If you ban vegetable oil imports you’ll get punched in the mouth…

By Professor Mwiine Lubemba

There’s no dispute. There’s absolutely nothing we can do to stop the Minister of Agriculture from accepting whatever he thinks is the best advice from the best of brains at his disposal. He has the power to ban imports of all produce he thinks will affect local production—even milk if it pleases him and vegetable oils in particular… All we can do is wait for that time in the future when we can giggle and say…See?

I can’t remember the exact source of this pro- free market line bellow, but I’ll use it all the same…

“Substituting market driven capitalism with government intervention is a recipe for disaster.”

In the world of politics, Zambians rejected UNIP socialism for a free market economy and only last week, the people of Venezuela rejected socialism and ended the legacy of Hugo Chavez socialism with a good punch in the mouth.

But even our own 1992 free market capitalism came at a price. Government loss making companies were sold others were mothballed. Unemployment soared. Imported goods and services were plenty but came in with a free market price tag. Therefore, as comfortable as we may be with the successes of free market capitalism, we must also be aware of its failures in such situations as rising wealth inequality, long-term unemployment, threats to the environment, out of control medical and education costs, workers inequality, consumer protection etc. Hence, although the free market can fairly and efficiently distribute most goods and services, it may not be the best system for all goods and services.

I hear you ask—- So what’s good for Zambia?

A friend, with a PhD in Development Economics objects when he hears ‘inequity’ characterized as market failure. Rather, he holds that markets are not responsible for fairness. Fairness is a political or social issue, not an economic one—he says. Nevertheless, I’m of the view that some market rules magnify inequality, while other market rules result in greater fairness…

My colleague also moderated and debated two doomsayers who are expecting a major bear market in the economy “soon.” The panel debate took place a few days after President Edgar Lungu’s address to the nation. It reconfirmed to everyone that the free market can be tamed once political stability and confidence is firmly confirmed in an economy.

Some pundits have been panicking and predicting a market crash during the Middle East oil crisis in 1973. We’ve adopted Mike Tyson’s famous saying for our headline today, “Everyone has a plan until they get punched in the mouth.” Well, it looks like the Zambian economy can take a punch. The kwacha rallied sharply against the U.S. Dollar since the Presidential address two weeks ago and has not looked back. The loud outbursts from politicians and clergy are silent as if a hard punch has landed on their mouth. The kwacha has been moving up and down moderately trading an average K10.35, but not enough for us to get excited.

The bull market is still in place, even as several sectors have rotated from hot to cold (mining and manufacturing) or cold to hot (financial and construction).

A whole series of bad news has threatened the Zambian market, including a stock market crash in China and now a butterfly effect coming from major terrorist attacks in Paris-France, San Bernardino in California U.S.A. and the Middle East. “Bull markets climb a wall of worry.” Read a headline in the Wall Street Journal.

Commodity guru Dennis Gartman observes, “Markets that will not go down on bearish news are not bear markets.”

But a weak Chinese economy is not the only phenomenon affecting the Zambian economy. Uncertainties in most developing economies have stalled growth and demand for energy infrastructure construction—they’re still abounding for copper. Watching the Bloomberg Chanel recently raised these and additional fears, Euro Pacific Capital’s Peter Schiff and commodity trader Ziad Abdelnour, the two bears on the panel, raised legitimate concerns about the future of America: too much debt, trillions of dollars in unfunded liabilities in Social Security and Medicare, a weak economic recovery and bubbles in the housing market and Treasury securities. Eventually, they said, it’s all going to come crashing down.

When I mentioned the worries to my daughter a CFA, that the same arguments have been made over the past 50 years, and America has survived and prospered anyway, she refused to back down. “That’s history, Dad,” she said, “the future will be different. America is in deep trouble.” She may well be right.

But I think there are two main reasons why America has survived and postponed an economic Armageddon these many years. First, the bears underestimate the power and determination of the Federal Reserve to keep the system afloat.  And second, American ingenuity has always kicked in to adapt and respond to crises. Since the financial crisis of 2008, American banks and corporations have become more agile in cutting costs to the bone, and they have stronger balance sheets as a result. Never underestimate American ingenuity.

I’ve deliberately used this American economic example. I think Zambian companies and the government must embrace American ingenuity and grow the economy. We have companies that depend on government and want the government to play a bigger role in the market but the government ends up destroying private sector ingenuity.

