A few weeks before Jakarta announced that it would ban the export of palm oil, officials of a party backing President Joko Widodo urged Indonesians to start boiling, steaming and roasting food instead of frying them as the price of edible oil surged, according to a Bloomberg report. Rising food prices had even prompted Jakarta to deploy Indonesian police for a 24-hour surveillance of cooking oil production and distribution. The move could tame domestic food prices but it also sent the price of palm oil soaring and heightened fears that global food inflation would further accelerate.
The Philippines is a major buyer of palm oil from Indonesia, based on figures released by the Philippine Statistics Authority. In its annual Foreign Trade Statistics, the PSA said the Philippines imported nearly $255 million (P12.75 billion) worth of palm oil from Indonesia in 2020. Of the figure, palm oil in packages of net weight exceeding 20 kilos accounted for P1.59 billion, while palm kernel olein (refined, bleached and deodorized or RBD) accounted for P11.11 billion.
In the same report, the PSA revealed that the Philippines imported nearly P20 billion worth of palm oil from Malaysia in 2020. Indonesia accounts for more than half of the world’s palm oil exports, while Malaysia is the second largest producer of palm oil. Jakarta’s decision is expected to put pressure on the price of palm oil from Malaysia, which could not raise output to fill the demand for the commodity due to a labor shortage.
The world has a huge appetite for palm oil as it is used in thousands of products, from food to personal care items to biofuels. Prior to the decision of Jakarta to ban the shipments of palm oil, nations that import edible vegetable oils are already grappling with the disruption caused by the war in Eastern Europe. Russia’s invasion of Ukraine sent prices of sunflower oil and other alternatives, such as soybean oil, to record highs.
The Food and Agriculture Organization’s food price index in March showed significant across-the-board price increases for everything from cereals to sugar, pushing the weighted average of global prices up 12.6 percent from February. Vegetable oil prices took a particularly steep path, rising by 23.2 percent and hitting a record high. Indonesia’s palm oil export ban will only worsen the global situation.
The Philippines is already feeling the effects of the conflict in Eastern Europe, based on the March inflation data from the PSA. Last month, food inflation rose to 2.8 percent, from 1.1 percent in February, although the figure is lower than the 5.6 percent recorded in the same month in 2021. The PSA noted that faster annual growth rates were seen in flour, bread, pasta, meat, fish, sugar, and ready-made food.
The Philippine government has already reduced the tariff on corn imports and extended the current duties on pork and rice to mitigate the impact of the Eastern Europe conflict on food prices (See, “Govt turns to tariff tweaks vs. inflation,” in the “BusinessMirror,” April 25, 2022). The recent development in the international vegetable oils market, however, points to the need to make further tweaks to the food supply strategy of the Philippines. Policymakers should keep in mind Jakarta’s pronouncement that it will not lift the ban on palm oil exports unless the domestic shortage is resolved.