The edible oil industry is on the brink of collapse, with the number of fully operating factories plummeting from 60 three years ago to just four. Over 20 manufacturers have permanently closed, while many others produce only sporadically.
Rising raw material costs and economic instability have left manufacturers struggling. Industry players are calling for urgent policy reforms, including imposing customs duties on imported oils and exempting raw materials from VAT.
The Ethiopian Edible Oil Producers & Manufacturers Association (EOPMA) recently appealed to Finance Minister Ahmed Shide, warning that policy misalignment, tax adjustments, and unchecked imports have pushed the industry to the edge of collapse. Manufacturers argue that immediate action is needed to prevent further closures.
Local edible oil processors are losing market share as cheaper imported products dominate the market, driving consumer preference away from local alternatives. Many manufacturers have reduced production or shut down entirely due to higher factory gate prices for local oils compared to imported ones.
Mohammed Yusuf, board chairman of the Association, plans to lobby for higher duties and taxes on imported oils to support local producers. He argues that equal import duties on raw materials and finished products create an unfair playing field. He says the shortage of essential raw materials such as soybean, sunflower seed, sesame, and palm kernel, along with rising costs are major factors forcing manufacturers out of business.
“Imported oil must face duties,” Mohammed said. “The current conditions discourage new players from entering the market.”
VAT requirements have further raised production costs, inflating the final prices of locally produced oils. Over recent months, the price of a five-litre bottle of local edible oil has jumped by 300 Br (30pc) reaching 1,300 Br. The Association blames these increases on the new VAT levy.
The Association has appealed to the Ministry of Finance (MoF) for duty on imported oil and tax exemptions for local manufacturers but has yet to receive a response.
Abay Edible Oil, a new entrant in Bahir Dar, has a plant capable of producing 200,000 litres of soybean oil daily. However, a severe soybean shortage has hindered operations.
Esubalew Mengesha, the deputy manager, stated that the company sources less than half of the 30,000 quintals of soybeans it needs daily. Soybean prices have doubled to 6,000 Br per quintal in the past four months, cutting production capacity by 80pc. The company is lobbying for VAT removal, as it has sharply raised the final price of a five-litre bottle from 900 Br to 1,160 Br.
Esubalew also says transportation costs have risen by 100pc in recent months, further straining the company and the industry. “We are really struggling,” he said.
Local producers, who could meet half the country’s demand, face forex shortages and what they call unfair competition from importers. Duty-free conditions on both raw materials and imported edible oils favour importers, reducing the local producers’ market share to five percent.
Rising cooking oil prices have hit ordinary citizens hard. Tigist Adane, a teacher, noted that the price of a five-litre bottle in her area has climbed to 1,400 Br from 1,000 Br within a few months. This comes amid surging prices for other staples, such as teff, now at 15,000 Br per quintal, and onions, at 110 Br a kilogram.
“It’s hard to afford anything anymore,” she lamented.
The federal government’s new tax strategy seeks to boost VAT collections and raise the tax-to-GDP ratio by 0.5pc this year. This aligns with a broader tax reform plan agreed with the International Monetary Fund (IMF) in July, which targets a four-percentage-point increase in the ratio by 2027/28 through VAT reforms and other measures.
The government’s tax collection target for this year has risen to 1.5 trillion Br, including 170 billion Br from VAT.
Mohammed said recent price hikes stem solely from new tax levies. He told Fortune that his appeals to Ministry officials during discussions on the tax amendment bill were unsuccessful.
The Ministry introduced a directive last year to establish a tax management system to combat counterfeiting, track goods, verify stamps, and meet international standards.
Mulay Woldu, tax policy director at the MoF, stated that tax exemptions on imports were temporary measures during the pandemic when inflation hit 32pc. He argued there is no evidence local manufacturers can meet demand and that consumer-based policies are necessary. The Ministry has asked the Ministry of Industry (MoI) to study local manufacturers’ capacity.
“We cannot take policy measures without proper evidence,” Mulay said. He stressed the need to protect citizens from inflation caused by supply shortages or surges in demand.
A report by the Ministry of Trade & Regional Integration (MoTRI) shows annual demand for edible oil is around 1.1 billion litres, with local production covering less than five percent and imports accounting for 95pc.
Tilahun Abay, head of strategic affairs at the MoI, says that cooking oil is a critical food staple for low-income households and suggested it should be tax-exempt. “Assessments are being made on our side,” he said.
A US-based think tank, Urban-Brookings Tax Policy Centre says that VAT disproportionately impacts lower-income households. Ethiopian Customs Commission data shows 2.2 billion litres of edible oil were imported over the past three years, mainly from Djibouti, Malaysia, and Turkey, with 741 million litres imported last year.
Kassaye Ayele, customs tariff director at the Commission, says that essential goods like edible oil received VAT exemptions three years ago to counter inflation during the COVID-19 pandemic.
Tax expert Tadesse Lencho (PhD) warns that tax revenues often place a heavy burden on consumers, particularly fixed-income earners who struggle with inflation. He argues that imposing tariffs on imported edible oils is a flawed protective policy. It will not solve competitiveness issues and will increase agricultural produce prices, ultimately hurting exporters and consumers.
Tadesse stresses the importance of balancing tax policies. “Policies should prioritise consumers over manufacturers or importers,” he said, calling for thorough analyses of tax impacts to avoid ripple effects.
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