13/04/2011 (Addis Fortune) - The Merchandise Wholesale & Trade Enterprise (MWITE) has opened letters of credit (LCs) worth 17.8 million dollars at Commercial Bank of Ethiopia (CBE) for the first shipment of 12,500tn of palm oil imported from Malaysia.

The price of palm oil, which is imported duty-free, has shown a steady increment, increasing from 840 dollars per ton in September 2010, to 934 dollars per ton in October 2010, according to data from the IMF’s Malaysian palm oil futures. By February 2011, the price reached a high of 1,031 dollars per ton, the data showed.

Malaysia is the world’s biggest producer and exporter of palm oil and had 82.9pc of the global market share in 2010.

The government imposed price caps on 18 basic consumer goods on January 8, 2011.

However, the price cap has created a shortage in the market due to the international price increment, which has discouraged importers from bringing the oil in at higher prices and selling it at 24.50 Br per litre – at a loss, importers claimed.

In a closed meeting with importers on March 25, 2011, the Ministry of Trade (MoT) decided to buy all the edible palm oil from importers who ordered supplies from abroad at higher prices due to the international price increment.

However, MoT paid the price indicated on the payment order without covering or considering the profits the traders might have made had it not been for the price cap.

If prices do not decrease, the government will flood the market with basic commodities, Prime Minister Meles Zenawi has told MPs.

This first major importation by the government of palm oil, the primary imported edible oil, consists of three-litre, five-litre, 10-litre, and 20-litre containers that are expected to be on the market before May 28.

The request for LCs is the beginning stage of the import process, sources from the MWITE confirmed to Fortune on condition of anonymity.  

Ethiopia’s domestic edible oil sector produces approximately 20,000tn annually, while the country imports 160,000tn of edible oil, putting imports at 15 times more than domestic production, according to Launch of Business Opportunities Report on Oil Seeds 2009.

Local production only covers 20pc of the high demand while up to 80pc is covered by imports, the cost of which saw an annual increase until it reached 3.1 billion Br in the 2009/10 fiscal year, according to statistics from the Ethiopian Revenues and Customs Authority (ERCA).

During the previous fiscal year, the volume of edible oil imports amounted to 222,130tn, while a total of 217.2 million dollars was spent on its purchase, the statistics showed. The import volume reached 222,130tn in 2010, as indicated in the statistics from the ERCA.

Al-Sam International, Get-As International, Country Trading, AHFA, Camel Trading Enterprise, Sherefa, Netsa, and Misgana Wolday annually import close to 600 containers, up to 350,000tn, and over 13 million litres of palm oil.

During the past month, a major importer has imported palm oil at 1,200 dollars per ton, he told Fortune on condition of anonymity.

However, the government has probably ordered from trading houses at the increased price of 1,427 dollars per ton, indicating that the palm oil market will be dominated by the government for the remainder of the year as no private company can afford to purchase at such high prices and sell for only the set price, the importer claimed.

“I view getting out of the oil market as preferable to regretting the sale of my imports to the government, since it has saved me from a huge loss,” he said.

For the next six to seven months, the government will import and sell the palm oil at the capped price despite the international price increment, claimed Amakele Yimam, director of corporate communications for MoT.