Edible oil prices soaring despite increased import

Highlights

• Ukraine War has pushed prices by Tk1000-1200 per maunds in a week
• Value of DO has doubled in wholesale market
• Traders keen to buy oil against DOs, but factories reluctant
• Edible oil prices on global market continues to rise
• Government has lifted VAT for edible oil

Both the importers and traders of edible oil are resorting to selling delivery orders (DO) illegally instead of sticking within the legal trading procedure for the document, officially known as Sales Order (SO), as the price of the essential is skyrocketing in the global market.

In spite of the 15-day deadline for procurement of edible oil, the DOs continue to remain in the market for years thanks to a tacit consent between both parties.

Their strategy, clearly for a bigger profit margin, backfired on them as the prices shot up drastically due to the war in Ukraine.

Now the factory owners are reluctant to supply oil against DOs, which were sold at much lower prices a long time ago. As a result, the government's steps towards bringing down edible oil prices are having no effect – after a week of downward trend, the price is again moving up.

Import trade of the country is mostly done through banking channels. Traders import from the world market after booking products through a Letter of Credit (LC). With a nominal deposit from importers, banks invest in importing products. Meanwhile, many consumer goods traders collect large amounts of money from the market by selling their DOs even before the goods are imported.

Currently, some millers are reluctantly supplying edible oil against DOs that were sold at low prices as there was no obligation to pay interests. However, most mill owners are not at all interested in supplying edible oil against these old DOs. As a result, there is no effect of either increased import, or recently announced duty exemption for edible oil.

According to the edible oil traders of Chattogram's Khatunganj, importers generate crores from the market a few months before the oil is imported. The DOs stay in the market indefinitely due to which they keep on changing hands in the market year after year.

However, until the emergence of the Ukraine-Russia war situation, business was as usual and collecting edible oil with old DOs was no hassle. As the military conflict shook up the global market, the price of edible oil has gone up by Tk1,000-1200 per maund in just one week.

The skyrocketing price has also placed years-old DOs at the highest potential profit point. But, factory owners are not willing to supply the sought amount, affecting the country's wholesale and retail markets.

According to the DO traders, before the Russia-Ukraine war, importers sold soybean SOs at Tk5800 (per maunds), which within a few days increased to Tk6800. The value of DOs has doubled in the wholesale market compared to recent years.

Trucks sent by traders to several of top edible oil refineries have been waiting for days and they are counting an added Tk2,500 per truck every day. Other than lobbying efforts, there were also allegations of bribery in the hope of securing the sought amount of oil from the refineries.

M Haider Ali, proprietor of GM Trading, said he went to a factory Tuesday to collect oil with a DO he had bought six months ago and he is yet to receive any.

Mizanur Rahman, director of Nurjahan Group, said the global market for the commodity had been on a steady upward trend.

"Considering the risks under the circumstances, similar to the crisis of 2008-2010, many of the country's top companies reduced import bookings, which will create some problems in the supply chain," he said.

Mizanur thinks commodity prices are rising due to importers selling SOs before importing the goods.

"However, there are other reasons for the price hike as well," he added.

According to Chattogram Customs data, 1.69 lakh tonnes of crude soybean oil was imported in the last two months of January-February, an increase of 48,000 tonnes from the same period last year.

In a similar fashion, soybean seeds import has increased 40,000 tonnes this year compared to the 2.71 lakh tonnes imported in the first two months of 2021. Additionally, palm oil imports in the last months have been recorded at 1.99 lakh tonnes, a rise of 20,000 tonnes from the same period last year.

Meanwhile, 75,000 tonnes of crude soybean oil, expected to arrive by Saturday, is expected to hit the market in Ramadan after being refined, sources said.

The crude oil is being imported by five importers including City Group and Meghna Group. Two ships with 32,000 tonnes of that crude oil have already arrived at Chattogram Port while another ship carrying the rest is set to arrive on Saturday.

Besides, 12,000 tonnes of palm oil arrived in the first week of this month, while another ship brought nearly 57,000 tonnes of soybean seed that will later be used to make soybean meals and oil.

"The arrival of three ships carrying soybean oil in a short period of time will allay fears of a crisis of the commodity in the country. Soybean prices are rising in the world market. Newly arrived soybean oil shipments will be quickly unloaded and refined and marketed. Apart from this, new LCs have been opened," said City Group Director Biswajit Saha.

He said that the newly arrived consignments were purchased at a higher price than before.