The Government has decided recently that the retail ceiling prices of non-subsidised palm cooking oil in one to five kilogramme (kg) bottles are set monthly and will take into account the average monthly price of crude palm oil (CPO) which will be announced by the Malaysian Palm Oil Board (MPOB) on every first working day of the month.

The price of palm cooking oil depends on the price movement of CPO because CPO is the main input for the production of cooking oil.

The market price of CPO is constantly fluctuating because it is influenced by the current market sentiment which causes the price of cooking oil (palm olein) to also move in tandem.

Upward trend

CPO prices had started to show a significant upward trend starting in the middle of 2020 and had several times broken the highest price record in the history of the Malaysian oil palm industry from January 2021 to May 2022, before starting to show a downward trend in June 2022.

In July 2022, the price of CPO had declined by 33.5% to RM4,063.00/tonne compared to RM6,106.00/tonne in June 2022. The fall in the CPO price was influenced by several factors such as the decline in the price of soyabean oil (SBO), the decline in the price of Brent crude oil (BCO), lower Malaysian palm oil exports to the European Union (EU) and China, higher global palm oil supply, and higher Malaysian CPO production in line with seasonal trend.

SBO prices had decreased by 12.6% to US$1,548/tonne in July 2022 compared to US$1,772/tonne in June 2022 due to sufficient supply of soyabeans due to good weather conditions in the United States.

Meanwhile, the price of BCO had fallen by 8.1% to US$117.12 per barrel in July 2022 compared to US$127.41 per barrel in June 2022 following the increase in global crude oil supply due to the actions by the Organisation of the Petroleum Exporting Countries or OPEC to increase crude oil production up to 100,000 barrels/day.

The removal of the export ban by Indonesia starting May 23, 2022, has caused an increase of global palm oil supply. This situation is further deteriorated after Indonesia abolished the export levy from 15 July to 31 August 2022, aimed at reducing the palm oil inventory which is still high as a result of the export ban. Both of these situations have caused a significant decline in the price of palm oil in the global market as well as giving stiff export competition to the Malaysian palm oil.

In July 2022, the production of Malaysian CPO had increased by 1.8% to 1.57 million tonnes compared to 1.55 million tonnes in June 2022 following the peak production season which usually occurs from March to October every year.

Downward trend

The CPO market price recorded a downward trend because it was influenced by the factors mentioned earlier.

On 1 August 2022, MPOB released the average price of CPO for July, which was at RM4,063.00/tonne. Based on that price, the retail ceiling prices of palm cooking oil in one to five kilogram bottles have been decided at RM7.70 per bottle to RM34.70 per bottle effective from August 8, 2022.

Enforcement in shops at the retail level was carried out seven days after being notified by MPOB of the average palm oil price for the previous month.

However, the decline in the price of CPO did not cause a fall in the price of palm cooking oil in the local market in the same period of time. This is because there is a lagging effect in the relationship between the price of CPO and the price of cooking oil.

Lagging effect means the effect of CPO price movements on palm cooking oil price movements can only be seen after a month. This takes into account the production process of the cooking oil from the purchase of CPO to distribution in supermarkets.

Therefore, the decline in the price of CPO does not cause the price of cooking oil in the market to fall immediately. This happens because refineries need to buy CPO earlier at the current price to be processed and packaged into cooking oil. Hence, to avoid losses, the price of the cooking oil cannot be lowered as the old stock of the cooking oil is still available.

The Special Jihad Team against Inflation (Jihad Committee) has held discussions involving various parties including the Ministry of Domestic Trade and Consumer Affairs, MPOB and players in the oil palm industry.

Study on cooking oil pricing mechanism

MPOB has been requested to conduct a study on the cooking oil pricing mechanism for the domestic market. The study involves evaluating the feasibility of a two-tier pricing mechanism that differentiates between the price of cooking oil for domestic use and for export use to replace the current pricing mechanism.

Two-tier pricing refers to a system where the price of commodities for domestic use is controlled at a lower price, while for the export market it is according to the current market price.

Based on MPOB statistics, for the period from January to July 2022, palm oil exports amounted to 8.50 million tonnes, of which 6.50 million tonnes were processed palm oil. From the total export of processed palm oil, the export of cooking oil during the period was 759,228 tonnes or representing 11.7%. This amount (759,228 tonnes) showed an increase of 121,235 tonnes or 19.0% compared to 637,993 tonnes for the same period in 2021.

For the period from January to July 2022, Malaysia exported a total of 104,413 tonnes of cooking oil to Pakistan, 78,355 tonnes to Afghanistan, 61,817 tonnes to Angola, 59,656 tonnes to Tanzania and 58,960 tonnes to Djibouti.

-- BERNAMA

Datuk Dr Ahmad Parveez Hj Ghulam Kadir is the Director-General of the Malaysian Palm Oil Board.