The edible oil market in Bangladesh has become unstable once again. Despite the government granting tax exemptions to address supply shortages, the issue remains unresolved. Importers claim that the crisis stems from difficulties in importing edible oil due to significant price hikes in the international market. Others argue that the country’s credit downgrade has disrupted international trade, affecting the supply chain of essential commodities.
However, bankers believe the impact of the credit downgrade is not yet significantly visible. They suggest that market manipulation is primarily responsible for the crisis. In this scenario, the government may soon decide to increase edible oil prices to ensure uninterrupted supply during the upcoming Ramadan.
According to the Ministry of Agriculture, the annual demand for edible oil in Bangladesh is approximately 2.4 million tons. Locally produced edible oil from mustard, peanuts, sesame, and linseed meets about 300,000 tons of this demand. The remainder rely heavily on imports. Soybean oil accounts for 48 percent of imports, primarily from Brazil, while 46 percent comes from Argentina. Palm oil is sourced mainly from Malaysia and Indonesia. The monthly demand for edible oil is around 200,000 tons, doubling during Ramadan.
Importers state that the continuous rise in global edible oil prices has prompted them to propose price hikes to the Ministry of Commerce multiple times. However, to mitigate market instability amid rising inflation, the government has been reluctant to approve price increases. Instead, it has reduced duties twice to protect businesses. Despite these measures, the steep rise in global prices leaves no alternative but to increase domestic prices. While the duty cuts reduced prices by BDT 10 per liter, international prices have more than doubled. This has put the government in a challenging position to implement a significant price adjustment.
Last Thursday (December 5), a meeting between the government and mill owners failed to reach a decision. However, a follow-up meeting is scheduled for today (Sunday) to discuss increasing the supply of soybean oil. A final decision on price adjustments may be made during the meeting.
Three leading companies control nearly half of the edible oil market in the country. These companies are Bangladesh Edible Oil Limited (BEOL), Meghna Edible Oils Refinery Limited, and Bashundhara Multi Food Products. Data from international trade service provider Volza indicates that between March 2023 and February 2024, these three companies accounted for 48 percent of total edible oil imports. BEOL contributed 21 percent, Meghna 14 percent, and Bashundhara 13 percent.
Md Shafiul Athar Taslim, Director (Finance and Operations) at TK Group, told Bonik Barta, “Despite the abnormal price surge in global edible oil markets, the government has opted to reduce duties rather than increase prices to avoid burdening consumers. However, the global price hikes leave no other choice but to raise prices. Smaller, periodic price adjustments earlier could have minimized the current challenges. To ensure minimal inconvenience to consumers, importers have also increased import volumes. But the import cost of the soybean and palm oil awaiting clearance at Chattogram port is significantly high. Several discussions with the government have already taken place regarding price adjustments. If a decision is reached in the upcoming meeting, the supply crisis will likely be resolved.”
In Bangladesh, the majority of packaged edible oil consists of soybean oil. Additionally, a few companies also bottle super palm oil in limited quantities. Apart from rising global prices, another significant issue disrupting the edible oil market is the higher cost of palm oil compared to soybean oil Due to the higher price of loose palm oil or super palm oil compared to bottled soybean oil, many wholesale and retail traders have been opening bottles of soybean oil supplied by companies and selling it as palm oil. While companies are unable to supply bottled soybean oil at prices higher than the government-mandated rates, the lack of effective monitoring has allowed traders to exploit the situation by selling soybean oil as palm oil or super palm oil in the open market. This has enabled traders to earn higher profits, even as the companies bear significant losses. As a result, companies have been forced to reduce their supply of bottled soybean oil in recent times, unable to sustain the financial burden caused by these practices.
Md. Redwanur Rahman, Head of Sales and Marketing at Bashundhara Multi Food Products Limited, told Bonik Barta, “In the last fiscal year, edible oil imports decreased by 15-20 percent compared to the previous fiscal year due to rising prices in the international market. Palm oil prices are currently at their highest in 40 years. Typically, palm oil costs $100-$150 less per ton than soybean oil, but it is now $145 more expensive. Prices are expected to rise further next year, leading to reduced imports of palm oil. Another challenge is that international suppliers are no longer loading products unless they receive 100 percent payment in advance. Previously, we could make payments upon arrival at Chattogram port. This issue has been ongoing for the past one to one-and-a-half months and has been exacerbated by the country’s credit rating downgrade. Generally, it takes 50-55 days for products to arrive after opening an LC (letter of credit), but delays have increased due to these complications. Reduced imports have naturally led to a decline in production. We are in discussions with banks and suppliers to address the situation.”