For example, the Ministry of Agriculture has been running vigorous adverts in the media outlining long – unnecessarily- complicated procedures if you want to import vegetable oils including from COMESA and SADC regions where we’re supposed to have some semblance of free trade protocols.

I don’t know, but it would appear when our colleagues in the Ministry of Agriculture came up with this government mandate they understood vegetable oil to mean that refined vegetable oil used in cooking.  But we must understand that a vegetable oil is a robust triglyceride extracted from a plant, it is also a robust industrial starting raw material for many chemical and pharmaceutical processes. This means even imports of crude and sometimes refined vegetable oils not necessarily for use as edible oils but as starting raw materials in industry  such as in the production of  fatty acids used in the manufacture of soaps, synthetic organic detergents, rubber compounding, synthetic rubber polymerization, paints, varnishes and surface coatings, plastics and plastic  fabrication, lubrication greases and lubricating oils and oil additives, cleaning compounds and polishes, metal working and treating, textile chemicals, cosmetics and toiletries, insecticides, disinfectants and germicides, candles, paper and paper products, metal soaps and above all copper and other nonferrous metal ore floatation applications on the mines, will be difficult to import. This will stall local ingenuity in diversification of agriculture vegetable oils in industry.

Perhaps the Minister of Agriculture doesn’t know that more vegetable oils are used in industry than for house hold cooking. I also don’t know if the Minister of Industry and Commerce is aware of the damage this mandate by the Minister of Agriculture will have on import substitution initiatives and growth of the vegetable oil based industrial and agricultural chemicals industry in the country.

Advocates for greater government intervention in the nation’s vegetable oil markets need to recognize the vital role that vegetable oils provide to human, agricultural and industrial development and ultimate well-being of millions of poor and jobless in the country.

When addressing the use of vegetable oils in particular, words too often outpace and distort reality—it is true that vegetable oils will continue to be the lifeblood of a modern society. First and foremost, affordable, reliable, and abundant vegetable oils improves the quality of life for everyone: It keeps the poor who can’t afford beef, chicken and other exotic relish to feed on a meal of Nshima with an exclusively vegetable based relish such as rape, cabbage, kalembula or, finkubala, kapenta with tomato and onions in vegetable oil. It allows parents living paychecks to pay check to feed their families and have a proper healthcare. This Ministry of Agriculture mandate to ban imports of vegetable oils has already created a shortage and as a result cooking vegetable oil prices have sky rocked with a 2.5 litre pack that used to cost K44 going up to K62. The same pack size with a wide variety of local and imported vegetable oils on the shelves in Nairobi-Kenya is still costing K34.

Duplicating these conditions in the country should be the mission of all our leaders, both private and public. But it is a mission that can only be realized in present time and for the foreseeable future through the use of cheap vegetable oils. Depending on data you want to believe, per capita consumption numbers for vegetable oils in Zambia can be confusing. According to helgilibrary.com the per capita consumption of vegetable oils in Zambia in 2012 was estimated at 4.71 kg all of which was used for cooking compared to 17.1 kg in the UK most of which was used in the hospitality, fast food preparation and packaging industries as well as a starting raw material in the toiletry and chemical industry.

In a recent Daily Nation story, Edible Oil Refiners Association consultant Aubrey Chibumba said Zambia consumes 10,000 tonnes of vegetable oils per month and US$150 million has been invested in the sector to increase the monthly production to 20,000 tonnes. At 10,000 tonnes per month it appears the per capita consumption is already 8.6 kg which works out at twice the 2012 figure and doubling this production capacity without a corresponding increase in consumption levels will translate into a per capita consumption of 17.2 kg, same as the UK-but remember the UK number includes uses of its vegetable oils in the hospitality, toiletry and chemical industry.  But if any of this data is correct, and we’ve no reason to doubt data from the Edible Association of Zambia, except in the absence of increased consumption levels in the country, we can only assume the excess vegetable oils so produced will  be exported to neighbouring SADC/COMESA countries and therein lies our problem—will our neighbours accept to import vegetable oils from us seeing we have made it impossible for our cross border traders to buy/import from them?

We also expected the Institute Of Marketing and of Purchasing And Supply to give their side of the story on vegetable oil exports/imports but not to worry, the excess vegetable oils so produced will provide a large percentage of Zambian domestic food supply, in big part, because of private sector innovation- especially SADC/COMESA cross border import/export traders who’ll take up the excess supply for export yet whose very existence is about to be threatened into extinction by the same government mandates in the vegetable oil sector. Only then, we’ll come to appreciate the usefulness of useless SADC/COMESA cross border traders.

