16/02/2010 (The Star Online) - FEW realised that palm-based cooking oil, or its export name RBD palm olein, is heavily subsidised by the Government, except when there is a festive season approaching for fear of shortages in the subsidised cooking oil due to hoarding.

The subsidy introduced since 1995 saw cooking oil in the domestic market sold at a relatively low price, resulting in most consumers taking the present price for granted.

Many also failed to comprehend that the subsidy was meant for domestic household, particularly the low socio-economic group and rural population.

Those in the low socio-economic group consumed cooking oil sold in sachets at RM2.50 per kg, while the middle and high-income consumers would buy in plastic bottles at RM3.60 per kg from supermarkets.

At the same time, the Government is saddled with increasing cooking oil subsidy from a mere RM26mil in 1995 to a whopping RM1.3bil in 2009 following the strengthening of crude palm oil (CPO) prices.

The cooking oil price is capped at RM1,700 per tonne or RM1.70 per kg through subsidies. The current market price is about RM2,700 per tonne. To maintain the RM1,700 “subsidised price”, a subsidy of RM1,000 is needed.

However, the Government and oil palm industry players were beginning to realise that the subsidy has been taken for granted and badly abused by the non-target groups.

Those involved in the industrial and food manufacturing sectors have been purchasing the subsidised cooking oil in large quantities when they were supposed to buy at market price packed in 17kg tin or in bulk.

In fact, many did not pass the subsidy to consumers as there were no decrease in the price of fried foods.

Another point is that the average domestic consumption for cooking oil is 40,000 to 50,000 tonnes per month.

However, the quota for subsidised cooking oil in the border states was insufficient and even exceeded the normal monthly demand to reach over 70,000 tonnes, especially during festive seasons.

Since the actual domestic household use is about 40,000 tonnes per month, the policy to flood the market with cooking oil to avoid shortage also gave allowance for high leakages.

Many claim that there have been rampant border trade and smuggling activities where the domestic household consumption was bought in bulk by traders and “exported” to neighbouring countries.

The smuggling activities to neighbouring countries lead to non-target groups getting cheap cooking oil at half price.

The Malaysian Palm Oil Association (MPOA) and independent palm oil refiners, which have been supporting the Government’s cooking oil subsidy for many years, are unhappy with the leakages involving the non-target groups.

MPOA chief executive officer Datuk Mamat Salleh believes that local cooking oil subsidy should be for the needy (urban and rural poor) and not for the wealthy (middle and high-income group), the greedy (who wants to make more profit) or other countries (by smuggling).

Leakages to non-target sectors should not be allowed and strict enforcement should be done at the borders, he said.

Should the subsidised cooking oil reach only the intended domestic households, the subsidy may cost only about RM400mil per year.

On the other hand, if the cooking oil is left to the open market and only subsidised for the needy group (urban and rural poor), it may cost only RM40mil annually.

Some quarters said cooking oil constitutes only a small percentage and an insignificant component of the consumer price index and will not have much impact on the food costs of the household when compared with petroleum whose subsidy has wide-ranging multiplier effects.

The Government is said to be seriously reviewing the cooking oil subsidy following the end of the bread subsidy recently.

However, there is still no indication whether it will be a complete removal of the cooking oil subsidy or a reduction in the quantum of the subsidy.