Causes of high prices on edible oil products in Zambia
Published On May 4, 2021 » 2041 Views» By Times Reporter » Business, Columns
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THE edible oil sector in Zambia is a ‘more than meets the eye,’ complex, business sector.
Remarkably, as this discourse will shortly look at, it is currently one of the most complex business sectors in Zambia’s economy.
In the recent past, I carried out an in-depth investigation to find out the causes of the unprecedented hikes in the prices of edible oils in Zambia.
In so doing, I took a holistic entire-value chain activity analysis, as opposed to only looking at the prevailing situation from simply a narrow price, point of view.
According to reliable sources, Zambia consumes an estimated 120,000 metric tonnes of edible oil.
It is also important to note that the main sources of locally processed edible oil in Zambia are; palm oil, cotton, sunflower and soya beans.
On the other hand, the major edible oil crushers comprise; Global Industries, Parrogate and Mount Meru industries.
Additionally, smaller edible oil crushers, dotted around the country, mainly sell their crude edible oil to the three major players.
Sunflower has the highest content of cooking oil, amounting to about 30 percent while soya beans grain contains an estimated 18 to 20 percent respectively.
However sunflower is mainly grown in Eastern Province in small quantities.
Indeed, many crushers instead of charging farmers for crushing the sunflower grains retain the crushed cake as payment.
The cake is mainly exported to neighboring countries; Zimbabwe, Botswana, Mozambique, South Africa and Tanzania.
On the other hand, while cotton is also a source of edible oil, the cotton sector in Zambia, has been fraught with insurmountable challenges.
Over 300,000 cotton farmers have over the last seven years deserted growing cotton owing to several challenges including the low price of cotton.
Following on, the price of cotton is determined on the global market!
Additionally, cotton is labor intensive and input cost intensive to attract growing for edible oil production.
On the other hand, to meet the demand of cooking oil in Zambia, the country needs an estimated 800,000 metric tonnes of soya beans.
However, 70 percent of soya beans are grown by small scale farmers whose productivity is very low.
Thus, a small scale farmer on average produces one tonne or less per hectare, while a commercial farmer produces two-and a half tonnes per hectare.
Further, commercial farmers production only accounts for 30 percent of the sector’s production
These sources further revealed that the edible oil sector is fraught with a “cheating culture”.
Well placed reliable sources including the Zambia National Farmers Union (ZNFU) revealed to me that edible oil crushers are allowed to import crude oil to mitigate the shortfall in locally produced soya bean grains.
However, some of these importers in turn import bulk processed cooking oil instead, in the guise of crude edible oil!
Unlike refined edible oil, crude oil attracts a lower import duty and is nevertheless not banned for importation.
That’s hair raising, isn’t it?
In any case, that’s food for thought!
To carter for the 120,000 metric tonnes demand of cooking oil, Zambia needs to produce an estimated 800,000 metric tonnes of Soya beans!
Of course, this is a subject for another day.
In 2020, Zambia is estimated to have produced 351,000 metric tonnes of soybeans grain.
Of course, not all this amount was processed into edible oil.
Part of it was turned into seed, wasted and or found itself being used for any other purposes.
Essentially, this picture evidently indicates that Zambia may be importing more edible crude oil than what it processes from its locally grown grains!
It is important too, to note here that soya beans require various inputs, which are quite expensive.
These include a bag of 25 kilogram seed which is estimated around K550, fertilizer, inoculants, herbicides and fungicides plus the cost of land preparation and harvesting.
It should also be clearly noted that government authorities have only banned the importation of refined cooking and not crude oil!
Following on, to process either the imported crude oil or the locally crushed grain, producers inevitably have to import Hexane, which is critical in the solvent extraction method that is used to process cooking oil.
Think of it, the country is literally importing crude oil, also has to pay for the importation of Hexane in foreign currency, at a time when the Kwacha is at its all-time low in its value against other foreign currencies!
That’s a night mare, isn’t it?
To add ‘the final nail to this coffin,’ edible oil crushers inevitably incur high costs of electricity and fuel to process the edible oil.
It is only an open secret that the cost of electricity and fuel in Zambia is quite high.
It is interesting too, to note that while other grain crops like maize have a longer marketing period, Soya beans only has a three to six weeks marketing period.
Thus, there’s always a gold-rush for the commodity every time it’s harvested.
This means that even large oil crushers and other players who have money to buy the commodity cannot buy enough of it since the quantities are always not enough!
According to the ZNFU, at around this time of the year towards the beginning of every agricultural season’s harvest, the grain levels of soya beans are quite low. This could be aggravating the hikes in the prices of cooking oil.
What other factors contribute to the high cost of cooking oil?
According to other reliable sources, areas such as Lundazi grow substantial amounts of soya beans. However, the road between Lundazi and Chipata is literally in a deplorable state.
This stretch is very short but takes as much as four hours to reach Chipata.
In such cases, transporters charge a premium for the excess wear and tear on their motor vehicle.
Unfortunately, the final cost is borne by the ‘poor’ final consumer!

For comments e-mail: Mobile +260977403113
The author is the Managing Consultant at G. N Grant Business Consultant, a Chartered Certified Accountant (ACCA), a Master of Business Administration (MBA) holder, with a Specialism in Strategic Planning, and a candidate for the Herriot Watt University (Scotland) Doctor of Business Administration (DBA)

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