The prices of global commodities have soared over the past two years which is fueled by variety of factors, including supply shortages, disruption in supply chain, manpower shortages, and increasing energy prices. Prices of major traded edible oils have also increased significantly in the last two years and have reached record high levels. Many countries particularly the developing economies and third world countries have been greatly impacted by the high prices. The recent Ukraine-Russia conflict has worsened the situation with the Russian blocking Ukrainian Black Sea ports that led to delays in shipments.  

Bangladesh is one of the countries that has been greatly affected by the higher global commodity prices and increasing pressure in inflation due to the war in Ukraine. After an economic recovery in the year 2021 and poverty rate was reportedly declined, a recent survey data by The World Bank pointed otherwise. The survey reported that Bangladesh suffered from persistent job losses and reduced earnings due to the COVID-19 pandemic and women in the countries are the major group that has been hit hard. Due to declining trend in economy together with high prices of edible oils, consumption of edible oils has been affected badly. Limited purchasing power of major segment of population contributed greatly to the declining trend of overall consumption of oils and fats.

For the first five months of 2022, Bangladesh imported a total of 1,038,839 million MT of oils and fats, 21% lower as compared to the same period last year. Rising high prices of edible oils including palm oil and uncertainty following the war in Ukraine are the major drivers behind the decline. The World Bank has reported that Bangladesh’s export has been greatly affected by weaker global demand that resulted in the decline in the purchasing power including edible oils. Potential new waves of COVID-19 that could force further containment measures have also resulted in the country’s economic disruptions.

Total Oils and Fats Import (MT)
	Jan-May 2022	Jan-May 2021	Change (Vol.)	Change (%)	Jan-Dec 2021
Crude Palm Oil	0	0	0	0	2,000
RBD PO & RBD PL	449,834	613,111	-163,277	-26.6	1,357,228
Crude/RBD PS	12,935	15,186	-2,251	-14.8	39,363
Crude Degummed SBO	319,955	381,154	-61,199	-19.1	755,541
CSBO (from imported soybean)	183,744	180,560	3,185	1.7	418,633
Coconut Oil	9,492	10,626	-1,134	-10.7	16,131
Others	62,879	114,829	-51,950	-45.2	246,659
Total	1,038,839	1,315,466	-276,627	-21.0	2,833,555

Source: MPOC Bangladesh

While the total Bangladesh edible oils imports experienced a decline in the first five months of 2022, Malaysian palm oil (MPO) exports to Bangladesh has increased to 104,629 MT up until end of May 2022 from 57,062 MT during the same corresponding period of last year. This volume represents an increase 83.4% if compared to the same period of 2021 according to the official data released by MPOB. The main reason for higher imports of palm oil from Malaysia was the shortage of Indonesian supply due to their Domestic Market Obligation (DMO) as well as Indonesia’s palm oil export ban that took place early this year which prompted Bangladeshi buyers to source more palm oil from Malaysia. The demand particularly rose during the Ramadhan followed by Eid celebration thereafter. According to local industry sources, the newly opened jetty in the country further drove up palm oil demand. The price competitiveness of MPO vis-à-vis Indonesian palm oil (IPO) has also contributed to the higher palm oil intake from Malaysia.

MPO Exports to Bangladesh by Type of Products (MT)
	Jan-May 2022	Jan-May 2021	Change (Vol.)	Change (%)
RBD Palm Olein	92,345	54,002	38,343	71.0
RBD Palm Oil	8,061	193	7,868	4082.3
PFAD	1,360	272	1088	400.0
RBD Palm Stearin	1,082	1,284	-202	-15.7
RBD Palm Olein for RSPO From Segregated	922	1,026	-105	-10.2
CO/DPL	446	22	425	1941.1
PMF / RBD PMF	377	243	133	54.8
Others	36	20	16	80.0
Total	104,629	57,062	47,567	83.4

Source: MPOB

Key Sectors for Palm Oil and Projection for 2nd Half of 2022

The World Bank has projected that Bangladesh’s GDP is expected to maintain robust growth in the medium term for this year. Real GDP growth is projected to decelerate modestly to 6.4%, driven by slower manufacturing sector growth that will certainly have an impact on the consumption and demand. This projection will have an impact on general consumers, shortening & vanaspati manufacturers as well as the HORECA sector, the three major sectors, who are also the leading consumers of palm oil in the country. All these major sectors together consume the entire quantity of palm oil imported into Bangladesh General consumers hold the biggest market share at 50%, followed by shortening and Vanaspati industries with 30%, whilst the food processing industries and HORECA sector both hold an equal market share of 10% each.

In March this year, the Government of Bangladesh has reduced Value Added Tax (VAT) on both imported palm and soybean oil from 15% to 5% in a bid to curb the high prices thus providing relief to the consumers. The reduced VAT is applicable for the imports of refined soybean oil, non-refined soybean oil, non-refined palm oil and other including refined palm oil. The reduced VAT amount will be applicable until 30 June 2022. The Government has also revised the import tax on canola, sunflower oil and olive oil from 32% to 10%. Although the reduced tax will result in soft oils being more competitively priced, palm oil will still hold strong competitive ground in the country. The withdrawal of export ban on palm oil by Indonesia will also have an impact on the demand for palm oil from Malaysia. Imports of RBD palm oil and RBD palm olein into Bangladesh could increase now that main supplier Indonesia has withdrawn the restriction on its palm products exports.

Although Bangladesh’s economic recovery post COVID-19 is overshadowed by higher global commodity prices and pressure from the rising inflation rate that will certainly have an impact on the food sector, there is one particular industry in the food sector that is worth mentioning. The biscuit industry is one of the sectors that has thrived during the pandemic. According to the Bangladesh Auto Biscuit and Bread Manufacturers Association (BABBMA) and Bangladesh Bread, Biscuits and Confectionary Prostutkarok Samity (BBBCPS), the sector’s revenue reached 70 billion BDT in 2021, about USD 824 million. Bangladesh’s annual biscuit production is around 0.51 million tonnes with per capita annual consumption at 2.8kg, third in South Asian region. The rising middle-income group of consumers is what drives the surging demand for diverse-packet snacks in the local market.

Apart from the rising local consumption, exports of biscuits also increased substantially to USD 55 million during the fiscal year 2020-21 according to news report, reflecting a huge potential of this sector in the global market. Surging demand during the pandemic also helped the sector achieve more than 22-25% growth in the last one and a half years against the average growth of 10-12% before the pandemic started. The fast-growing demand in the sector has attracted many investments from companies that resulted in large-scale of production. Domestic manufacturers now meet 97-98% of the local demand for biscuits and industry analysts believe that the growth will continue in the next few years.

The growth of Bangladesh’s food industry will continue to drive the demand of oils and fats particularly palm oil. However, considering the economic factors and the aftermath of COVID-19 impacts, the second half of 2022 will most likely see a further decline in oils and fats imports into the country at a rate of between 8% to 10%. Palm oil import is projected to be at 1.2 million MT, which would be 10% lower compared to 2021. As a price sensitive market, Bangladesh will continue to be heavily influenced by commodities’ prices. Malaysian companies must be able to offer competitive prices to the Bangladeshi buyers and start looking for joint-ventures in the sectors that have proven profitable in the domestic market.

Prepared by Azriyah Azian

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