PALM OIL CRISIS

Price Control & Shipment Curb On Palm Oil by Indonesia 

    Indonesia, the largest producer and exporter of palm oil, has been reeling under domestic shortage of the same product for some time that compelled govt. to take extreme measure in the form of introducing price control and curbing on shipments of palm oil. This leads to hoarding of the product and creating chaos in the country, leaving two dead as reported. 

    There are multiple reasons for this crisis such as supply side constrained due to Russia-Ukraine Crisis - especially soyabean and sunflower. As 80% of this comes from these two nations comparable to 90% palm oil from Indonesia and Malaysia; Due to dry weather problems in South America, Soyabean oil is also under dire problems. The US Department of Agriculture (USDA) has projected the combined soyabean output of Brazil, Argentina and Paraguay for 2021-22 to fall by 9.4%, translating into the continent’s lowest harvest in six years. The US-China trade dispute led China to switch to palm oil to reduce its reliance on American soybeans.

    The other prominent factor for crisis is palm oil linked to bio-fuel. Since 2020, Indonesia has been blending 30% diesel with palm oil mandatory as a plan to cut fossil fuel imports (Malaysia is still to fully implement even 20% palm oil admixture in diesel). The country’s domestic consumption of palm oil is forecast at 17.1 mt, of which 7.5mtis for bio-diesel and the balance 9.6mt towards household and other use. This leaving less quantity available for domestic use and export market. Also, Indonesia levied a progressive tax on exports that added fuel to fire. The COVID-19 pandemic also affected harvests in palm oil-producing countries such as neighbouring Malaysia, as migrants who usually work on the plantations were locked out of the country. 

    The massive problem with palm oil is that the majority of oil palm plantations in Indonesia are owned by only a few people, maybe 20 at most. These people don’t just own the plantations either, but also the entire industry infrastructure such as the factories and everything else. So they have a monopoly on the industry and a monopoly on the price of palm oil. Solving a complex problem about a sector of the economy that is dominated by private companies is hard nut to crack. With rising crude prices in international market is no less than a worry at all. In addition to rainy weather leading to floods adversely impacting crude palm oil production in Malaysia, pandemic-related labour mobility issues, supply chain bottlenecks, and high shipping tariffs have contributed to Indonesia’s predicament.

    India is the world’s biggest vegetable oils importer. Out of its annual imports of 14-15 mt, the lion’s share is of palm oil(8-9mt), followed by soyabean (3-3.5mt) and sunflower (2.5mt). Indonesia has been India's top supplier of palm oil, though it was overtaken by Malaysia in 2021-22. However, import prices of edible oils have eased from their last month peaks, although higher than one year back. That should provide some relief, both for households and industrial consumers (including soap and cosmetic makers) in India.

    No doubt, aforesaid problems have given rise to inflation and will push over 40 million people into extreme poverty, the Centre for Global Development (CGDEV) said, warning against export curbs and sanctions on Russian food production. It’s high time the govt. acted in right course to tackle aggrandising situation. They should work on basics. It would be better for Indonesians to reengage with their local wisdom so that their lives are no longer dependent on industrial products, particularly in the realm of food — knowledge that is still safeguarded by Indigenous communities in Indonesia.