Industry insiders say the high cost of soybean oil has pushed many consumers toward alternatives such as mustard oil. Additionally, rising prices have reduced edible oil consumption, slightly lowering demand. According to the Bangladesh Vegetable Oil Refiners and Vanaspati Manufacturers Association, the soybean oil currently entering the country through ports costs $1,220 per ton. To break even, the price of soybean oil would need to be at least BDT 190 per liter. However, domestic companies are selling it at the government-fixed price of BDT 167-168 per liter. Many companies have reduced imports as they are compelled to supply at prices lower than the import cost. This has destabilized the overall edible oil market in the country, according to stakeholders.
Syed Mahbubur Rahman, Managing Director of Mutual Trust Bank (MTB), told Bonik Barta, “The impact of the credit rating downgrade on international trade has not yet been significant. There are no issues in opening LCs through my bank; in fact, imports have increased. Banks facing liquidity crises might encounter difficulties in opening LCs, but such cases are expected to be minimal.”
Importers observe that although the government sets prices for various essential commodities, these products are not sold at the fixed rates due to a lack of effective monitoring. While unregulated and agricultural goods often evade price controls, edible oil importers are relatively few in number. This makes it easier for the government to monitor them if it chooses to do so. Additionally, the printed prices on bottled soybean oil packaging leave little room for manipulation by importers. Stakeholders suggest that instead of imposing strict controls, the government could allow the edible oil market to operate as a competitive market under proper monitoring.
Market observers note that the absence of supply from the country’s major branded companies has led to the increased dominance of non-branded companies. These companies procure palm oil or soybean oil from the open market, repackage it, and sell it as bottled products. Currently, retail sellers are offering soybean oil at prices ranging from BDT 190 to BDT 200 per kilogram, while palm oil and super palm oil are being sold at BDT 180 to BDT 185 per kilogram. The shortage of bottled soybean oil has also driven up the demand for alternatives like mustard oil, rice bran oil, and sunflower oil.
From March 2023 to February 2024, 67 LCs for edible oil imports were opened through Prime Bank. Azam J Chowdhury, Chairman of East Coast Group and Director of Prime Bank PLC, said, “Even during the dollar crisis in our country, there were no issues with importing fuel or edible oil. Therefore, such claims are baseless. A certain syndicate operates in the edible oil sector in Bangladesh. Almost half of the products is sold while still on the ship. There is no problem with LCs issued by banks; it is a supply chain issue. The leading edible oil producers have been importing for a long time. Their international ratings are excellent, so there is no reason for any problem. The import of edible oil should be open to everyone. And the government should strictly monitor product quality. When supply increases, prices will automatically decrease. Our storage capacity is extremely weak. We must develop the capability to store products for a specific period.”
According to Bangladesh Bank data, edible oil imports amounted to $706.4 million from July to October 2023-24. On the other hand, imports during the current fiscal year’s July-October period amounted to $665.9 million, marking a nearly 6 percent decline in edible oil imports. Similarly, compared to the same period in FY 2023-24, oilseed imports during this fiscal year fell by approximately 11 percent, totaling $254.1 million. Due to the rising cost of the dollar and the global increase in edible oil prices, the quantity of edible oil imports has decreased compared to the same period of the previous year (July-October). Industry stakeholders believe that the recent edible oil supply shortage in the country is largely attributable to reduced imports.
During a recent visit to Malaysia, Commerce Adviser Sk Bashir Uddin requested expedited arrangements to supply refined palm oil to Bangladesh through the Trading Corporation of Bangladesh (TCB) ahead of Ramadan. He made this request during a meeting with Johari Bin Abdul Ghani, Malaysia’s Minister of Plantation and Commodities. According to a press release from the Ministry of Commerce at the time of his visit, the Malaysian minister responded positively to the request and assured that, under his government’s sponsorship, discussions would be held with local businesses to take prompt and effective measures to supply refined palm oil to Bangladesh on a business to government (B2G) basis.
On the impact of the credit rating downgrade, SK Bashir Uddin remarked, “All commodity letters of credit require ‘add confirmation,’ which depends on the country’s credit rating. When the credit rating decreases, the cost of confirmation increases. The slight decline in our rating may lead to a small increase in costs.”