The government has attributed the increase in prices of many essential goods to higher transport costs and shortage of intermediate raw materials worldwide precipitated by the Covid-19 pandemic.
Finance Minister Matia Kasaija told journalists on Tuesday, 22 March 2022 that the full opening of economies globally following relative containment of Covid-19 has led to a rapid rise in aggregate demand for a number of fast¬moving-goods beginning with oil, yet production levels had been constrained by Covid-19 restrictions.
“The situation has been worsened by the Russia-Ukraine conflict which has further disrupted supply of oil, cereals such as wheat, corn, and sunflower oil, as well as essential metals like aluminium and nickel. The two countries are major producers and exporters of these commodities,” he said.
Locally, the minister explained that the prices of cooking oil and laundry soap haverisen mainly due to the rising price of crude palm oil at international markets.
“Approximately 70% of crude palm oil used as an input in production of these two commodities is imported. Manufacturers import this raw material mainly from Malaysia and Indonesia-the two leading surplus producers of palm oil. In 202 1, the two countries accounted for 84% of palm oil exports (Indonesia 59% and Malaysia 25%),” he explained.
In the past two years, the minister explained that crude palm oil prices have almost doubled driven mainly by two factors: Increased demand for palm oil, driven by the growing importation by China and India-the two largest buyers of palm oil globally, and severe labour shortages in Malaysia due to Covid-19 protocols, export restrictions introduced in Malaysia and Indonesia that limit the export of crude palm oil as well as extreme weather conditions in Malaysia and Brazil which have affected palm oil production.
“In addition, the decrease in the global sunflower and soybean oil exports from Brazil, Peru, Argentina, which are close substitutes of crude palm oil, has increased the demand for palm oil and related products thereby propping up the prices,” he explained.
Mr Kasaija said domestic fuel prices have also increased considerably mainly due to two increase in international oil prices by over 70% between January 2021 and February 2022 leading to the rise in domestic pump prices, and impact of the recent fuel shortages caused by a strike at the Uganda-Kenya border in Malaba related to Covid- 19 testing requirements.
“The rise in domestic fuel prices has partly contributed to increase in the distribution costs for the manufacturers since they rely on trucks to transport both raw materials and final products to markets,” he explained.
While the recent increase in the prices of some essential items, especially laundry bar soap and cooking oil, is a cost-driven phenomenon explained majorly by international factors, the minister warned that some unscrupulous speculators are taking advantage of the situation by hoarding essential commodities in order to create artificial supply shortages and drive-up prices.
“We are working with the relevant agencies to investigate this matter and we will take action against any operators found to be engaged in this practice,” he said.
The minister also explained that Government through Bank of Uganda will continue to monitor the situation and respond, whenever necessary, with appropriate monetary policy to ensure inflation stays within target and maintain macroeconomic stability.
“We should not panic or alarm our people. This is a temporary situation that is going to subside sooner or later,” he said.
The minister said the environment of high global commodity prices presents opportunities for Uganda to take advantage of.
“The global shortage of palm oil, sunflower, and
soybeans provide an opportunity for Uganda to scaleup production of the commodities to replace the imported content. Government had already foreseen shocks that may arise from disruptions in countries where we import raw materials and embarked on mitigating actions. We have partnered with BIDCO to grow palm oil in Kalangala and will provide more land to BIDCO and Bukora Ltd in Sango Bay to grow rmore palm oil. In addition, we are also working with 40, 000 farmers in northern Uganda to grow sunflower and soybeans for manufacturing oil,” he said.
To cushion consumers against high fuel prices, he said government – through the Ministry of Energy and Mineral Development is re-considering its regulatory role in the domestic fuel market to ensure that fuel price movements are a true reflection of the economic environment. In so doing, we will benchmark the approaches taken by our neighbors in the region.