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Tuesday October 2, 2012

Time to revise subsidy for cooking oil?

EVERY year the Government will give out more than RM1bil in subsidy to help stabilise the price of cooking oil. Under Budget 2013, the subsidy proposed is RM1.5bil, which is slightly lower than RM1.7bil this year.

For a clearer understanding of the issue, the Government had started subsidising cooking oil since 1992 based on the price of the raw material - crude palm oil (CPO) which was trading at between RM1,700 and RM2,500 per tonne.

However, once the CPO price threshold reaches RM2,500 per tonne or above, Peninsula-based oil palm plantation players will be imposed a 15% windfall profit tax (WPT). For Sabah and Sarawak oil palm planters, a 7.5% WPT is imposed should the CPO price hit RM3,000 per tonne or above.

Apart from the subsidy, the WPT collected from the planters is also meant to help subsidise the price of the country's cooking oil.

Therefore, given the highly-subsidised nature of Malaysian cooking oil - the consumer item is sold at a much cheaper at RM2.50 per kg compared with almost doubled the price in neighbouring countries like Thailand and Indonesia.

It is worth to point out that the subsidised cooking oil is meant for the targeted household consumers group.

However, in reality, 30% to 35% of the subsidised cooking oil often goes into the wrong hands - restaurant operators, hawkers and small-scale food-based industries.

Some quarters also claimed that 10% of the total domestic subsidised cooking oil quota was smuggled into neighbouring countries.

Another issue which often crops up is that whenever a festive season is approaching, there will bound to be a shortage in subsidised cooking oil despite Malaysia being one of the world largest CPO producers and the raw material is plentiful the whole year through.

Therefore, the question raised by oil palm planters is why isn't the Government considering to revise or gradually reduce the cooking oil subsidy similar to the revision on the subsidies for sugar and petroleum?

Why is the Government still forking out billions in terms of cooking oil subsidy annually when the subsidy for the lower income group is estimated only at RM100mil to RM200mil a year?

It is sad to see that the subsidised oil goes to the non-targeted groups or is being smuggled out of the country for profiteering purposes.

Hence, some quarters believed that it was indeed high time to revise the mechanics of the local cooking oil subsidy introduced some 20 years ago.

One thing for sure, after many years of having the privilege of subsidised cooking oil, the non-targeted group should be made to purchase cooking oil at the average market price of RM3.00 to RM3.50 per kg instead of the subsidised price of RM2.50 per kg.

Furthermore, the current CPO price has already fallen by 19% this year and is trading below RM2,500 per tonne.

This means the Government will have to fork out subsidy for cooking oil and the WPT from the local plantation companies will no longer apply as the CPO price had fallen below RM2,500.

  • To lessen the Government's burden on cooking oil subsidy, deputy news editor Hanim Adnan wonders whether Malaysia should consider introducing the 1Malaysia cooking oil concept?

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