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KARACHI: Ghee, cooking oil prices boiling up

April 21, 2008

KARACHI, April 20: Rising palm olien prices have again started pushing up the cost of local 16kg ghee tins, while branded ghee and cooking oil producers have not come out with any price cut despite a fall in the price of palm olien in March.

A leading producer ruled out any decline in the prices of 2.5 to five litre/kg tins in the coming days by saying that palm olien prices have again surged in Malaysia and Indonesia for the last two weeks after heavy buying by China and India.

The price of 16kg ghee tins, which hold 40 per cent market share and are being widely used by hoteliers, caterers and sweet-makers, is now quoted at Rs1,920-1,940, while it was Rs1,700 on April 1 and Rs1,800 in the third week of March. On Jan 1, 2007 it was available at Rs1,000.

The 16kg ghee tin price, which fluctuates on a daily basis, touched the peak level of Rs2,150 on March 1, 2008, but after one week it started coming down after a decline in palm oil rates in March.

Consumers have been facing a tough time in purchasing branded ghee and cooking oil in the last one and a half years. In Sept 2006, five kg Dalda ghee was priced at Rs395. On Jan 1, 2007 it was available at Rs440 as compared to the current price of Rs720. On Jan 1, 2007, five litre Dalda cooking oil was also selling at Rs440 as compared to the current price of Rs750.

As a result of the rising price of 2.5 and five kg/litre tins, the market share of one kg pouch, which was five to 10 per cent a year ago, has surged to 20 per cent as consumers prefer to buy a smaller quantity as per their requirements rather than five kg/litre tins. Pakistan produces 3.2 million tons of ghee and cooking oil per annum in which the share of ghee is 70 per cent, while the rest is of cooking oil.

Market sources said when the manufacturers had procured palm oil at higher rates, they had easily passed on the impact to the consumers. When palm olien rates fell in March, the producers adopted a dilly-dallying attitude. However, since Sept 2006, leading packers had increased the rate nine-fold.

Many packers had earlier said that if the falling prices of palm olien continued for two to three weeks, they would then think about cutting the rates. The palm olien rate remained lower for two weeks but consumers are still waiting for any relief from branded packers.

The government had not checked with the branded packers as to why the rates had not been brought down despite a cut in palm oil rates in March.

The palm oil rate had fallen to Rs3,800 per maund (37.23kg) in the third week of March from Rs4,600 in the first week of March, while in Malaysia it declined to $1,280 per ton from $1,540 peak level in the first week of March.

A packer said the palm olien rate is now quoted at $1,360 per ton while it is priced at Rs4,150 per maund in the local market. Two weeks ago, the palm olien rate was $1,330 per ton. The palm oil rate in Malaysia and Indonesia had been rising for the last two weeks.

Consumers deprived

It may be noted that the Pakistan Vanaspati Manufacturers Association (PVMA) had not questioned their members (branded item producers) as to why they had deprived the consumers of the benefit from falling prices of palm oil in March.

A PVMA member said the government is eating up Rs30 per kg in taxes and duties in the price of reasonable quality ghee and cooking oil of Rs125-130 per kg available in the market, while the high-quality varieties sell between Rs140-150 per kg.There is a need to cut the sales tax of 15 per cent and import duty on palm oil so that consumers could get an immediate relief, otherwise “there are dim chances for any relief for consumers in ghee and cooking oil,” said a source.A sizable quantity of palm olien has been arriving from Malaysia following a 10 per cent duty cut on palm olien imports from Jan 1, 2008, under the Free Trade Agreement (FTA) between Pakistan and Malaysia. However, its impact in the shape of price cut was just Re1 per kg.