of East African Community partner states and the imposition of various percentages of duty on edible oil.

Read: Manufacturers call out states for using EAC CET loopholes

This is despite a worrying state of market volatility in Malaysia and Indonesia, the leading edible oil suppliers to the EAC.

“We thank the government for continuing the stay of application of the tariff on ready-made refined imported oils from outside EAC and Comesa at 25 percent or $500/MT whichever is higher in the EAC CET. The ideal would have been to retain this at 35 percent as this is under the category of finished goods,” reads a statement by the edible oil manufacturing sub-sector players under the umbrella of KAM, dated July 3.

“Our objective is to find a lasting solution in lowering the cost of cooking oil. We need to ensure the sustainable growth of local manufacturing to protect jobs and support economic growth through value addition.”

Kenya has imposed duty on crude edible oil at 25 percent as opposed to imposing the same on refined oil, when the ideal situation would have been to retain it at 35 percent under the EAC CET category of finished goods.

Historically, crude edible oil imports attracted no import duty on raw materials.

Partially processed cooking oil known as RBD Palm olein used to attract a 10 percent import duty and the processed and refined edible oil attracted 35 percent import duty.

“There is no tax on crude oil by the EAC CET. The duty is on refined cooking oil. So, if you impose duty on crude oil there will be no manufacturing that will take place in the country,” said Billow Kerrow, a member of the edible oils' subsector and former Mandera Senator.

“As we speak today, the crude oil which is refined by all the factories is cheaper than the one imported by KNTC, that is why they are stuck with it,” said Kerrow.

On July 4, Kenya hosted the Malaysian Palm Oil Forum East Africa 2023, which was graced by Malaysian Deputy Prime Minister and Minister of Plantation and Commodities Dato’ Sri Haji Fadillah bin Haji Yusof, who decried the recent introduction of duty on palm oil.

Read: Indonesia ban on palm oil export to affect cooking oil cost

“Kenya holds immense significance for the Malaysian palm oil industry, as demonstrated by its emergence as the 5th largest destination for Malaysian palm oil exports, with a volume exceeding 763,000 tonnes in 2022,” said Dato’.

“Market access remains a persistent obstacle, with protectionist policies and at times higher tariff rates.

There are also the negative anti-palm oil campaigns and legislation that unjustly targets or victimises palm oil. As such, these hurdles require diligent attention and strategic planning to overcome, towards ensuring a fair and level playing field for our industry.”

Kenya’s vibrant edible oils manufacturing sector has over 13 local companies, three of which were established in the last five years.

The country has invested a Ksh100 billion ($709.22 million) in capital in the sector that has a combined installed processing capacity of 7,160 metric tonnes (MT) per day or over two million MT per year.

The current market demand and consumption is about 800,000 MT per year, leaving an idle capacity of more than one million MT.

The EAC imposed a 35 percent duty on edible oil to discourage dumping of cheap refined oil into the region.

Read: Tough times for EA citizens over ambitious budgets

“Removal of export duty on crude palm oil will assist in utilising unused local processing capacity and make it more affordable, which would increase consumption in EAC,” said Vimal Shah, chairman, Bidco Group East Africa.

The EAC consumed 2.4 million MTs of palm oil in 2022. At least 7.2 million MTs is needed to feed the population by 2050.

Tanzania, Uganda and Rwanda have imposed duty on refined oil to protect their manufacturing industries from already packaged products.

Tanzania applied a stay application of the EAC CET rate of zero percent and a duty rate of 10 percent for one year on crude soya bean oil, crude groundnut oil, crude coconut oil, and vegetable fats oils, a move that has seen its cooking oil price stabilise.

Rwanda has applied for a stay application of the EAC CET rate of 35 percent and a duty rate of 25 percent for one year on refined edible oils.

Uganda applied for a stay of zero percent CET and a 10 percent duty on crude palm oil.