True, without basic agreement on this imperative, there can be no reasonable outcome. The thought of forging comprehensive national strategy that condemns most of the nation’s population to paucity without vegetable oil supply cannot be tolerated, and it certainly will not happen. It’s naivety at best to believe so. Secondly, to suggest that Zambia should forge a program to drastically limit imports of vegetable oils and the use of imported vegetable oils is reckless posturing. Any strategy or program must be dedicated to improving industry diversification and people’s lives. Preventing people and start up industries access to cheaper imported sources of abundantly available vegetable oils in the SADC and COMESA region today would have the opposite effect.

There are some who feel the government needs to impose a vegetable oil tax on companies who import in order to spur the private sector to invest more heavily in research and development of local vegetable oil production. While this thinking may be well intentioned, it lends itself to government subsidizing and mandating inefficient alternatives. Such a tax would do much more harm than any good.

If vegetable oil imports and use were to be restricted as demanded by some in favour of government-preferred alternatives, you could undoubtedly expect far worse industrial, diversification and societal struggles. Substituting market capitalism with government intervention to solve any problem is a recipe for corruption and disaster. Moreover, such an approach will harm individuals such as actions intended to help-the least fortunate amongst us. Government intervention-picking winners and losers in the marketplace-has consistently proven government’s penchant for picking losers.

After all, I do not recall a tax or outright ban on Wooden Furniture and upholstery products leading to the development of local furniture manufacturers at Buseko market and indeed in townships by local entrepreneurs. There has been an outcry about a contract for Text Book printing that has been awarded to a foreign printer when there’s over capacity in the local printing industry. The country has capacity to produce all types of shoes and other footwear but a ban on imported shoes has not been implemented. How about salt, toilet soaps, tooth paste, imported compound fertilizers when NCZ has the capacity to blend, explosives, ammunitions from Mupepetwe factory in Kanona, toilet paper and diapers, soft drinks-and most other items that are or can be locally manufactured. What is so special about vegetable oils which everyone assumes means edible cooking oil? As we move forward, let us have a constructive debate and carefully consider what choices will make people’s lives better and what assets will be most impactful.

So, we see that; fats and oils are used throughout the world for both food applications and industrial uses. They are consumed in butter, shortening, margarine, salad oils, and cooking oils, as well as in animal feeds, fatty acids, soaps, personal care products, biodiesel, paints (made from alkyd resins), lubricants, and greases. And we need to grow these industries.

The sources of fats and oils include edible vegetable oils, palm oils, industrial oils, animal fats, marine and exotic seeds oils. Food applications account for the major share (about three-fourths) of the worldwide consumption of fats and oils.

However, there has been a continued shift from food to industrial consumption, particularly in biodiesel. In Europe, this has been due mainly to the increased use of rapeseed oil for biodiesel production. In Central and South America, soybean oil has also increased in use for biodiesel as a result of country mandates. Also, industrial applications of other oil crops are being further studied and developed. For this, industrial uses of fats and oils are expected to continue to increase worldwide.

World consumption of fats and oils is driven mainly by Asia, which accounts for 48% of the world total. China and India together make up 30% of the world total. Chinese demand is mainly for soybean oil which she imports from South America- Brazil and Argentina, followed by canola and palm oils. India is a major consumer of canola oil, as well as palm oil and butter. Both countries expect continued strong growth. Indonesia and Malaysia also contribute to overall consumption, especially in palm oil demand.

So we see that it’s the private sector that can—and is—investing heavily in local vegetable oils production and usage to import from the SADC and COMESA regions that will provide us with a robust vegetable oil supply chain for the manufacture of edible cooking oil as well as the massive amounts that will be required for industrial starting raw material use. And while the government should encourage such innovations, it must get out of the way so that these innovative alternatives can help develop in line with the market demand—not mandate.

As it stands, Zambian ingenuity and industrial diversification of vegetable oil uses will stall— and true to Mike Tyson’s words, unless the folks at the Ministry of Agriculture are stopped from restricting vegetable oil imports until we’re self sufficient, we’ll all get sucked into the brawl and we’ll surely get punched in the mouth.

Just a thought,