Palm cooking oil: Of govt subsidies and leakage of taxpayers’ money

KUALA LUMPUR: Up until last month, unscrupulous people smuggling subsidised cooking oil out of Malaysia had resulted in the government incurring RM540 million losses a year.

Second Finance Minister Datuk Johari Abdul Ghani said that every month, the government subsidised up to 85,000 tonnes of the household staple when the consumption of the nation was only at 40,000 tonnes.

The 40,000 tonnes baseline is based on a generous assumption that Malaysia’s 30 million population uses 1.3kg per person, each month.

The government had repeatedly highlighted that businesses, including petty traders selling banana fritters and fish crackers, can afford to consume market-priced cooking oil.

Restaurateurs and hawkers should not buy subsidised cooking oil meant for household consumption.

For every tonne of subsidised cooking oil, Johari said, the government pays RM1,000 when the market price of palm olein is around RM2,700 per tonne. The threshold price of subsidy payment was set at RM1,700 per tonne.

“When RM45 million is multiplied by 12 months, it amounts to RM540 million in leakages per year. So, who is reaping the benefits?” he asked.

Under the 2016 Budget, the government allocated RM600 million to subsidise palm cooking oil. At 85,000 tonnes a month, the amount needed would have been more than RM1 billion.

Malaysia’s 25 palm oil refineries process crude palm oil received from mills into palm olein, commonly known as cooking oil.

Out of 19 million tonnes of cooking oil produced in a year, about a million tonnes is to be sold domestically at a subsidised price of RM2.50 per kg.

Since 2007, the government has been subsidising palm cooking oil. The government dishes the subsidies by issuing quotas. Legitimate quota holders are usually small, medium repackers who distribute to grocers and retailers.

In recent years, the amount of subsidies had swelled to more than RM1 billion a year as the volume of monthly quota burgeoned to 85,000 tonnes per month.

Are all 85,000 tonnes held by legitimate quota holders?

If Malaysia consumes 40,000 tonnes of subsidised cooking oil per month, can it be said that the other 45,000-tonne quota is held by people taking advantage of taxpayers’ money by smuggling the kitchen staple out of Malaysia?

In efforts to streamline subsidised cooking oil into more targeted household consumption, the government had stopped subsidising bottled cooking oil and raised the subsidy threshold price.

Since early this month, Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Hamzah Zainuddin said the price of cooking oil in 1kg polybags would remain at RM2.50, whereas those packed in bottles would be sold at market prices.

The government raised the threshold price for subsidy payments to RM2,300 per tonne from RM1,700 per tonne. The monthly supply quota of subsidised cooking oil was reduced to 65,000 tonnes from 85,000 tonnes.

Currently, the market price for palm cooking oil is at RM2,900 per tonne. At the new threshold price of RM2,300 per tonne, the government would be forking out RM39 million in cooking oil subsidies per month.

Going back to the 40,000-tonne baseline monthly consumption for Malaysia, can it be implied that 25,000 tonnes of the 65,000 tonnes of subsidised cooking oil is not consumed in Malaysia but is illegally exported out of Malaysia?

This translates into RM15 million out of the RM39 million cooking oil subsidy paid by the government for the month that is not accounted for.

Let’s say the market price for palm cooking oil stays at RM2,900 per tonne for the next 12 months, the annual leakage of taxpayers’ money would amount to RM180 million.

The simple solution of stemming taxpayers’ money leakages is to only produce what is needed. Anything more than that may be illegally exported.

The government should allocate taxpayers’ money for only 40,000 tonnes of palm cooking oil per month. During festive months, the government can raise the subsidised cooking oil quota to 45,000 tonnes.

By further reducing the current monthly quota for subsidised cooking oil from 65,000 tonnes to 40,000 tonnes, the government would half the annual subsidy to RM500 million, instead of more than RM1 billion, in previous years.